This paper seeks to demonstrate the ways in which multinational corporations (MNCs) use the global capitalist model and institutions such as the International Monetary Fund (IMF) and World Bank, to privatize natural resources in developing countries, skirting local law and the will of the indigenous population. A historical perspective, examining the precedent that the United Fruit Company (UFCO) set throughout south and central America as well as the Caribbean, will lay the foundation for a detailed look at current applications of this model throughout other developing third world countries and its implications in the future. Furthermore, this paper will apply the theory of neo-Marxism, as it best describes the current trends in international relations.
A complex web of interconnectivity and dependency has enveloped our planet. The information age gave us the twenty-four hour news cycle and has lead to the advent of the twenty-four hour business cycle. As a stock market closes in the East, one readies to open in the West. Multinational corporations (MNCs) look to increase profit by decreasing overhead and increasing market share – seeking untapped resources and less expensive labor. The International Monetary Fund (IMF) and the World Bank facilitate the proliferation of free market capitalism in what’s been termed the “periphery” by neo-Marxists, in the hopes that with further economic integration comes greater international stability (Wallerstein). These conditions, coupled with the growing acceptance of globalization amongst the international community, have fostered an atmosphere wherein MNCs leverage for the privatization of natural resources or nationalized industry in lesser developed countries.
This paper will first demonstrate how the United Fruit Company, as a modern MNC from a powerful industrialized nation, manipulated geo-politics to increase their profit margin. Secondly, I will show how this manipulation has become a state sponsored phenomenon through the creation of entities such as the IMF and the World Bank. I will demonstrate how these organizations and policies adversely affect indigenous populations in developing nations by facilitating the flight of natural resources and usurping national sovereignty. Lastly, I will discuss how neo-Marxism best describes the topics covered in this paper, showing that United Fruit set a trend of exploitation throughout Central and South America, which led to the advent of international organizations that assist in the global institutionalization of “free market capitalism”.
United Fruit Company
In 1870, the captain of a schooner from Massachusetts took sail to Jamaica. Upon arrival he found the locals selling a great deal of strange fruit and arranged to purchase one hundred and sixty bunches for one schilling a stalk. Eleven days later, he’d returned to the States and sold the bunches for two dollars each. Captain Baker made this trip several other times, supplementing his normal cargo with the bananas. Baker commissioned the sale of the bananas through a Boston shipping agent named Andrew Preston, with whom in 1885,they together began the Boston Fruit Company. In 1899 Boston Fruit Company partnered with Minor Keith, a Brooklyn based railroad entrepreneur to create The United Fruit Company. This new company now owned 112 miles of railroad and nearly 213,000 acres of land, upon which only 61,000 acres were being used to produce bananas (Bitter Fruit 65-77).
United Fruit, in 1901, secured a contract to transport Guatemalan mail to the States, solidifying a relationship with the government. In 1904, Guatemalan dictator Manuel Estrada Cabrera sold undeveloped tropical lowlands to United Fruit, which were believed to be worthless. In addition, Cabrera allowed United Fruit to finish building the railroad from the inland capital of Guatemala to the Atlantic coast, giving them a ninety-nine year concession. This helped in tightening the grip that United Fruit had on Guatemala (Bitter Fruit 65-77).
The United Fruit Company had rivals. Samuel Zemurray was an upstart banana producer that had traveled to Honduras looking to strike a deal with the local authorities to build railroads to the coast, free of taxation on materials and other concessions. He found that a bank from New York City was already in negotiations with President Miguel Davila about assisting in a national bailout. As was most often the case in this sort of deal at the time, the bank would have one of their own placed as the head of the treasury. Knowing that New York bankers would not allow the types of concessions that he was looking for, Zemurray tracked down one of Davila’s enemies in exile in the United States, purchased a boat, machine gun, rifles, and ammunition and gave them to Miguel Bonilla. In a matter of weeks a revolution in government had taken place, Miguel Bonilla was the President of Honduras, and Samuel Zemurray had every concession he could dream of (Bitter Fruit 65-77).
