In the first half of the twentieth century, the United Fruit Company, based in Boston, Massachusetts, created an impressive network that produced bananas in Colombia for distribution to the U.S. market. The company grew its own fruit but relied as well on local entrepreneurs. United Fruit imposed draconian contracts on the growers, forcing them to trade on terms that were very favorable to the company. These practices set the standards for other exporters operating in the country, even those based in Colombia.
In 1899, the towns in the region of Magdalena, located on the Colombian Caribbean shore, witnessed the arrival of the Boston-based American multinational corporation, United Fruit Company (now Chiquita). Its arrival represented the start of a process that changed Magdalena forever. Government neglect had made it one of Colombia's most economically backward regions, but it underwent dramatic changes with the arrival of United Fruit, which developed an infrastructure for producing bananas and exporting them to the United States. Over a short period, the sleepy towns of Magdalena became dynamic urban centers that attracted thousands of workers from all over the country. In a process that the novelist Gabriel Garcia Marquez, who hailed from that region, called the "Leaf Storm," all remnants of the past were destroyed, and the region was propelled into the global economy.1 The company remained in Magdalena until 1942, when World War II interrupted its operations. It returned in 1947 and remained until 1963, when it moved to the region of Urab�, also on the Colombian Caribbean shore.
United Fruit was created in 1899 from a merger of the interests of the Bostonian entrepreneurs Minor C. Keith, Andrew Preston, and Lorenzo D. Baker. Keith already owned banana plantations in Colombia and the Caribbean, controlled a railway network in Central America, and dominated the banana market in the southeastern United States. Preston and Baker owned a steamship fleet, possessed lands in the Caribbean, and controlled the banana market in the U.S. Northeast. The impressive production and distribution network of this newly created company included plantations, hospitals, roads, railways, telegraph lines, housing facilities, and ports in the producing countries, a steamship fleet (the Great White Fleet, which eventually became the largest privately owned fleet in the world), and a distribution network in the United States.2
United Fruit has been considered the quintessential representative of American imperialism in Latin America, holding the local governments in its pocket, controlling the local economy of the host countries, and harshly exploiting the plantation workers.3 This image has inspired several important Latin American literary works, as well as the pejorative term "Banana Republic," leading historians to focus almost exclusively upon the political and labor conflicts generated by United Fruit.4 Generally, historians have ignored the role of the local planters who provided the company with the fruit. These planters are usually seen as a mere arm that facilitated United Fruit's exploitation of the local society. Paying attention to the actions of the local planters suggests a more complex interaction with the company, and thus sheds light on the economic and social dynamics between foreign capital and local labor struggles.
Studies of United Fruit in Colombia have focused on labor conflicts of the 1920s, culminating in the 1928 strike of the Magdalena banana workers.5 In 1928, these workers interrupted operations, demanding better conditions and formalized labor contracts with United Fruit. The largest strike Colombia had ever witnessed came to a tragic end when the Colombian Army opened fire against a group of peaceful demonstrators in the city of Ci�naga on December 6, 1928. This event, now known as the masacre de las bananeras, inspired parts of Gabriel Garc�a M�rquez's novel One Hundred Years of Solitude and became the main object of study for historians. In this conflict, local planters are taken into account only in direct relation to the strike, and they have been depicted both as early supporters of the strike because they saw it as a tool to weaken United Fruit. They have also been described as subsequent supporters of the multinational as they came to fear the masses. My study of the contractual relationship between the Colombian banana planters and the multinational shows that these local actors were not mere arms of United Fruit, but that they had agency and designed long-term strategies to gain higher stakes in the banana business.
By focusing on labor and political conflicts, most studies on foreign direct investment in Latin America have been based on Dependency Theory, which posits that the local elites of an underdeveloped country permit the exploitation of their country's labor force by foreign capital. The dominance of this theory has discouraged scholars from adopting a different perspective on the local elites' business behavior. An examination of how the local elites developed their businesses was considered either irrelevant or as possibly glorifying them. I undertook this study in order to gain an understanding of the logic that guided the behavior of these elites and thus to derive a fuller picture of the dynamics created by the arrival of foreign capital in Latin America.
Before World War II, the company produced bananas on its own farms and on the farms of its associate producers. However, after the war, the company gradually sold off its farms and came to rely more heavily on local producers. When the company moved to Urab� in 1963, it dealt solely with subcontractors, choosing to concentrate on marketing the fruit.6 In the next sections I describe the types of contracts that were imposed on local growers by United Fruit, their effects on the planters, how they evolved, and how they were enforced.7
United Fruit and the Magdalena Planters, 1899-1930
United Fruit's first three decades of operation in Colombia coincided with the period known as the "Conservative Hegemony," a relatively peaceful time of remarkable economic growth, led by coffee exports. After a destructive and bloody war between Liberals and Conservatives (the War of the Thousand Days, 1899-1902), the triumphant Conservative government, in its quest for national reconstruction and modernization, created generous incentives in order to promote direct foreign investment in the country. United Fruit benefited from this policy, gaining generous land concessions and tax breaks from a national government that was dominated by the business-friendly Conservatives. This relatively conflict-free period came to an end in 1928, when workers staged a strike, the largest even seen in Colombia, against United Fruit, which thus became one of the first companies to feel the impact of the new social conflicts created by the expansion of capitalism in the countryside.
