ITT’s spectacular rise and fall, by Evgeny Morozov (Le Monde diplomatique

Two weeks after Augusto Pinochet’s bloody coup on 11 September 1973 abruptly ended Salvador Allende’s rule in Chile, someone made a mysterious late-night call to the New York Times. ‘Take this down,’ said the impatient caller, ‘because I am only going to say this once.’ A tip-off. Something big was about to happen. ‘At the ITT‐American building, a bomb is going to go off in 15 minutes.’ And there was more: ‘This is in retaliation of the ITT crimes they committed against Chile’ (1).

At the time, ITT was one of the largest corporations in the world, ninth on Fortune’s list of the top 10 biggest companies. Its illustrious board featured a former director of the CIA and an ex-president of the World Bank — just the kind of people to steer one of America’s largest defence contractors through the Vietnam war. The company was fiercely proud of its place in the military-industrial complex. ‘To see in the dark, see ITT. The night no longer belongs to the guerrilla,’ proclaimed the company’s ad for its night-vision goggles. That ad appeared in 1967 — the year that Che Guevara, the most famous guerrilla of the century, was murdered in Bolivia.

It was easy to dislike ITT. It quickly emerged as one of the first targets of consumer activism, with anti-imperialist groups urging shoppers to boycott bread products from an ITT subsidiary. ‘Buy Bread, Buy Bombs — ITT in Vietnam’ read a headline in a radical leftist publication at the time. Some antiwar activists even joked that its name stood for ‘Imperialism, Treason and Terror’ rather than International Telephone and Telegraph. And yet… Boycotting bread is one thing. But planting a bomb in Manhattan? What could ITT possibly have done to deserve that?

Fifteen minutes passed. Still no explosion. Perhaps it was just a hoax… Then at 5.40am it finally went off. The blast struck at 437 Madison Avenue, badly damaging the Latin American section of ITT’s US headquarters. It was the third attack on ITT in less than two weeks. Eight hours earlier, the ITT office in Rome had been set ablaze. Twelve days before that, there was an explosion at the company’s Zurich subsidiary. And there were more to come: over the next 12 months, ITT properties in Europe, Latin America and the US would all be targets.

Its own foreign policy

Compared to today’s ‘techlash’ against Silicon Valley, the 1973 attacks were powered by more than just rhetoric. ITT was seen not only as the quintessential multinational corporation but as an autonomous entity with its own foreign policy, intelligence service and political staff — an impressive mix of former military men, diplomats and Pulitzer Prize-winning journalists transformed into cunning PR operators. It was a world in itself, comparable to a nation state. Tellingly, the best-selling exposé published in 1973 was titled The Sovereign State of ITT  (2).

The complaints of ‘techno-feudalism’ — with Silicon Valley giants (3) depicted as medieval lords deciding which users can survive on their platforms — go back at least 50 years. Even an ITT-friendly corporate biography published in the early 1980s flirted with this medieval imagery, asking readers — on its very first page — to travel back to ‘feudal Europe circa 1100’ and describing the ‘feudal landscape’ of ITT’s operations (4). Such accounts — then and now — get something right. But they suffer from a major analytical flaw: not all nation states are born equal, and the tech giants would have never secured their power without being backed by the mightiest of them. And so it is with ITT: a close analysis of its history suggests that the company’s unlikely rise was a direct consequence of the growing military, financial and technological dominance of just one country. Neither ITT nor Silicon Valley would have achieved their incredible growth without the unconditional backing of the American state.

Enter the Behn brothers

ITT was founded in 1920 by two brothers, Hernán and Sosthenes Behn, as a New York holding company. Initially, it was just a shell venture used to manage the brothers’ telephone utilities in Puerto Rico and Cuba. Born on the island of St Thomas, in today’s Virgin Islands, they knew the Caribbean well, and were instrumental in facilitating the US’s inroads into it (especially in the wake of the Spanish-American war). The Behns had some family money — and global ambitions. Before settling in Puerto Rico, Sosthenes, the younger brother, had spent a few years working on Wall Street, where he forged rewarding ties to JP Morgan and what became today’s Citibank.