Zemurray, his business growing, soon needed new land to develop, and with this in mind arranged for the purchase of a tract of land on the border of Honduras and Guatemala. Historically this had been a disputed territory, with both Honduras and Guatemala claiming ownership. As opposed to allowing conflict to ensue, the United Fruit Company used its vast resources and in 1930 bought out Zemurray’s business for $31.5 million in United Fruit stock, ending any dispute before it started (Bitter Fruit 65-77).
Throughout the 1930s, United Fruit continued to grow in market share and influence. General Ubico had come to power in Guatemala and cemented more one-sided concessions for United Fruit. Minor Keith’s International Railways of Central America (IRCA) was still the only means of transport for goods and being that United Fruit owned the port town of Puerto Barrios and the railway, international commerce was more or less controlled by United Fruit. In 1945 Juan Jose Arevalo became president of Guatemala and sought to pursue an agenda of reform in regards to United Fruit. Fierce lobbying to congress by United Fruit officials assisted in framing the disputes in terms of a “communist” influence infiltrating Central America. Congressmen from both parties, throughout 1949 and 1950, chastised the government of Guatemala for not allowing the status quo to be maintained (Bitter Fruit 65-77).
The Dulles Brothers
In March of 1951, Jacobo Arbenz was elected to the presidency in the first ever peaceful transition of power in the history of Guatemala. He continued the trend started by Arevalo, enacting more land reform policies to redistribute uncultivated land to impoverished citizens. Soon United Fruit’s uncultivated land, which was 85 percent of their total holdings, was being threatened. The Arbenz government offered to buy back the land for what the United Fruit Company had been valuing the land for taxation purposes; three dollars an acre. United Fruit insisted that they land be purchased for $75 an acre, but could not account for the gigantic discrepancy between the two figures (Jacobo Arbenz Guzmán).
Having tasted victory in the overthrow of the Mossadegh government of Iran in 1953, the Eisenhower administration set out to take action in Guatemala. Secretary of State John Foster Dulles and his brother, CIA director Allen Dulles both had worked for Sullivan & Cromwell, a law firm representing subsidiaries of United Fruit. The company also held sway with the Undersecretary of State Walter Bidell Smith, whom at one point had tried to get a management position with United Fruit. All three men were shareholders. Communist labor parties had begun to take hold in Guatemala, and this was used as a pretext to further paint the country as being influenced by the Soviets (Jacobo Arbenz Guzmán). By late 1953, the Eisenhower administration, under the blanket of McCarthyism, had done well to associate most labor movements in Guatemala with communism.
Casting popular worker’s movements in that “red” light perpetuated support in Congress for some form of response from the US government. In early 1954, the CIA put into motion plans to overthrow the Arbenz government, continuing the practice of the Monroe Doctrine. The CIA chose Guatemalan exile Carlos Armas to front a rebel group that would launch a coup d’état. With vast logistical support from the CIA, the Armas led rebel army assaulted key cities and was met with defeat. Arbenz feared further US intervention if Armas’ army was defeated too easily. He believed that officers in his military might join sides with Armas, which came true when an army garrison at the city of Chiquimula surrendered to Armas’ forces. Arbenz called forth his cabinet to announce that the army was revolting and on June 27 resigned from the presidency (1954 Guatemalan coup d’état).
The promise of high returns on investment and low overhead is the history of the United Fruit Company. The company hashed out deals with successive dictators seeking highly favorable tax conditions, continuing a pattern of exploitation throughout the first half of the 1900s.