When Minor Keith arrived independently in Magdalena in the early 1890s to purchase some land, he found a region that had been decaying for almost a century. Keith created his own firm, the Colombian Land Company, a precursor to United Fruit. Magdalena was ruled by an impoverished aristocracy that was descended from the early Spanish conquerors and the French colonizers who arrived during the early years of Spanish rule. This upper-class group was scorned by the traditional elite in the city of Cartagena and the recently enriched merchant class in Barranquilla.8
When Keith merged his interests with Preston's and Baker's to create the United Fruit Company, the 12,500 acres that the Colombian Land Company had acquired in Riofrio (Magdalena) became part of the production network of the new, vertically integrated company.9 Magdalena already had a railway system when United Fruit started its operations there. In 1881 the local government had given a railway concession to two local entrepreneurs, Julian De Mier and Roberto Joy.10 This concession was transferred to a British company in 1886 and incorporated as the Santa Marta Railway Company. During the first years of the twentieth century, the concession was transferred to United Fruit, which expanded the railway to expedite transportation of the fruit from the banana farms, especially the produce of its own local providers.11 These changes facilitated the vertical integration of United Fruit in Colombia. The company eventually operated its own plantations, but it also bought a large portion of the fruit that was shipped to the United States from local planters. By the 1920s the company was buying 57 percent of the bananas it exported from locals.12
Why Colombian Entrepreneurs Failed to Develop a Banana Export Business
Colombian entrepreneurs made several attempts to export bananas before the arrival of United Fruit. One local entrepreneur, Jos� Manuel Gonz�lez, was the first to produce bananas commercially in the region in 1887, and he tried to export them in 1889. This initiative failed, however, because of the lack of fast, refrigerated ships: the fruit rotted by the time it arrived in New York.13 Other local entrepreneurs made similar attempts and met with the same results. In the early 18903, two English immigrants, Mansel Carr, head of the Santa Marta Railway Company, and Laurence Bradbury, made the first regular shipments in partnership with the New Orleans firm J. Sanders.14 Later, the Colombian Land Company took over the export business, with Carr and Bradbury as suppliers. Finally, the United Fruit Company, which was created in 1899, acquired Keith's Colombian Land Company and continued the deals he had struck with the locals.
The early efforts of the local growers to sell the fruit in the international market were not successful, because they lacked the capital to develop an international marketing system. Nor did they have a large fleet of fast boats or a distribution network in the consumer markets. As a result, the local entrepreneurs never managed to create a continuously operating banana-export business during the nineteenth century. A multinational enterprise with its own transportation system and marketing network was required for the export business to prosper. In fact, the banana-export sector of Magdalena really took off after United Fruit began its operations there in 1899, as Figure 1 demonstrates.
Subcontracting versus Production
United Fruit did not begin as a direct producer in all its divisions. According to historian Victor Bulmer-Thomas, the first shipments from Central America were made under a subcontracting system that the company gradually abandoned because of difficulties in coordinating with the local planters, who had little incentive to invest in the unhealthy lowlands.15 Although the locals built their own plantations, they were not able to coordinate their production with the company's demand for the fruit. Eventually, United Fruit controlled most of the produce it exported from Central America.
In Colombia United Fruit combined a vertical integration system with a subcontracting arrangement that attracted the participation of the local growers to an increasing degree. Local planters in Colombia produced from 20 percent to 30 percent of the fruit exported by United Fruit in 1910; by 1920 they were producing 50 percent; and by 1930, close to 80 percent.16 In contrast, United Fruit controlled virtually all the production in Central America-as much as 90 percent-until the 1960s.17 United Fruit's relatively low share of control in Colombia was unique among the places in which the company operated. Since the beginning of the twentieth century, Colombian planters have exercised more responsibility and exerted more influence on the banana economy than their Central American counterparts.
Gaining Monopsony Power in the Region
United Fruit could successfully subcontract production in Colombia because the company was able to write the purchase contracts with local providers in a way that assured it a monopsonistic advantage. The contracts left the locals little choice other than to continue to work with United Fruit once the contract period was over, and the documents contained clauses that strongly discouraged the creation of local export companies. Under this system, the local providers were obliged to sell all their produce to United Fruit, but United Fruit was not obliged to buy crops from them. The contracts guaranteed United Fruit protection from any unpredicted event, leaving the locals with all the risks. For the first four decades of the twentieth century, these contracts established that the fruit belonged to the company as soon as it was cut from the tree. If, however, the fruit happened to have any defect identified by the company's quality-control officials, ownership of the bananas reverted to the planter. Moreover, even if the company's officials approved and shipped the fruit but it was later rejected by U.S. health authorities for any reason, the fruit reverted to the Magdalena planter, who received no payment. The contracts also specified that the local planters could not sell any of their fruit, including produce rejected by United Fruit, to another company. If a local planter sold his or her property to someone else (women owned almost half of the property at that time), the seller was obliged to include a clause in the land-sale contract that committed the buyer to adhere to the terms of the company's purchase contract. In the event that the Colombian or the U.S. government enacted taxes on the banana trade, the locals had to bear the extra costs. Although the contracts gave a detailed description of the characteristics of the fruit the company considered acceptable for export, the company's officials reserved the right to reject any fruit, regardless of its quality. Finally, the company reserved the right to cancel any purchase contract with any local planter without indemnification in the event of political conflicts or for any other reason the company decided upon.18
All contracts, especially onerous ones like these, created incentives for the locals to cheat by trying to make deals with other banana export companies or looking for ways to flout the contracts and export the fruit themselves. In response, United Fruit established three potent enforcement mechanisms:
1. Timing. The contracts were issued on a staggered schedule, in order to avoid having a large number of planters "free," or uncontracted, at the same time. In this way they could never join forces to develop their own export business.
2. Third-party enforcement. When a local tried to export fruit that, by contract, could only be sold to United Fruit, the United States customs office and British courts enforced the contract by confiscating the fruit, both in the United States and in Great Britain.
3. Conditions placed on loans. The company gave loans to the local planters on condition that they turn over all their produce to United Fruit. The company had the advantage of being the only serious financial institution in the region. Cheating, therefore, carried stiff penalties: credit revocation and financial ruin.
For the entire period from 1900 to 1942, these three mechanisms assured United Fruit's monopsony in the region. Whenever a planter wanted to rebel or stop complying with the terms of the contract, the company used these mechanisms, always successfully, as I will describe in more detail in the next sections.
Contract Timing
United Fruit was aware that local planters would always be tempted to break away and create their own marketing firms. In order to tie them to United Fruit, the company created an elaborate schedule for obtaining local providers' signatures on contracts, thereby preventing them from joining forces and developing their own export business.
