Politically Incorrect Paper of the Day: The United Fruit Company was Good!

The United Fruit Company is the bogeyman of Latin America, the very apotheosis of neo-colonialism. And to be sure in the UFC history there is wrongdoing and plenty of fodder for conspiracy theories but the UFC also brought bananas (as export crop), tourism, and in many cases good governance to parts of Latin America. Much, however, depends on the institutional constraints within which the company operated. Esteban Mendez-Chacon and Diana Van Patten (on the job market) look at the UFC in Costa Rica.

The UFC needed to bring workers to remote locations and thus it invested heavily in worker welfare:

the UFC invested in sanitation infrastructure, launched health programs, and provided medical attention to its employees. Infrastructure investments included pipes, drinking water systems, sewage system, street lighting, macadamized roads, a dike (Sanou and Quesada, 1998), and by 1942 the company operated three hospitals in the country.

Given the remoteness the plantations and to reduce transportation costs, the UFC provided the majority of its workers with free housing within the company’s land. This was partially motivated by concerns with diseases like malaria and yellow fever, which spread easily if the population is constantly commuting from outside the plantation. By 1958 the majority of laborers lived in barracks-type structures… [which] exceeded the standards of many surrounding communities (Wiley, 2008).

Image result for united fruit companyThe UFC wasn’t just interested in healthy workers, they also needed to attract workers with stable families:

One of the services that the company provided within its camps was primary education to the children of its employees. The curriculum in the schools included vocational training and before the 1940s, was taught mostly in English. The emphasis on primary education was significant, and child labor became uncommon in the banana regions (Viales, 1998). By 1955, the company had constructed 62 primary schools within its landholdings in Costa Rica (May and Lasso, 1958). As shown in Figure 6a,spending per student in schools operated by the UFC was consistently higher than public spending in primary education between 1947 and 1963.21 On average, the company’s yearly spending was 23% higher than the government’s spending during this period.

…The UFC did not provide directly secondary education although offered some incentives. If the parents could afford the first two years of secondary education of their children in the United States, the UFC paid for the last two years and provided free transportation to and from the United States.

A key driver of UFC investment was that although the UFC was the sole employer within the regions in which it operated, it had to compete to obtain labor from other regions. Thus a 1925 UFC report writes:

We recommend a greater investment in corporate welfare beyond medical measures. An endeavor should be made to stabilize the population…we must not only build and maintain attractive and comfortable camps, but we must also provide measures for taking care of families of married men, by furnishing them with garden facilities, schools, and some forms of entertainment. In other words, we must take an interest in our people if we might hope to retain their services indefinitely.

This is exactly the dynamic which drove the provision of services and infrastructure in unjustly maligned US company towns. It’s also exactly what Rajagopalan and I found in the Indian company town of Jamshedpur, built by Jamshetji Nusserwanji Tata.

The UFC ended in Costa Rica in 1984 but the authors find that it had a long-term positive impact. Using historical records, the authors discover a plausibly randomly-determined boundary line between UFC and non-UFC areas and comparing living standards just inside and just outside the boundary they find that households within the boundary today have better housing, sanitary conditions, education and consumption than households just outside the boundary. Overall:

We find that the firm had a positive and persistent effect on living standards. Regions within the UFC were 26% less likely to be poor in 1973 than nearby counterfactual locations, with only 63% of the gap closing over the following 3 decades.

The paper has appendixes A-J. In one appendix (!), they show using satellite data that regions within the boundary are more luminous at night than those just outside the region. The collection of data is especially notable:

For a better understanding of living standards and investments during UFC’s tenure, we collected and digitized UFC reports with data on wages, number of employees, production, and investments in areas such as education, housing, and health from collections held by Cornell University, University of Kansas, and the Center for Central American Historical Studies. We also use annual reports from the Medical Department of the UFC describing the sanitation and health programs and spending per patient in company-run hospitals from 1912 to 1931. We also collected data from Costa Rican Statistic Yearbooks, which from 1907 to 1917 contain details on the number of patients and health expenses carried out by hospitals in Costa Rica, including the ones ran by the UFC. Export data was also collected from these yearbooks, and from Export Bulletins. 19 agricultural censuses taken between 1900 and 1984 provide information on land use, and we use data from Costa Rican censuses between 1864-1963 to analyze aggregated population patterns, such as migration before and during the UFC apogee, or the size and occupation of the country’s labor force.