It is clear that the Dulles brothers had a vested interest in the outcome of events in Guatemala. As stated previously, both brothers held United Fruit stock and worked for a law firm that represented United Fruit. Under the guise of preventing the spread of communism further into the western hemisphere, it can be argued that they pursued an agenda of cementing favorable relations with the current Guatemalan government to ensure the same sort of treatment. At this period in history it was easy to associate worker solidarity movements with some sort of Soviet influence; McCarthyism was in full bloom. When cast in the light of communism infiltrating the western hemisphere, Congressional and popular support for some level of intervention was not hard to achieve. This set the stage for the purposeful confusion of nationalist/anti-capitalist movements with communism. Furthermore, the history of the United Fruit Company is akin to a road map leading to the manipulation of the global capitalist system; taking advantage of underdeveloped countries, dangling the carrot of economic development before them. United Fruit clearly demonstrated that manipulating local politics could vastly increase their profits and solidify control over an otherwise free market. Moreover, Immanuel Wallerstein would suggest that the precedent that United Fruit set is a clear example of neo-Marxism in practice. The United Fruit Company used all of the avenues available to them; exploiting the favorable conditions in Guatemala to maximize their profits and market share by both strong arm tactics in Central America and policy leverage as enacted by the US government. It is quite easy to distinguish in this example, where the “core” or rich, major industrialized nations end, and the “periphery” or the rest of the developing world begins (Lyon Polt 560).
The IMF and the World Bank
Today globalization is in full swing. The institutionalization of the global capitalist system has taken hold. “Third world nations” seek a means to bring development to their part of the world via direct foreign investment. In order to craft an atmosphere where development can take place, infrastructure must be built. This is where the IMF and the World Bank come into play.
The International Monetary Fund came into existence in July of 1944 at the United Nations Monetary and Financial Conference held at the Mount Washington Hotel in northern New Hampshire. The IMF’s stated purpose is to “foster global monetary cooperation, secure financial stability, facilitate international trade, promote high employment and sustainable economic growth, and reduce poverty” (International Monetary Fund). Currently there are 185 member states that contribute to the fund. The United States, being the most powerful country in the institution, has sole veto power over decision making. In addition, the US has a disproportionate amount of voting leverage, weighing in at nearly 17%, while the next closest member state in terms of voting power is Japan at 6% (International Monetary Fund). The World Bank was also brought into existence at the Mount Washington Hotel in 1944. The bank’s purpose at its inception was to provide financial assistance to developing countries for infrastructure projects with the end aim of reducing poverty. Again, the United States is the main force behind the World Bank. The President of the US typically appoints the bank’s president being that the US is the major shareholder in the institution. The bank consists of two sub banks: the International Bank for Reconstruction and Development (IBRD) with 185 member countries and the International Development Association (IDA) which has 168 members. It is expected that members of the World Bank be member states of the IMF (World Bank).
The IMF loans money to member states, “with balance of payments difficulties, to provide temporary financing and to support policies aimed at correcting the underlying problems; loans to low-income countries are also aimed especially at poverty reduction” (IMF). The IMF stipulates “conditionalities” for member states, so when taking a loan to build the infrastructure that would lend itself to more foreign investment, they must meet these goals (Kapur). Unfortunately, as Robert Kaplan pointed out in his article “Was Democracy Just a Moment?” , civil institutions and a solid working class are needed for fledgling capitalist based democracies to flourish. This presents a hiccup in the strategy of the IMF. Most developing nations are short in both of those areas. Furthermore, the governing bodies of these developing nations are prone to kick-backs and bribery (Hall), whereas the lower classes rarely see the affect of trickle down economics, as the system is modeled to function.
In the absence of the necessary conditions to jump start economic development in a third world nation, the World Bank enacts Structural Adjustment Policies (SAPs) as a condition of the loans that will bring about economic reform (Glenn). Some of these SAPs bear a striking resemblance to the “conditionalities” sought by the United Fruit Company in Central America. In many cases, “the rapid opening of markets and privatization of state services such as health or water” are the hallmark of World Bank and IMF intervention. This continues the trend of opening up new markets to foreign investment with little “input legitimacy”, or as Fritz Scharphf defined it, “government by the people” (Glenn). Asian countries seeking assistance “have had to sign agreements… with anywhere from 50 to 80 detailed conditions covering everything from the deregulation of garlic monopolies to taxes on cattle feed and new environmental laws” (Kapur). Again, this sheds light on the similarities between the concessions that United Fruit sought in Guatemala and the conditions set forth by the likes of the IMF and the World Bank. The World Bank and the IMF continued the trend of centralizing and globalizing banking institutions, putting financial control into the hands of fewer and fewer people. Political control over these institutions has become a priority for nations and MNCs whom want to control their power and influence.