To carry out this strategy, the company made sure that no single contract expired on a date that coincided with the expiration of many other producers' contracts. In this way, there was never a time when a large number of local producers were not under contract with United Fruit. Because the good was a perishable item, no producer could afford to wait until the others' contracts expired. The success of United Fruit's strategy was based on three key features of the banana business: First, the trees continued to produce, regardless of whether the fruit could be sold, which meant the planters could not easily stop production. second, because bananas are highly perishable, they could not be stored. And third, the business required huge investments in the shipping and marketing of bananas. Thus, unless planters were able to coordinate their actions, they could not profitably end their relationship with United Fruit. So every time a producer's contract was due, he or she had no choice but to sign a new contract with United Fruit.19
Using Foreign Courts to Enforce Contracts
Although the contracts stipulated that all the disputes between the company and the local growers should be settled in the courts of Santa Marta, Magdalena's capital city, the company relied on foreign courts to enforce its contracts. This happened, for instance, when local producers tried to break the company's power by attempting to sell to other foreign companies.
The first such attempt came in 1920, when United Fruit tried to increase the planters' obligations and decrease the price it paid for their fruit. The company's new local management introduced a clause to the contract, placing the responsibility for paying national or foreign taxes on the locals and obliging them to transfer the contracts when selling their property. The managers also sought a decrease in the price that had been established by the company. Local producers who decided not to accept the new conditions, led by Juan B. Calder�n, a banana entrepreneur, president of the Ci�naga Municipal Council, and a long-time fierce opponent of United Fruit's power in the region, made a deal with Alejandro Angel & Compa�ia, a local firm, and the Atlantic Fruit Company, a U.S. company based in New Orleans. They exported their first shipment in September of 1920. This attempt to break United Fruit's dominance failed. As soon as the shipment arrived in New York, local customs officials seized the cargo, honoring the United Fruit representative's claim of a contract violation.20
A second attempt was made in 1930. After organizing some planters into the Cooperativa Bananera Colombiana, Calder�n signed a contract with Robert Brinnings Company Limited of Liverpool. Although the British firm did not pay the prices it had initially promised, the locals nevertheless transported their first two shipments to England through Robert Brinnings in June and July of 1930 on the Leyland Line, a transportation company. When the third shipment was ready to depart, United Fruit protested that Leyland was transporting illegal fruit to England. Leyland refused to discuss the matter with United Fruit, referring the problem to Calder�n. However, United Fruit would not negotiate with Calder�n, rejecting his proposal that the company name an agent to check the shipment in the port and select the fruit that was theirs. The company proposed, instead, that future shipments be monitored by the Colombian government, and it detailed the procedures it wished to impose to ensure this oversight. However, its stipulations were rejected by the government-appointed commission as impractical.21
Instead, the Colombian government forced the company to settle the case in the British courts, which decided in favor of United Fruit. The judge imposed embargoes on the fruit imported by Robert Brinnings, which then decided to halt banana imports from Colombia. Its decision ended the local effort to break the contract system with United Fruit.22
United Fruit also prevented the locals from developing businesses with other companies by acquiring the competing firms. In 1929 the Cooperativa de Productores Colombianos de Banano, led by Calder�n and Julio Gharris (another local politician and entrepreneur), made business deals with United Fruit's main competitor, the Cuyamel Fruit Company.23 Unfortunately for Charris and Calder�n, Cuyamel was already engaged in a losing battle with United Fruit. The two had been waging a ferocious price and marketing war in the years prior to 1928, and United Fruit pulled out all the stops to eliminate this small but aggressive rival. In November 1929 United Fruit decided to put an end to a conflict that was damaging both sides by making an offer to Cuyamel's manager, Samuel Zemurray, to buy the company. Zemurray sold it for 300,000 shares of United Fruit, worth $31,500,000, and was named president of the company shortly afterward.24 In this way, all the businesses signed up by Cuyamel before 1929 were transferred to United Fruit, destroying the cooperative's hopes for independence.
United Fruit as Banker
The lack of financial institutions was a major obstacle for the local entrepreneurs of Magdalena who were trying to develop their businesses in the early decades of the twentieth century, as they had no way to finance their operations. No formal banks existed in the cities of Santa Marta or Ci�naga; the closest ones were located in Barranquilla or Cartagena. The banks in these two cities, however, were not of much help to Magdalena's entrepreneurs, as they tended to give loans only to the two cities' small circle of elites.25 Indeed Colombia did not have a decent national banking system during this period. Even the expansion of the banking system in the 1930s did not much affect the situation in secondary cities like Santa Marta or Ci�naga. In fact, when the central government, following the advice of the Kemmerer mission, established rules for the minimum capitalization of banks in the 19303, it left small places like Ci�naga and Santa Marta without the option of creating their own banks.26
Thus, when United Fruit arrived in Magdalena, it became the only important financial institution in the region. The company gave loans to planters who were providing them with fruit. Typically, these loans were offered on condition that the planter sell his bananas exclusively to United Fruit. This was the only way for many planters to get enough capital to enter banana production. Even the historians Charles Kepner and Jay Soothill, who are critical of United Fruit's impact and domination in the area, admit that "the company devoted many millions of dollars at low and reasonable rates of interest to help those who otherwise would not have been able to use their lands for banana cultivation."27
Many of United Fruit's loans were guaranteed by the borrower's land. These loans were known as pactos de retroventa (mortgage loans). If the loan was not paid after a certain amount of time, the borrower was obliged to sell his or her land to United Fruit at the price stated in the pact.