Overall, a tremendous paper.

Comments

This is apostacy. This must be squashed.

Funny, I just finished a few months ago a book on Samuel Zemurray, "The Fish that Ate the Whale"; he being a founder of United Fruit, and of Rice university, by Rich Cowen. The bottom line, anecdotally, is the same as reported in the social science study by AlexT: *except* of the illegal taking away of elected governments in Honduras and other 'banana republics', the UF company was a net force for good. However, keep in mind that the same argument has been made for Africa (Nigeria, Kenya, pretty much every country except Congo): *except* for the loss of democracy with colonialism, colonialism was good for Africa. The same can be said for South Africa, Rhodesia, German SW Africa (Deutsch-Südwestafrika), Mozambique, Angola; GDP per capita for blacks was probably greater than non-colonialized areas, where ever they may be. The issue comes down to whether it's OK to give the people what they want, democracy, 'good and hard' as H.R. Mencken put it, or to give them economic benefits. Most people these days opt for the former. East Asians opt for the latter (and excel economically). Not everybody is a Homo economicus.

The Fish That Ate the Whale is a great book that everyone who is interested in economics should read. What a great story!

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I bet both authors come from families with long histories of large-scale plantation ownership in central or South America.

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Cotton plantation owners brought black slaves to regions of the South.

Today, satellite data within the boundary are more luminous at night than those in some other parts of the United States.

Do you think banana plantation workers or their families kept diaries of their life that might be just as useful in getting a picture of their lives than a retrospective look at the luminosity of their region.

Inquiring minds would like to know.

You think someone studying at UCLA from Costa Rica with the name "Van Patten" comes from a family of plantation workers or plantation owners?

Given the number of folks with non-Spanish surnames from Guatemala, Honduras and Costa Rica that I know, and their family backgrounds, I will wager "neither, they were late skilled-labor immigrants".

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Slavery was terrible to the people it was done to.

That aside, do you think those people would prefer to have their modern descendants living in the United States or if they had remained slaves in their home countries instead? I think the answer is pretty obvious.

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geography matters? yes, but look the pics =)

Page 8: "Understanding why some land was assigned to the company is key in identifying its long-run impact. It is documented that the firm took into consideration geographic characteristics when negotiating which areas were going to be part of their land concession "

page 8: " in the Caribbean Coast, we identified an area where land was assigned quasi-randomly."

page 14: "our main results will include only observations whose census-block’s centroid is located within 5 km from this segment of the UFC boundary; where we know the border was arbitrary and observable geographic features are balanced."

Until p14, it is a nice scientific study, the comparison is only made across a line with the same geographical (landscape) features. This is important, because the land concessions are not random. Anyone looking to grow bananas and export them would look for the best land, right? For the sake of science, the authors found a place with could be assumed as randomly selected.

Next on page 78, forget about geographic controls and look at our nice night luminosity map. It doesn't matter anymore if the landscape facilitates agriculture or transport.

PS. An impressive work nonetheless. I just hope an editor sees what I described above and suggest them to dial down on the conclusions since they only apply to the areas across the boundary on figure 3.

That's why those results are in an appendix.

I just noticed something today. The suggested mechanisms for development are investments in healthcare, sanitation, housing and human capital. There's section 6.2 Ruling-Out Other Plausible Mechanisms as Main Drivers, but the railroad is unmentioned. It is not even presented in any map in the article.

The San José - Puerto Limón railroad has a interesting history.
From 1500s to 1800s the most developed part of the country was between the capital and the Pacific coast. By the 1800s, coffee was a an important export, but the clients were in the US East Coast and Europe. Going around the Magellan Strait made shipping expensive and kept profits low. The local elite wanted to build a railroad from the highlands where the capital is located to the Caribbean coast. They tried several times but failed. An uncle of Minor Keith comes around to buy the unfinished railroad. The uncle dies, then Minor Keith takes the ownership if the railroad. During the construction M. Keith realizes the potential railroad + port in the Caribbean + bananas and negotiates land concessions to plant bananas...his fruit company is born.