Modern Implications of the World Bank, IMF and Free Market Capitalism
What have been the results of intervention by the World Bank and IMF?
We question the G20 for having tripled the resources of the International Monetary Fund when the real need is to establish a new world economic order that includes the full transformation of the IMF, the World Bank and the WTO, entities that have contributed to this global economic crisis with their neoliberal policies (The Declaration of Cumaná).
The heads of state in Bolivia, Honduras, Cuba, Nicaragua, and Venezuela made this statement at the 5th Summit of the Americas. The statement does well to frame the topic of discussion in regard to the perspective of “periphery” nations about international financial organizations and their affect on their country. Many Latin American countries see the IMF and World Bank as tools of the global elite; the “core”, or rich industrialized nations (Derber 41). As mentioned above, the conditions that come along with a loan are often the privatization of what was once a nationalized service such as health care, telephone service, or water. The opening up of these new markets to MNCs affords them the opportunity to makes use of the global capitalist system, purchasing influence when leveraging for highly desirable contracts to build infrastructure as the IMF or World Bank prescribed (Hall).
Everything is for sale. In his paper “Privatization, multinationals, and corruption”, David Hall writes that “bribery is a method by which companies can gain higher returns: either by winning contracts or concessions which they would not otherwise have won, or by gaining contracts or concessions on more favourable, and so more profitable, terms”. It can be seen that free market capitalism invades everything it is able to touch. “Large-scale corruption is becoming a more global problem,” Hall continues, “first because of the drive for privatization, which increases both the scale of privatization and the incentive for corruption; and second because of the globalization of practices of multinationals seeking greater returns.”
As the World Bank pursues its agenda, privatization is an effect. Privatization of nationalized services in developing nations has “left much of the population of these countries far worse off, having experienced a decline in many social welfare benefits ranging from direct social transfers though to food subsidies, free education and health care” (Glenn). Furthermore, the “denationalization of industries” has lessened direct involvement by the state in their own economies (Glenn). National sovereignty or “input legitimacy” is cast in doubt when looking at things from this perspective (Kapur). Throw in allegations of corruption and bribery, and that only serves to further skirt the say of the indigenous in the developing world.
The World Bank in 1996, sought to look into allegations of corruption involving their sponsored endeavors. SGS, a private auditing firm from Europe, was charged with looking into these projects. Behind the scenes it was discovered that they had been convicted of corruption themselves. Benazir Bhutto was found guilty, in 1999, for receiving US$9 million to secure SGS contracts for inspection services. Strangely, SGS was allowed to continue operating in Pakistan regardless of the conviction of one half, of this two party deal (Hall).
IMF and World bank-esque policies are already in place in North America. As an extension of the neoliberal economic agenda of freeing up markets to foreign investment like the IMF and World Bank seek to accomplish in developing countries, the North American Free Trade Agreement (NAFTA) brought those same polices to our part of the world. The rights of MNCs trump the will of the citizens. Ethyl Corporation, the company that created the fuel additive, MMT, sued the Canadian government for $251 million, claiming that they had violated provisions set forth in NAFTA, by outlawing the use of the additive (NAFTA & Environmental Laws). Ethyl Corp. was able to side step the laws of a sovereign nation by application of the same type of concessions imposed by NAFTA, that are imposed on developing nations by the IMF and World bank, continuing the adherence to the neoliberal school of global economic development; or the “exploiters” and the “exploited”. This case demonstrates that it can even happen to those that might be considered to be between the “core” and the “periphery”; the “semi-periphery” (Lyon Polt 560).