Although the loans provided by United Fruit generated a credit system where none had existed before, some planters did not like the fact that United Fruit was a monopoly. In 1924 the municipal council of Ci�naga demanded that the national government establish an agricultural bank in the city to compete with United Fruit.28 However, the government was slow to respond, and the proposal was taken seriously only after a series of natural disasters in 1927 destroyed dozens of farms and nearly bankrupted the planters. The Conservative governor of Magdalena, Juan Cormane, allied with the Ci�naga leader, Juan B. Calder�n, to lobby the national government for help in creating a regional bank. Calder�n organized a group of planters into the Sociedad de Productores de Santa Marta y Ci�naga (Society of Producers from Santa Marta and Ci�naga), which worked with the governor to convince the government to open a branch of the Banco Agr�cola Hipotecario (Agricultural Mortgage Bank) in Magdalena. This achievement made Cormane popular among the small producers of Ci�naga but unpopular among his fellow conservatives of the Santa Marta elite.29
The long-awaited arrival of a branch of the Banco Agricola Hipotecario was a disappointment. The bank's conditions for issuing a loan were even more onerous than those imposed by United Fruit, and its interest rates were higher.30 There were simply no incentives to shift to the new financial institution when United Fruit provided below-market interest rates. Additionally, their contracts tied many of the planters to United Fruit anyway, and, in fact, many were satisfied with the company's credit service. The stability they gained from doing business with United Fruit, the convenience of its technical assistance, and the punctuality of its payments were strong incentives for many risk-averse planters. Some used the profits and loans they received from the company for unproductive activities, including years of residence in Brussels, London, Paris, or the United States.
The use of borrowed money to finance extravagant lifestyles had occurred in Magdalena since 1910. As early as 1919, the company's vice president, after hearing some Santa Marta planters complain about the prices they were being paid, commented that United Fruit had suffered losses of $600,000 on loans to the "so-called gentlemen planters who blew the money living high in Colombia or at the Waldorf Hotel in New York."31
After United Fruit changed its policies in the post-World War II period, planters in Santa Marta and Ci�naga longed for the times of easy money when the company had operated in Magdalena. A former entrepreneur described how the arrangement worked:
Getting a loan from United Fruit in those times [before WWII] was much easier than nowadays [the 1990s]. A lot of people did not do anything. They did not even have to go and pick up their checks. The company sent a messenger who brought the check to your place. . . . Sometimes we got loans to go to travel in Europe for a year. . . . United Fruit gave us the tickets for free. . . . [Under those conditions] why would you invest your profits?32
Since not all planters were opposed to the company's credit arrangements, a self-enforcing mechanism was created in the contracting system. Those who were not willing to develop their own businesses could become wealthy by sticking to the company. Unfortunately, the available data do not permit us to calculate what percentage of planters supported Calder�n and what percentage was satisfied with the current system.
Remnants of a prosperous past can still be seen in the Banana Zone. Downtown Ci�naga exhibits its glorious past behind the damaged facades of the 1920s and 1930s French-style mansions, now converted into liquor stores, restaurants, and even brothels. Locals still talk of the elegant parties held at these mansions, enlivened by European bands and unlimited amounts of champagne and whisky. Many did not even care for their farms, which were administered by United Fruit, but rather dedicated their time to the development of arts and literature or traveling abroad, while others enjoyed partying in Santa Marta. Some old Cienagueros still proudly display faded Belgian or French diplomas on the walls of living rooms, whose refined European furniture has not been refinished in decades.33
World War II and the Withdrawal of United Fruit
In the late 1930s and early 1940s the region of Magdalena suffered a major crisis. An epidemic of Sigatoka, a fungal disease infecting bananas, swept through the plantations, causing an emergency that forced the national government to intervene. In 1941 the national government signed a contract with United Fruit that committed the company to fight Sigatoka with government support. The outbreak of World War II, however, interrupted this program and United Fruit's other operations.34 During the war, the company was forced to discontinue shipments because of the presence of German submarines in the Caribbean, and exports from Magdalena were halted. As a result, the region fell into a deep economic crisis, forcing both the workers and the planters to seek other economic activities.
Once the war ended and the Caribbean trade was reestablished, the locals found themselves in a new relationship with the company. The clause in their contract stipulating that contracts could be canceled in the event of foreign war had been applied. For the first time in the century, a considerable number of locals were no longer contractually bound to United Fruit, leaving them free to coordinate their efforts and capture economies of scale. They were now in a stronger position to challenge United Fruit.
During the period preceding World War II, not all the planters had thrown their money away on leisurely pursuits. Some second-generation planters used their gains to pursue sophisticated business courses in American and European universities.35 This is especially remarkable when one considers that the first generation to witness the arrival of United Fruit had lived in a stagnant, poor society.36 The second generation, which received its business education abroad, played an important role in the 1940s.
When World War II ended, a number of small independent traders came to the port of Santa Marta looking for bananas to sell in the American market. These people were not connected to any multinational corporations, and they conducted their businesses very informally. They did not sign contracts with the local providers but simply came to the port, bought fruit from whoever had it to sell, and paid either in cash or in goods such as whisky, American clothes, or imported foods.37
The presence of these small buyers and the prospect of receiving high prices for their produce in the United States and Europe during postwar reconstruction stimulated the local planters to grow bananas again. The first planters to sell their fruit to the new traders were those who had been most hard hit by the drop in exports during World War II. While growers with the capital to switch to other crops did so, others found themselves in such precarious financial situations that they were unable to make a change. They did, however, keep some of the ruined banana plantations, which eventually produced the first crops of the fruit once the war ended.38
The independent traders had a huge impact. In 1943, the region did not export a single banana; in 1944 it exported 422,561 bunches; and, in 1945, a record 1,381,874 bunches were exported.39 Figure 2 shows the region's impressive recovery during these years. The enthusiasm generated by the revival of the banana exports led to the creation of a multitude of small, initially independent companies.