The point is the railroad and the bananas are impossible to separate. The UFC build hospitals, improved sanitation and gave education, but are those investments more important than a railroad connecting to a port that links CR with the US East Coast and Europe?

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Axa sez: " Anyone looking to grow bananas and export them would look for the best land, right?" - yes and no. The Gran Michael banana ("Big Mike" in Spanish) was eventually decimated by a slow moving fungus so the 'good lands' had to be abandoned. Eventually the Cavendish banana supplanted it (also now dying from a fungus). And pretty much all of Honduras is "good land" for bananas, as you would know if you read the book I reference upstream.

Bonus trivia: slipping on a banana peel is common knowledge, right? Wrong. Only the Gran Michel banana skin is slippery. Not the Cavendish. And the banana grows "upside down" and should be peeled from the non-stem end, and is technically more of a fern than a fruit. And it has seeds, some species have hard seeds. And I've cracked my teeth on said hard seeds in PH. And the seeded banana was delicious. Seedy banana...

That banana illness happened on the 1950s. The San José - Puerto Limón railroad was built between 1871-1890. At least for 60 years, the land on both sides of the railroad connecting a port in the Caribbean sea, was the best land =)

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You'd have to have your head very. very far up the Collective Lefty Bunghole to think ANY of this was surprising.

Oh wait -- that's no doubt why you thought MR was the place to post it.

This doesn't make any sense. What is wrong with you?

He's never gotten over it.

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The United Fruit Company had the worst public relations possible and became the symbol of American imperialism. The Guatemalan writer Miguel Angel Asturias won the Nobel Prize in Literature for his "El Papa Verde" trilogy, a sick fantasy about a Yanqui capitalist/enslaver among the innocent, dreaming Maya Indians. The company was harassed till it decided to leave the ports, the living compounds, the schools and the hospitals it had built literally in the jungle. The prosperous "Banana Republics" became Third World sh-holes, the source of the masses of desperate Central Americans walking to the North. BTW, the blond Yanqui imperialist of Asturias imaginary never existed, the company was founded by a Romanian Jew who started with a street fruit cart.

What was founded by a Romanin Jew out of a street fruit cart?

The United Fruit Company. It did not appear from the ether, a Jew with a fruit cart saw in a Southern City discovered the demand for bananas, and went to buy it in the growing areas, founded a shipping company, developed jungle lands to grow bananas, and created the so called Banana Republics: Costa Rica, Honduras, El Salvador, the Caribbean coast of Colombia.

No that’s not how the United Fruit Company was founded. You’re out of your mind and have no idea what you are talking about.

A lot of that going around in these comments lately.

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The nym "j" is largely right, except the Jew in question was not a founder but a later president who took over the UF company ("the fish that swallowed the whale" comes from this takeover). Source: the bio of Samuel Zemurray, in "The Fish that Ate the Whale" by Rich Cowen.

Bonus trivia: Zemurray sold cut-rate-price "overripe" bananas (and bananas do not ripen on the vine but must be picked to ripen) for a profit by exploiting the magic of fast southern railroads, and selling bananas inland as a novelty before they spoiled. He was a tough character, perfect for the rough-and-tumble frontier of Honduras. Helped overthrow a government but arguably all governments down there were corrupt and thus ripe for the picking. More than one Latin American writer, including Gabriel García Márquez, used an actual United Fruit company man, name escapes me, known for his sharp business dealings (buying land from Central American peasant farmers needs centrifuge and guile in order to prevent land from being bid up in price once it becomes clear a large Western multinational corporation is buying) as a symbol for Yankee imperialism.

He's not largerly right. The United Fruit Company wasn't founded by a Romanian guy running a fruit stand. It was created out of the merger of two other fruit companies, both of which were founded by WASP industrialists.

I had to simplify. Sam Zemurray founded the Coyumel Shipping Co that later merged with United Fruit. He was a pioneer businessman, went to where few dared before. Presumably, his interest in worker welfare was not philanthropic. His interest in Central American politics was focused in his business interests. So what? The best that could happen to a young Honduran was to find employment in the United Fruit Company.

https://en.wikipedia.org/wiki/Sam_Zemurray

That’s not what we were discussing. We were discussing how the UFC was founded.