In an attempt to recover from the Asian economic implosion of the late 1990s, as a condition of an IMF and World Bank infusion of money, Indonesia was told to shut down sixteen banks. The run on the remaining banks nearly caused the demise of the domestic banking industry. Korea was loaned $57 billion on the pretense that they promise an acceleration of “the opening of its automobile and financial sectors” to foreign investment (Kapur). Devesh Kapur writes, “The increasing scope of loan conditions implies that during a financial crisis, the IMF should take over more and more control of a country’s decision-making process”, with “little increase in accountability” when things go awry.
John Glenn concludes his essay, “Global Governance and the Democratic Deficit…”, by shining light on the fact that “the lack of input legitimacy” in international financial institutions “has led to a situation in which the agendas of the most powerful states dominate”. He continues that the neoliberal agenda of “both trade and capital account liberalization…has not served the interests of the developing countries” (Kapur). The neoliberal policies set forth through these institutions continue the trend of institutionalized exploitation, just framed in a fashion that makes them more palatable, under the guise of “pulling yourself up by your boot straps”, by opening up domestic markets to foreign investment after an infusion of capital. These policies and the greater ideological support for “free market capitalism” has led to a greater divide between the “core-states” and the “peripheral areas” that Immanuel Wallerstein writes of in his paper, “The Modern World-System…”. Wallerstein’s theory of neo-Marxism is the perspective from which best to view the United Fruit Company’s dealings in Guatemala, and the neoliberal pursuit of a global free market economy stemming from the stipulations attached to loans given out by the IMF and World Bank. The totality of these policies and ideologies as practiced since the late 1800s, has polarized the world exactly as Wallerstein suggests.
Immanuel Wallerstein writes, “One of the great strengths of Marxism was that, being an oppositional and hence critical doctrine, it called attention not merely to the contradictions of the system but to those of its ideologists, by appealing to the empirical evidence of historical reality”, which in other words means surveying results (The Rise and Future…).
The United Fruit Company was unashamed of their exploitative policies in Central America. Their actions resulted in the privatization of Guatemalan land for the production of bananas, the foreign ownership of the only railroad in the country, and providing mail services on their large fleet of ships. The company leveraged for more and more favorable conditions under which to do business, and when the government in power acted in contradiction to those desired ends, a CIA backed coup ensued to install a regime that would succumb to American political and business pressure.
In Robert Kaplan’s piece, he put forth the notion that free market democracies don’t emerge over night. The atmosphere conducive to the growth of industrialization is borne out of a robust middle class, high literacy rates, and a semblance of bureaucratic infrastructure. Absent the aforementioned elements, loans from the IMF and World Bank serve to perpetuate the divide between the industrialized “North” and the lesser developed “South” (Glenn). The undeveloped “South” or “peripheral areas” are a victim of the global institutionalization of the free market model of capitalism (The Rise and Future…). These lesser developed nations, driven by the conditions set forth by SAPs upon the loan of funds, privatize what was once nationalized resources or services, assisting in the continued flight of the revenue reaped from their land. As mentioned in the Hall article, third world nations are rife with corruption, which has proliferated under the implementation of further privatization. In addition, “input legitimacy” is sadly lacking in IMF and World Bank member states that receive loans (Glenn). As a result of this absence of “input legitimacy”, “Nationalists of all hues lamented the loss of sovereignty entailed by the requirements of IMF programs” (Kapur). The policies and practices of the IMF and World Bank, regardless of their stated intent, result in the growth of exploitative relationships, enabling MNCs to increase profits, reduce costs, and flourish in markets that had yet to be touched.
Capitalism is leading humanity and the planet to extinction. What we are experiencing is a global economic crisis of a systemic and structural nature, not another cyclic crisis. Those who think that with a taxpayer money injection and some regulatory measures this crisis will end are wrong. The financial system is in crisis because it trades bonds with six times the real value of the assets and services produced and rendered in the world, this is not a “system regulation failure”, but a integrating part of the capitalist system that speculates with all assets and values with a view to obtain the maximum profit possible. Until now, the economic crisis has generated over 100 million additional hungry persons and has slashed over 50 million jobs, and these figures show an upward trend (The Declaration of Cumaná).