The informal chaos of the early postwar years changed when local producer Anacreonte Gonz�lez formed an association of Magdalena producers. His main goal was to open markets in countries that offered no competition from United Fruit. The country Gonzalez had in mind was Sweden, so he began negotiations with import companies in that country. After signing purchase contracts with these Swedish firms, Gonzalez's conglomerate-appropriately called La Sueca (the Swedish Company)-began exporting in 1946. Other producers followed his initiative and established their own export conglomerates, such as the Consorcio Bananero (which became one of the two most important local banana export companies), the Compa��a Comercial del Magdalena, the Compa��a Agr�cola del Magdalena, and the Compa��a Bananera de Ci�naga.40
By 1947 the Magdalena region had witnessed the emergence of an activity that in the prewar period seemed impossible: local banana export companies successfully doing businesses without interference from United Fruit. The locals were not tied to their earlier purchase contracts, and they had become associated with different conglomerates. While Gonzalez's conglomerate was operating in Sweden, others had signed contracts in the U.S. market or were negotiating with German import firms. In 1947, the Compa��a Agr�cola del Magdalena made its first shipment to Miami, using the West Indies Fruit Company for transport. Gonzalez's conglomerate offered services to its banana growers much like those United Fruit had provided earlier, such as assistance in plague control. In the first few years after United Fruit's return, La Sueca used plague-control methods that were more up-to-date even than those used by United Fruit, such as helicopter pesticide spraying-a novelty at that time.41
After the war, the enormous potential of the West German market stimulated the locals to create a conglomerate that unified the existing independent export companies. This conglomerate, called Federation de Productores de Banano del Magdalena, was established in 1952 under the leadership of the legendary Jos� "Pepe" Vives (from Compa��a Comercial del Magdalena) and Francisco D�vila (from Consorcio Bananero). The Federaci�n was created with an initial capital investment of (Col.)$16,000, with each shareholder holding shares in proportion to the number of banana-producing hectares he or she owned.42 Shortly after it was created, the Federaci�n signed a contract with the German import firms Lutten & Sons and Afrikanische from Hamburg and began its first exports to Germany, selling the fruit at (Col.)$100 a ton.43
In order to discourage maverick producers from developing their own businesses, the founders of the Federaci�n organized it as a growers' cooperative. In this way, all members would want the conglomerate to grow, and the incentives to cheat would be minimized.
When analyzing the profiles of the men who created this conglomerate, it is worth emphasizing that they did not conform to the stereotype of the backward absentee enclave landowner. This is remarkable, given the region's high levels of poverty and low rate of industrialization compared with the rest of the country. Jos� Vives is a good example of a self-made entrepreneur in the Colombian Caribbean. Despite not being a member of a traditional, powerful family and lacking a formal education, Vives made a fortune with his own commercial, financial, and manufacturing businesses. These included agroindustrial enterprises and the Banco Bananero del Magdalena, an institution that financed the independent exporters. Francisco D�vila, Vives's partner, gave the company a touch of sophistication. His family, a traditional upper-class family of the region, had become wealthier through its connections with United Fruit's banana business. D�vila completed his undergraduate studies in France and earned an MBA at Stanford University.
The Federaci�n began having problems after its first year, following a financial scandal, when D�vila and the group comprising the Consorcio Bananero left to form their own association. This created two conglomerates: the Federaci�n, made up of a large number of small producers (led by Vives), and the Consorcio, which combined a small number of big producers (led by D�vila).
The Return of United Fruit to Colombia
The return of United Fruit and the rise of the local banana companies coincided with the beginning of one of the most chaotic periods in Colombian history: la Violencia. Officially, la Violencia began in 1948, with the assassination of the Liberal leader Jorge E. Gait�n, and ended in 1958, when Liberals and Conservatives agreed to share power after years of bloody bipartisan violence. Although it was a national conflict, la Violencia was waged mainly in the country's interior, not in the Caribbean region. Thus banana exports were not affected significantly. In fact, the manager of United Fruit's Colombian division reported to his superiors in Boston that Gait�n's death and the ensuing riots did not affect the banana zone, and he continued to report business as usual.44
When United Fruit returned to Colombia after World War II, it had to adapt to the fact that new marketing companies were operating in Magdalena. According to the former executives of Federacion and Consorcio, the company did not raise too many objections to these newcomers, electing instead simply to look for new partners in order to expand the business. United Fruit even offered to share its ships with the Federacion in order to reduce export costs, an offer that the Federaci�n rejected. At this time the multinational was lobbying the national government to make changes to the banana-export legislation that would not have benefited the independent producers.45 Instead of trying to eliminate the local export firms, United Fruit decided to try coexistence; by 1955 local companies were exporting 58 percent of the fruit, while United Fruit was exporting the remaining 42 percent. In comparison, United Fruit dominated 90 percent of the Central American market during this period.46
When United Fruit restarted operations, it gave new loans to growers who wanted to get into the business and to some of its former suppliers. Although the conditions imposed by these loans were similar to those of the pre-World War II period, the company now also offered technical assistance. Nevertheless, some local planters preferred to work for United Fruit, rather than for the local export companies, because a big multinational with decades of experience and a solid international network was more reliable than the smaller, newer, more experimental Colombian firms.47
How could United Fruit continue writing the same kind of contracts at a time when it was not the fruit-purchasing monopsony it had once been? The answer is that the local companies offered basically the same contract terms.48 In fact, when asked how the local marketing corporations wrote their first purchasing contracts, one company's founding father said, "We just took the United Fruit contracts and copied them."49
Previous studies have pointed to the United Fruit contracts as clear evidence of imperialistic exploitation of the local resources.50 These studies, however, did not cover the period in which the locals were exporters too. An examination of the postwar period and of the local corporations operating during that time reveals that the locals patterned their behavior on the multinational and followed its logic. It is thus hard to argue that the exploitation of local resources was carried out solely by the multinational corporation operating in the region. However, the fact remains that company established the patterns that were later copied by the local companies.