In the 1920s ITT was on a roll, expanding into Mexico, Uruguay, Brazil, Chile, Argentina and Spain. It was an expansion fuelled by debt, mostly as a result of the Behns’ Wall Street connections. In addition to operating telephone lines, ITT became active in the telegraph business and acquired factories that manufactured telephone equipment. By 1929 ITT ran two-thirds of the telephones and half of the cables in Latin America (5).

The hope was that ITT could, in Richard Nixon’s famous words, ‘make the Chilean economy scream’, prompting its military to intervene, stage a coup and block Allende’s inauguration

This expansion, however, wasn’t just the result of the Behns’ business genius. It happened at the time when the US was using every tool at its disposal to drive British business interests out of Latin America — including occasionally dispatching military ships to prevent the laying of undersea cables. Wall Street had its own designs on the region — as well as plenty of money to lend. The State Department in turn wanted Latin American communications in American hands — a technological extension of the Monroe Doctrine. As former war secretary Elihu Root told a Congressional Committee in 1921, ‘There is a death struggle on for the control of the South American communications situation.’

‘I’ for imperialism

With ITT’s help, America won. America Conquers Britain,a fascinating 1930 account of the hegemonic takeover, credits ITT with doing ‘more in nine years to break the British world communications monopoly than all other companies and governments combined in the half century of electrical communications’ (6). Perhaps those who later joked that the ‘I’ in ITT stood for ‘imperialism’ had a point.

Overall, it was an easy conquest. Many Latin American governments wanted to curry favour with Washington by letting ITT in on favourable terms. Thus the company was often spared the onerous commitments expected of utility companies, such as investing in infrastructure upgrades or refraining from unilaterally raising rates. It was only during the second world war that links between ITT and Washington began to worry some of these governments, concerned about the security of their communications, and increasingly in thrall to the forces of economic nationalism. They couldn’t wait to get ITT out and put local actors in charge (as happened in the mid-1940s in Perón’s Argentina and Franco’s Spain, after handsome compensation).

ITT, by then also an important defence contractor and equipment manufacturer, knew that its days as a national telephone operator were numbered. But it expected a pretty penny for its properties, which it milked for cash by raising rates and withholding promised investment. Its customers, getting inferior service at exorbitant rates, hated it, but ITT was deemed untouchable: who would dare nationalise a firm with such solid connections to Washington?

One man did. In the early 1950s a creative young Cuban lawyer took ITT to court, accusing it of reneging on its contractual commitments to Cuba. His law firm won the case but the country’s then dictator, Fulgencio Batista, overturned the court ruling. The young lawyer — Fidel Castro — apparently never forgot the humiliation: ITT’s local subsidiary was one of the first to be nationalised after the Cuban revolution.

The nationalisation of its Cuba property was a blow to ITT — and a harbinger of things to come. When in 1962 the governor of a Brazilian state took over its local subsidiary, the company mobilised its connections in Washington, framing this as a cold-war battle between communism and capitalism — a theme that would resurface during the military coup two years later. All that lobbying paid off, with Brazil humiliated into over-paying compensation for the nationalised subsidiary.

‘Make the Chilean economy scream’

By the late 1960s ITT became a full-blown conglomerate, reinvesting the money it made from selling its properties in Latin America to purchase insurance firms, hotels and even a car rental company. Most were locally based and ran no risk of being nationalised. By the early 1970s, the only telephone networks it owned were in Puerto Rico and Chile, where ITT had signed an unusual contract favouring it in the 1930s, soon after its arrival (7). But by the 1960s the Chileans agreed that ITT’s local subsidiary should no longer be in US hands: the Christian Democratic administration of Eduardo Frei, elected in 1964, sought to settle this conflict peacefully, by gradually buying ITT out.