This group statement by the heads of state of Nicaragua, Honduras, Cuba, Bolivia, Dominica, and Venezuela at the 5th Summit of the Americas, shows the perspective of those living in the “periphery”. Unfortunately, those living in the “core” hear very little about this perspective and sadly understand the history of these cultures even less. An empirical look at results of privatization, the institutionalization of international financial institutions such as the IMF and World Bank, and the precedent set by the United Fruit Company in Guatemala, leads this author to hold that the neo-Marxist theory of international politics as put forth by Immanuel Wallerstein best accounts for the current trend of events in the world.
“The Declaration of Cumaná: Capitalism ‘threatens life on the planet’ | rabble.ca.” Rabble.ca | News for the rest of us. 30 Apr. 2009 <http://rabble.ca/news/2009/04/declaration-cuman%C3%A1-capitalism-threatens-life-planet>.
Derber, Charles. People before profit the new globalization in the age of terror, big money, and economic crisis. New York: St. Martin’s P, 2002.
Glenn, John. “Global Governance and the Democratic Deficit: stifiling the voice of the south.” Third World Quaterly 29: 217-38.
Hall, David. “Privatization, multinationals, and corruption.” Development in Practice 9 (1999): 539-56.
“International Monetary Fund -.” Wikipedia, the free encyclopedia. 30 Apr. 2009 <http://en.wikipedia.org/wiki/International_Monetary_Fund>.
“Jacobo Arbenz Guzmán -.” Wikipedia, the free encyclopedia. 27 Apr. 2009 <http://en.wikipedia.org/wiki/Jacobo_Arbenz_Guzm%C3%A1n>.
Kaplan, Robert D. “Was Democracy Just A Moment?” The Atlantic Monthly (1997).
Kapur, Devesh. “The IMF: A Cure or a Curse?” Foreign Policy (1998): 114-29. Foreign Policy. 15 Feb. 2009 <http://www.foreignpolicy.com/Ning/archive/archive/111/imf.pdf>.
Lyon, Alynna. “Neo-Marxism.” Polt 560. New Hampshire, Durham. 24 Apr. 2009.
“NAFTA & Environmental Laws: The Case of Canada and Ethyl Corp.” Global Policy Forum. 02 May 2009 <http://www.globalpolicy.org/socecon/envronmt/ethyl.htm>.
“1954 Guatemalan coup d’état -.” Wikipedia, the free encyclopedia. 27 Apr. 2009 <http://en.wikipedia.org/wiki/Operation_PBSUCCESS>.
Schlesinger, Stephen, Stephen Kinzer, and John H. Coatsworth. Bitter Fruit The Story of the American Coup in Guatemala, Revised and Expanded (David Rockefeller Center Series on Latin American Studies). New York: Harvard University David Rockefeller Center for Latin American Studies, 2005.
“US foreign policy in Guatemala.” An alternative view to the mainstream media, Human rights; Social and economic justice; Foreign policy; Corporations; Media control, Travel in Africa, Asia and Latin America. 27 Apr. 2009 <http://www.thirdworldtraveler.com/US_ThirdWorld/US_Guat.html>.
Wallerstein, Immanuel. “The Modern World-System: Capitalist Agriculture and the Origins of the European World-Economy in the Sixteenth Century.” MyUW.net Web Server. 02 May 2009 <http://home.myuw.net/jjcrump/courses/102winter06/WallersteinEtc.pdf>.
Wallerstein, Immanuel. “The Rise and Future Demise of the World Capitalist System: Concepts for.” Comparative Studies in Society and History 16 (1974): 387-415. 15 Feb. 2009 <http://links.jstor.org/sici?sici=0010-4175%28197409%2916%3A4%3C387%3ATRAFDO%3E2.0.CO%3B2-P>.
“World Bank -.” Wikipedia, the free encyclopedia. 30 Apr. 2009 <http://en.wikipedia.org/wiki/World_Bank>.