United Fruit's Divestiture Process
In the 1950s United Fruit gradually began to sell its assets in Magdalena and came to rely more heavily on its local providers by increasing the amount of loans to planters as a percentage of its total assets, as Figure 3 shows. At the same time, it began to conduct research on the feasibility of developing a banana-export industry in the region of Urab�.51 The company took these steps both because the labor unions were increasing their demands in the second half of the 1950s and because new uncertainties in the Colombian legislation during the 1960s raised the possibility that its holdings would be expropriated by the government.52
In the early 1960s, the company began its operations in Urab�, shipping its first exports in 1964. The company had shut down its production activities in Magdalena in 1960 but continued to purchase from its associate producers there while increasing investments in Urab�. The manager signed a contract with Jos� Vives, who became the company's representative and main provider in Magdalena. Not only did the company get rid of its lands in Magdalena; it also transferred to the locals the costs of disease control, harvesting and pick-up, transportation, loading, and bagging.53 In 1963 the company's manager in Magdalena reported a decrease of $40,600 in disease-control costs, a decrease of $241,200 in harvesting costs, and a decrease of $44,900 in bagging costs, all due to this modification.54 United Fruit concentrated its efforts in Urab�, where it established a subcontracting system with entrepreneurs in the city of Medell�n, By 1964, independent producers were exporting 47 percent of the fruit in Magdalena.55 In 1965, when its operations in Urab� had taken off, the company pulled out of Magdalena without notice and handed over its suppliers to Vives's Federaci�n. From that point on, all exports from Magdalena were produced by the local planters. Exports from Urab�, operating through Colombian companies, increased dramatically in an impressively short period of time.
Once the company decided to leave Magdalena, it faced the problem of planters defaulting on their company loans. Some of the locals reverted to behaving as they had in 1943, when the war forced the company to leave the region. The American consul in Barranquilla reported that in the early 1940s local planters owed a total of two million U.S. dollars to United Fruit, which the company had little hope of recovering.56 When the company withdrew from Magdalena again in the 1960s, it faced a similar problem, as the Magdalena planters owed the company a debt of $5,150,000.57 Vives accepted the transfer of purchase contracts from United Fruit but did not buy the debts, because he considered them to be unrecoverable.
Not only did the company have problems recouping its loans; it also had to deal with buyers who defaulted on their payments after agreeing to purchase some of the company's assets. In addition, it became difficult to sell other assets at an acceptable price. The company's manager, in his report to the headquarters in Boston, summarized the difficulties involved in trying to leave the region profitably.58
The country's political situation made it an opportune time for United Fruit to appeal to the Colombian government for help in solving its problems with the planters. At this time, most Latin American countries had joined President Kennedy's development initiative, known as the Alliance for Progress, which was created to counter the popularity of the Cuban revolution among Latin Americans. One of the goals of the Alliance was promoting agrarian reforms in Latin America in order to reduce inequality in the countryside and make the rural sector more efficient. As a result, the Colombian government created an agency called the National Institute for Agrarian Reform (Instituto Colombiano para la Reforma Agraria, or Incora). Since negotiations with the local planters were proving unsuccessful, United Fruit began to look for alternatives to its plan for withdrawing from Magdalena that would not result in the loss of more money. Therefore, in 1967, the company began negotiations with Incora, attempting to persuade the institute to cover its debts and buy the remaining United Fruit assets.59 The company's manager reported that Incora probably represented the best alternative, even though it was not likely to pay the prices the company wanted.60 Incora was the second government entity to be given property by United Fruit following the company's withdrawal from Magdalena; the Colombian Social Security Institute (Instituto Colombiano de Seguro Social, or ICSS) had already received its hospital facilities. Negotiations with Incora took longer than expected, continuing until April 1968, when a preliminary agreement was signed. By this date, United Fruit still had not gotten rid of its remaining property because a prospective buyer had canceled the deal at the last minute, leaving the company with no choice but to do business with Incora.61 Under the terms of the agreement reached by the two parties, Incora would cover the outstanding balances of loans to planters' current accounts, and sale of the farms.62 The company manager reported, with obvious joy, that this outcome exceeded his hopes. Once the agreement was signed in late 1969, United Fruit's manager reported a dramatic reduction in costs from the previous year, which he attributed to the transfer of obligations to Incora.63
Had it not been for Incora, United Fruit would have lost the money owed by the local planters, as it was unable to enforce its loan contracts. Incora assumed all responsibility for the loans, but interviews with former planters revealed that it was unable to recover payments from many of them. Once United Fruit became established in Urab�, it created mechanisms to prevent a recurrence of this kind of problem.
After United Fruit left Magdalena, Federaci�n and Consorcio took over the banana-export business. However, both companies eventually failed, due to climatic hazards and weak lobbying power in Bogot�. In the early 1960s, United Fruit's biggest competitor, Standard Fruit Company, changed the kind of bananas it was producing from Gros Michel to Valery. The Gros Michel bananas had proved susceptible to disease, and its trees were vulnerable to hurricanes. Valery bananas were more resistant to disease, the shorter height of their trees made them less vulnerable to strong winds, and they proved to be more productive. While Central American producers began to replace Gros Michel with Valery in the late 1950s, Colombian planters continued to produce Gros Michel. In the mid-1960s, aware that demand for Valery was increasing, the Magdalena planters applied for a permit to import Valery seeds. The proposal was rejected several times by the Colombian government, which at this time was creating obstacles to imports as part of its policy of promoting industrialization. In order to gain an exemption from the import policy, a region needed a strong lobby, which Magdalena did not have. In a desperate attempt to rescue their region from bankruptcy, the planters imported the seeds illegally. This action, however, was not only too late; it also was taken just after several hurricanes had destroyed the plantations. In a last attempt to rescue their companies, the Magdalena planters applied to the national government for a recently established export subsidy (Plan Vallejo), but this application was also rejected. By contrast, around the same time, the Urab� planters received full government support to replace Gros Michel with Valery, which allowed them to survive under the new market conditions. By 1970, both Consorcio and Federaci�n had been liquidated.64
Doing Businesses with Urban Industrialists in Urab�
From the beginning, United Fruit never had its own production farms in the region of Urab�, but instead used a subcontracting system. The company functioned as a financial institution, technical advisor, and marketing operation. It provided the locals with the loans they needed to "adapt" the jungle of Urab� to banana production, as long as they agreed to sell the produce back to the company. To avoid the problems with recovering loan payments it had faced in Magdalena, United Fruit decided to use financial intermediaries. Rather than giving the loans directly to the planters, as it had done in Magdalena, the company used a Colombian bank that depended on capital transferred from a United Fruit account at the First National Bank of Boston. As a further enforcement measure, the company arranged banana-purchase contracts with its debtors.