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The prosperous "Banana Republics" became Third World sh-holes

According to the Maddison Project, the periods in which you've seen an implosion in the standard of living in Guatemala have been 1929-33, 1941-45, 1949-55, and 1981-88. I think only the timing of the 3d of these periods supports your thesis. They have it that the ratio of Guatemala's per capita product to that of the U.S. was at its modern peak in 1940, when it was 0.248. Then it imploded during the war, falling to 0.108 by 1944, increasing to 0.141 in 1947 (when reconversion to civilian production was complete in the U.S.). It reached its nadir around 1988 (0.093), presumably consequent to civil war damage, among other things. It stood at 0.134 in 2016, so it has seen some relative improvement. That ratio stood at 0.153 in 1920. It's never been prosperous compared to the world's vanguard economies.

What do you use to cane the Mercatus Employees?

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Based Alex is best Alex.

This post brings an article to mind:

https://www.npr.org/sections/goatsandsoda/2014/10/06/354054915/firestone-did-what-governments-have-not-stopped-ebola-in-its-tracks

I think a lot of all those places that are, as usual, failing will start ceding their sovereignty to commercial enterprises. People want nice things, and for a lot of them democracy is not delivering it.

Guatemala's experience with electoral politics prior to 1944 was close to nil. It wasn't until about 1986 that electoral contests were the typical means of allocating public offices. It wasn't until about 1995 that the military were willing to take orders from the elected president. Democracy's not why Guatemala's a poor country.

No but the generals who ran Guatemala were government employees after all, so it was still a government-run country. Had they been private sector executives instead I think it would have been a vastly different outcome.

I thought it was all about IQ?

It is. The Firestone rubber tree plantation will always be just that. But with high IQ people in charge who have the power to evict troublemakers, the low IQ people who harvest sap can have a good life.

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Thanks. Really, really fascinating.

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History is kind of a mess. No wonder people who live lives entirely free of privation can't relate to it at all.

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I wonder if this applies for tea plantations in India too.

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UFC was a government abetted monopoly. There was some economic development, but what was the opportunity cost of having one company dominating the economy and all of the decisions made in the areas they owned based upon what was best for just that company? Also, how much wrongdoing do you tolerate to have some economic gains that you might have had anyway without the wrongdoing?

Steve

Try extrapolating from the economic history of Guatemala over the two generations preceding United Fruit's arrival. Hint: the Guatemalan postal service was founded by...United Fruit.

Harsh authoritarian governments are sometimes successful in the short run. I think we all know that, so the government jumping in bed with UFC, and other companies, probably did give them some short term growth they might not have otherwise had.

Or are you making the general case that government run monopolies are superior to market based competition in the long run?

Steve

United Fruit wasn't a 'government run monopoly', so your question is inane.

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What governments? There was no government in the Caribbean coast. We are talking about a hundred years ago, when one Marine platoon or so could occupy Nicaragua and install a government.

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The Central American chatterati had to provide for themselves an explanation of why so much of the productive enterprise of the country was attributable to the issue of gringo businessmen. See Thomas Sowell on this subject: recrimination rather than constructive action is the modal human response to embarrassments and reversals of fortune. Juan Jose Arevalo and Jabobo Arbenz were tools.

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Time to re-read John Dos Passos "USA Trilogy!"

Yes, it has been a long time. Do I even still have it? This is why Marie Kondos "30 books" stricture is such garbage.

I had the paperbacks but loaned them out and they were never returned. Library of America has them all in a nice one volume book. Kindle versions are likely inexpensive. the 'Mickey Mouse' copyright law prevents Project Gutenburg from offering it free.

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This is the same neo-liberal, colonialist attitude that says the Brits were good for India because they built the railroads.

Britain was bad for India because it bequeathed socialistic bureaucracy. https://marginalrevolution.com/marginalrevolution/2017/04/bad-british-colonialism-india.html

I think that's the lowest quality post I've ever seen from Tyler. He doesn't mention the fact that Tata received temporary tariff protection from the colonial government in perhaps the only major example of successful "infant industry protection" outside of East Asia.