For others, it was too little, too late. Salvador Allende won the 1970 election partly by promising to nationalise ITT, put engineers in charge of important business decisions, and expand the telephone service to poor areas. ITT had feared an Allende presidency long before 1970: a board member, former CIA director John McCone, had been instrumental in preventing Allende’s victory six years earlier. A few months before the 1970 election, ITT had contacted the CIA, even offering it money to prevent an Allende victory. The CIA, never short of cash, declined. ITT sent money to Allende’s opponents.

After Allende unexpectedly won, it was the CIA’s turn to contact ITT and ask how the company could help exert economic pressure on Chile. The hope was that it could — in Richard Nixon’s famous words — ‘make the Chilean economy scream’, prompting its military to intervene, stage a coup and block Allende’s inauguration. Allende survived the challenge and started negotiating with ITT, though he made a few great blunders, including asking ITT for help in finding bugs in his residency and La Moneda, the presidential palace.

Eventually, Allende’s patience ran out. He took over ITT’s local subsidiary, arresting its managers on charges of siphoning profits from Chile through fictitious companies. ITT retaliated with a fierce lobbying campaign. In Washington, it reached out to Henry Kissinger’s office, outlining 18 measures to destabilise Allende within the next six months. And it kept talking to the CIA about financing El Mercurio, the chief media outlet of Allende’s opponents.

The memos and telexes of ITT’s communications with America’s ‘deep state’ were eventually leaked to the press, and prompted hearings in the US Senate on foreign policy (8). However, Allende’s hopes of finally holding his detractors to account came to nothing. During their congressional testimony, ITT’s top executives weren’t always telling the truth — and neither was the CIA. Nixon’s White House wasn’t keen to share the most sensitive documents either, citing executive privilege. The hearings failed to reprimand either of the parties; no one went to jail. Three months later, Allende died in Pinochet’s coup. As for ITT, it hardly felt the pain of nationalisation in Chile: it collected $150m in compensation from Pinochet and the US government. Perhaps provoking Allende was the plan all along.

The Chilean scandal became known all over the world, but it was hardly the publicity that ITT’s executives wanted. Besides, many continued to suspect that the company’s true role in Chile was far greater than what the Senate had unearthed. With justice unserved, ITT became a worthy target for radicals: the caller who tipped off the New York Times about the bomb claimed to be with the Weather Underground, a far-left terrorist group. In the end, all this negative publicity was too much even for Puerto Rico, ITT’s original home: in 1974 it moved to buy ITT out. The massive sum dished out to the company didn’t satisfy everyone: its local building was bombed a few months after that agreement.

One experiment too many

For much of its existence, ITT pioneered tactics that other American companies would embrace only decades later: it was global in outlook from the very beginning. It aggressively used its connections to Wall Street and the Pentagon to expand. It was one of the first to master the conglomerate form.

That institutional metamorphosis into a conglomerate proved one trailblazing experiment too many. As a result, ITT executives got obsessed about boosting short-term profits and the company’s share price, while neglecting longer-term investment in its core services. Most other US companies would not face this temptation until the 1980s. ITT, by contrast, embraced financialisation as early as the mid-1960s. Back then, it wasn’t obvious why this august manufacturer of telephone equipment and major defence contractor was buying up insurance companies rather investing in R&D. ITT’s executives, abetted by their friends at Lazard Frères, invented an explanation that satisfied Wall Street.

But its desire for exponential growth marked the beginning of ITT’s slow decline: while still extremely profitable, the company gradually lost its focus — and with it a commitment to the kind of intense, expensive research that was beginning to flourish in Silicon Valley. Its soured reputation in the wake of the Chilean coup irreparably damaged its brand too. Ironically, it was ITT’s proximity to Wall Street and the US state that destroyed a great tech company. Will the giants of Silicon Valley learn anything from its mistakes?