Despite the apparent efficiency of this arrangement, United Fruit could not prevent the growers from becoming independent exporters. A conflict with the company led some of the locals, who had grown and profited from doing business with United Fruit, to create their own export companies, aided in part by government support.
Differences between Magdalena and Urab�
The business elite in Urab� was very different from the entrepreneurs of Magdalena. Urab� had only recently been colonized. Since most of its inhabitants had arrived in the 1960s, it lacked the established urban centers or traditional elites that existed in Santa Marta or Ci�naga in Magdalena. Whereas the Magdalena families involved in the banana business had settled there before the arrival of United Fruit, the Urabense entrepreneurs came from the industrial city of Medell�n and were as much outsiders as United Fruit itself. The elite of Magdalena had a tradition of working in the agrarian sector, and some had built their wealth in other agricultural activities before the banana boom. In contrast, the people of Urab� had made their careers as urban professionals in the Medell�n industrial sector and did not belong to the landowner class.65 Medell�n is the capital city of the province of Antioquia, the most powerful and prosperous province in Colombia, so its industrial entrepreneurial class had already developed important and sophisticated enterprises long before going into the banana business. Magdalena was nearly the opposite. Finally, while Magdalena is a weak and poor department, Antioquia today is one of the nation's richest, and it has traditionally had a strong lobby in Bogot�. These advantages worked to the benefit of the Urabense planters when they came into conflict with United Fruit.
During la Violencia, Urab� was one of the most turbulent places in the country, but by 1953 the Colombian government had militarized the region, defeating the Liberal guerrillas operating in the area.66 By the time United Fruit started its operations there, this isolated region was living through a period of relative peace, which was broken in the late 1970s and 1980s with the arrival of the left-wing guerrillas, the drug Mafia, the right-wing paramilitary, and the arms smugglers.67
Creating the Urabense Planters' Society
United Fruit used a different system to finance its Urabense providers than the one it had used in Magdalena. Their first 100,000 hectares were financed through the Corporaci�n Financiera Colombiana de Desarrollo Industrial.68 The procedures worked as follows: The First National Bank of Boston transferred United Fruit funds to the Corporaci�n in Colombia, and when a planter wanted credit to create a plantation, he or she had to apply for the loan from the Corporaci�n. The Corporaci�n loaned $693 per hectare, charging an interest rate of 9 percent that was to be paid in full after the first six years of operation.69 To be eligible, the planter had to buy the land and prepare it for planting before applying for the loan. The Corporaci�n required both a feasibility evaluation of the plantation by United Fruit experts and a purchase contract between the planter and the company. The Corporaci�n did not give a loan unless the planter had a contract with United Fruit. The company committed itself to giving technical assistance, fertilizers, and control measures against Sigatoka; the cost of these services was discounted from the purchase price of the bananas. Since United Fruit only purchased fruit from growers who had submitted to their experts' evaluation and had received Corporaci�n approval, it made no sense for locals to seek loans elsewhere.70
In its first two years, the Corporaci�n loaned a total of (U.S.)$6 million, while United Fruit invested (U.S.)$4.5 million in the development of the first 20,000 acres for local production. The company did not have to invest in infrastructure development, and it was up to the farmer to clear and plant the fields with the support of the Corporaci�n's five-year loan.71 Thus, the company never vertically integrated its operations in Urab�, and it owned no infrastructure other than the transportation facilities in the local canals.
By establishing the dynamic of having the Corporaci�n act as an intermediary, United Fruit minimized the kinds of problems it had faced in Magdalena. First, the system enabled the company to avoid giving unqualified loans, as the applications were evaluated by the Corporaci�n. Second, by placing a local agent in charge of the loans, the company was able to minimize opportunistic defaults by the planters in the event that the company left the area, as occurred in Magdalena.
The Schism of Urab�
By the mid-1960s the local planters and United Fruit had established strong ties with each other. Although the local planters had incurred debts in order to develop their purchasing relationship with United Fruit, the multinational had wisely created an intermediary for the loan repayment and had many other subsidiaries in Central America that were providing it with fruit for the international market. This scenario appeared to be extremely favorable for United Fruit, which expected to gain the upper hand when it came time to renew the purchase contracts.
In 1968 changing conditions on United Fruit's Central American plantations made the company rethink its relationship with the Urabense growers. That year, United Fruit had to recover the losses incurred by the Panama Disease in Central America. In the new purchase contracts with Urabense growers, the company offered only half the price it had previously paid for their fruit.72
However, achieving this drastic reduction in the purchase price did not turn out to be easy for United Fruit. Although United Fruit was the only marketing company, the locals united and rejected its proposal. The company refused to budge on its offer, so the locals decided in 1968 to continue the business independently. In that same year, they established their own marketing company under the name Uni�n de Bananeros de Urab� (Uniban) and simultaneously formed the Asociacion de Ganaderos y Productores de Banano de Urab� (Augura). While Uniban dealt with the production and export business, Augura acted as a lobbying organization for the banana growers' interests at the national and the international levels.