I would also hazard a guess that the share of corrupt income of GDP was considerably higher during the license Raj than during the British Raj.

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I was pretty much operating under the assumption that the meme about the evils of the United Fruit Company was more or less communist propaganda.

Why was the UFC evil? Because they prevented communist governments from taking power in Central America. Duh. It never had anything to do with labor conditions. It was the Marxist narrative about US political involvement in Central America and it's role in preventing the glorious socialist revolution from taking place. Those bastards.

Communist parties have never been consequential in Honduras or Panama; in Costa Rica, they were so only during the 1940s and were put out of business not by United Fruit but by an insurrectional movement led by Jose Figueres. In Nicaragua and El Salvador, they were so only after 1970, at a time when United Fruit had largely liquidated its holdings and retreated to marketing.

I see you know Central American history. Latin American nationalism is self-defeating to an excess. Now it has immigrated to America and you have that Portorrican congresswoman expelling Amazon HQ from New York.

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It was more Guatemala they were involved in.
https://en.wikipedia.org/wiki/1954_Guatemalan_coup_d%27%C3%A9tat

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"What if something obviously bad was good?" - Like, 50 percent of the conservative content on the internet.

The other half? "What if something obviously good was bad?"

It just gets old is all, figure out a new rhetorical trick.

Sounds more like pretty much all Marxist content on the internet.

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I've long suspected this but never had any evidence that the fruit companies were a force for good. Profit driven American firms were probably better at governing than basket case Central American governments. I do't know if you can morally justify US interference and corporatocracy but the belief that gun boat diplomacy was unilaterally bad always struck me as unbelievable. The fact that it may have on net been good is also not that shocking either. The quality of early 20th century governments was probably so low almsot anything would have been better.

Really interesting post.

But that can be said for socialist governments. Like the UK, France, Germany post WWII. China today. Saudi Arabia for the past century.

Castro's Cuba might well have been as successful as United Fruit if the US government provided aid to Cuba like it did to United Fruit when threatened by violent overthrow. Instead the US government acted to prevent economic development to keep the boot on the neck of the Cuban masses by outside interests.

United Fruit was simply a for profit socialist or communist government.

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On December 6th 1928, the Colombian army, paid by the UFC, killed up to 3k farmers according to some sources for striking.

It's no coincidence that all of these lines above hold true if you keep in mind the context of company towns and slavery.

All of these conclusions can only really be made if, deep down, you have some deeply racist core beliefs about the capability of South Americans for self-determination.

Well, consider the possibility that your sources are just transmitting memes which were, at their origins, one man's azz-pull.

Looking around it appears that there is no actual consensus on the number dead. Wikipedia has it anywhere from 47 to 3000. Some of the claims, however, seem unbeilable. Higher estimates are probably politically motivated to pile up the indictment against the Columbian government and the UFC.

https://en.wikipedia.org/wiki/Banana_Massacre#Number_of_dead

Only 47 dead?

At the lowest estimate. You can't say that the higher estimates are probably politically motivated without saying the same about the lowest. 3K seems to be the highest credible estimate, but still.

"They only explicitly killed hundreds of people" still means "They were willing to kill hundreds of people, and the people knew it".

There's a saying in political science that can be basically distilled down to; One man can rule a hundred if he has a machine gun.

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Isn’t this like saying that apartheid was good because life in the white parts of South Africa was better than in the other parts, or that colonialism in China was good because life in the legation quarters was better than life outside? The issue is that these monopoly companies backed by US military force and the threat thereof suppressed development of the economy more broadly.

Isn’t this like saying that apartheid was good because life in the white parts of South Africa was better than in the other parts,

United Fruit employed people and set up auxilliary services beneficial to people. The latifundiaries also employed people, but didn't build auxilliary service enterprises. The net loss here is where?

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Greta Thunberg would have been able to walk around and protest safely in the lands of the United Fruit. She would not be able to do so today. Those places are chaotic and dangerous. If anything, colonialists brought order and safety (and prosperity) - all over the world, I would add.

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"Much, however, depends on the institutional constraints within which the company operated." Uh, sort of like any private firm.

And, as always, compared to what?

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