After the schism, United Fruit ceased providing transportation facilities or technical assistance to the planters. To overcome this problem, the locals contacted American fruit-import firms and, in 1969, established their own marketing company in Miami, called Turbana. Their effort was so successful that the next year, in 1970, Uniban was exporting 45 percent of Urabense shipments.73
Once they decided to continue the business on their own, the locals came into conflict with United Fruit over the use of the canals. Urab�'s topography does not permit the existence of a port, so United Fruit had transformed the existing rivers into canals that connected the plantations to the sea. The fruit was first loaded onto boats in the canal and then transported to sea, where it was loaded onto larger ships. The company claimed ownership of the canals it had built and refused to permit Uniban to use them. Augura protested to President Carlos Lleras, who personally intervened and forced United Fruit to grant Uniban access to the canals. The government also helped the Urabense planters by offering subsidies for their fruit under Plan Vallejo. These two successes reveal the power of Augura's lobby compared with Magdalena's.74
Government help did not stop here. In the early 1970s the central government gave subsidized loans to Uniban, which enabled the company to continue its vertical integration, a process that was already underway. In 1971 the government agency Instituto de Fomento Industrial (Institute for Industrial Development, or IFI) gave Uniban a loan to build its own maritime transportation equipment, and in 1973 the Colombian president himself, Misael Pastrana, inaugurated the company's shipyard.75 Later, in 1979 the Urabense growers also managed to get a 7 percent subsidy for exports from the national government.76
Urab� had the infrastructure it needed for developing Valery, even during the period when it was exporting Gros Michel. Among its features were an "air wire" system that moved the banana bunches from the workers on the plantation directly to the packaging plant with minimal damage, cardboard factories, and plastics manufacturers. The factories, which were built by Colombian firms from Medell�n, changed the region's landscape dramatically in a very short time. A formal calculation of the linkages between the banana industry and other sectors has yet to be made. However, the very existence of an industrial complex of several factories covering kilometers of territory bordering the jungle-built, owned, and managed by locals-suggests that the agricultural export industry does not necessarily reinforce underdevelopment, as some studies have suggested.77
The growth and maturation of the Colombian marketing companies paralleled the development of one of the worst political conflicts in the country, particularly in the region of Urab�. The conflict between the left-wing guerrillas of the Colombian Revolutionary Armed Forces (FARC), the People's Liberation Army (EPL), the right-wing paramilitary, the drug Mafia, and the government made it virtually impossible for the Medell�n entrepreneurs to run their farms efficiently. When United Fruit opened the first plantations in the 1960s, Urab� was a peaceful region. However, by the 1980s Urab� had become the main entry for illegal arms traffic. Whichever armed group controlled this region would control this profitable market, a strategically important factor in a country that has endured continual regional warfare since the 1940s. Urab� fell into an insane spiral of violence, in which farm managers were kidnapped or murdered by the guerrillas, union leaders were attacked by the paramilitary, and workers were killed by all sides.78 The banana companies attributed their poor performance during the 1980s to the violence, the numerous strikes, and the destruction inflicted on the banana plantations.79 The situation reached such a critical point that, by the mid-1980s, Uniban began buying lands in the more peaceful Banana Zone of Magdalena. During this period, United Fruit (now called United Brands, its name from 1970 to 1989) was not a target of the political violence, partly because it kept a very low profile and left all the labor problems for its local providers to resolve.
In 1982 United Fruit decided to concentrate on its Central American divisions and sold its Colombian operations to the local planters. The company eventually returned in 1989, following a policy of expanding its operations in anticipation of a larger European market after the creation of the European Union and the end of communism in Eastern Europe. Its optimism proved to be misplaced, and the company (under its new name of Chiquita) had to file for bankruptcy.80 In February 2004, the company left Colombia and moved to Africa, drawn by the continent's lower production costs.
Conclusion
Historical studies of multinational corporations in Latin America have largely neglected the role of these companies' local providers. The image of local capitalists as merely forming an arm of foreign corporations and thereby facilitating the exploitation of their countries, a view that is prevalent in studies of economic imperialism, has resulted in historians' ignoring the providers' agency and overlooking their role in shaping the export economies of their countries. By examining the nature of the contractual relationship, including its enforcement provisions, between local providers and foreign multinationals, we gain a better understanding of the impact of foreign direct investment in under-developed countries and the reaction of local societies to this influx of capital.
Before World War II, the relationship between United Fruit and Colombian planters seems to have fit the classical enclave model, whereby a local absentee landowner elite benefited from the rents paid by United Fruit and spent those gains unproductively. Some planters tried to challenge the company's overwhelming power but were unsuccessful. The terms of the company's contracts, and the way these contracts were enforced, made it extremely difficult for locals to develop their own banana-export business. Additionally, the lack of capital in the region made it even more difficult for them to act on their own. However, after World War II, locals managed to break United Fruit's absolute control over marketing and created their own export companies. Magdalena represents a particular case, because locals there took advantage of the interruption of the company's activities in the region during World War II and began to launch exports independently.
The Urabense story played out very differently from the events that took place in Magdalena. First, the company never produced fruit directly in Urab�, relying instead on local providers. Second, the planters in Urab� who signed contracts with United Fruit came from the Medellin industrial sector and were linked to the powerful Antioqueno lobby in Bogota. Third, Urab� was a frontier region, in which all the actors (the multinational, local planters, and workers) were newcomers. Between 1963 and 1968, United Fruit created a financial mechanism that protected it from the impact of defaults by its providers. They achieved this by enlisting a local financial institution as an intermediary, instead of lending to planters directly. The company learned from its experience in Magdalena, where many of the locals never repaid the company after it left the region. During this period, the business developed smoothly, with no major conflicts between the company and its providers. However, when the company attempted to increase its purchase price in 1968, the locals refused to sign the contract under the new terms and went on to create their own export company, Uniban. This initiative was successful in part because it was backed by the Colombian government, the kind of support that was never offered to the Magdalena growers, even in the late 1960s and early 1970s, when their industry was at high risk.
The local banana export companies in Magdalena or Urab� would not have existed without United Fruit's investment. The local planters were highly dependent on the multinational to export their fruit during the launching stage of the industry in both regions. United Fruit took advantage of this situation to write purchase contracts that were extremely favorable to itself, and it used a variety of mechanisms to enforce them. However, as soon as the locals had the opportunity, they developed their own export industry paralleling that of United Fruit. The success these companies were able to achieve after breaking their ties with United Fruit depended on the amount of political pressure they could exert and their level of influence within the national government. The importance of these factors underlines the necessity of considering the host country's politics in any analysis of contractual relationships between a multinational corporation and its local providers.
[Sidebar]
Business History Review 78 (Summer 2004): 181-212. � 2004 by The President and Fellows of Harvard College.
[Author Affiliation]
MARCELO BUCHELI is the 2004-5 Harvard-Newcomen Postdoctoral Fellow in Business History at Harvard Business School and professor of economic history at Universidad de los Andes in Bogota.
