History and Society in Central America 9781477306932

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History and Society in Central America

Translations from Latin America Series

Institute of Latin American Studies University of Texas at Austin

History and Society in Central America

By Edelberto Torres Rivas Translated by Douglass Sullivan-González

University of Texas Press, Austin

Copyright © 1993 by the University of Texas Press All rights reserved

First Edition, 1993 Requests for permission to reproduce material from this work should be sent to Permissions, University of Texas Press, P.O. Box 7819, Austin, Texas 78713-7819 © The paper used in this publication meets the minimum requirements of American National Standard for Information Sciences—Permanence of Paper for Printed Library Materials, ANSI Z39.48-1984. Library of Congress Cataloging-in-Publication Data Torres-Rivas, Edelberto. [Interpretación del desarrollo social centroamericano. English] History and society in Central America / by Edelberto Torres-Rivas ; translated by Douglass Sullivan-González. p. cm. — (Translations from Latin America Series) Includes bibliographical references and index. ISBN 0-292-78128-8 (cloth). — ISBN 0-292-78131-8 (pbk.) 1. Central America—Economic conditions. 2. Central America—Social conditions. 3. Central America—Economic integration. I. Title. II. Series. HC141.T6713 1993 93-5974 330.9728Ό52—dc20 CIP

Contents

Foreword by Victor Bulmer-Thomas

ix

Translator's Foreword

xv

Introduction to the 1969 Edition 1. Anarchy

xvii 1

2. The Liberal Republic

12

3. The Decline of the Agro-Export Society and the World Crisis of 1930

42

4. The Difficult Transition: World Depression and Postwar Growth 5. The New Option: Central American Economic Integration

56 97

6. In the Eye of the Storm, 1979-1991

119

Appendix

133

Notes

155

Bibliography

177

Index

183

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Tables 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. A-l. A-2. A-3. A-4. A-5. A-6. A-7. A-8. A-9. A-10. A-l1. A-12. A-13.

Guatemalan Tariffs on Coffee Shipment, 1915 and 1930 Direct U.S. Investment in Central and Latin America, 1897-1929 Percentage of Coffee Crop Sold to the United States by Each Central American Country Central American Gross Monetary Reserves (Gold and Foreign Exchange Assets) Average Family Income from Agriculture, by Socioeconomic Group Movement of Private Capital from Central America Concentration of Land, by Farm Size Gross Value of Agricultural Production, by Farm Size Destination of Production per Manzana Cultivated Composition of the Rural Population, by Type of Tenancy General Categories of Tenancy in Central America Direct U.S. Investment in Central America: Official Grants and Long-Term Loans Burden of Foreign Debt in Central America Central American Distribution of Income and Levels of Income per Inhabitant through 1980 Central American Coffee Production Central American Coffee Exports Central American Coffee Production as Percentage of World's Production Central American Coffee Exports as Percentage of World's Production Costa Rica's Coffee Exports to Principal Buyers El Salvador's Coffee Exports to Principal Buyers Guatemala's Coffee Exports to Principal Buyers Honduras's Coffee Exports to Principal Buyers Nicaragua's Coffee Exports to Principal Buyers Central America's Average Coffee Production, per Inhabitant Direct U.S. Investment in Latin America, by Country, 1929-1950 Direct U.S. Investment in Latin America in 1950 Movement of Private Capital from Latin America and Net Errors and Omissions in Balance of Payments

38 49 65 73 75 76 82 83 84 86 95 111 114 121 134 137 138 139 140 141 142 143 144 145 145 146 148

Contents Net Entry of Noncompensatory and Long-Term Foreign Capital in Private and Public Sectors, by Country, 1951-1960 A-15. Net Entry of Noncompensatory, Long-Term Foreign Capital in Principal Forms, by Country, 1946-1960 A-16. Index of Health Conditions, 1960 A-17. Indicators of the Existence of Basic Social Capital A-18. Number and Percentage of Union Workers in Economically Active Population, 1960 A-19. Percentage of Population Insured through Social Security Services A-20. Urban and Rural Population as Percentage of Total Population A-21. Rates of Population Growth

vii

A-14.

149 150 152 152 153 153 154 154

Central America with Capital Cities

Foreword

With the recent explosion in research on Central America still in full swing, it is easy to forget how different the situation was at the end of the 1960s, when Edelberto Torres Rivas's magnificent study [Interpretación del desarrollo social centroamericano) first appeared. At that time, the few books and articles written on Central America in Spanish in the social sciences tended to be very descriptive and factual, with minimal analytical content; those written in English concentrated instead on uncritical evaluations of the Central American Common Market (CACM) or the new agricultural exports (cotton, sugar, beef) while eulogizing the foreign-controlled banana industry or justifying U.S. intervention against the Arbenz regime in Guatemala. The Marxist literature in both Spanish and English contented itself with ritual denunciations of U.S. imperialism and a facile interpretation of Central American development based on orthodox theory. Nothing written in those days provided much of a guide to the explosion that would rock Central America a decade later, beginning with the Nicaraguan Revolution in July 1979, the fall of General Romero in El Salvador in October of the same year, and the descent into regional crisis at the start of the 1980s. Torres Rivas's book was different. Skillfully weaving his way through the barren literature just described, Torres Rivas carved out an interpretation of Central American development from the time of independence in the 1820s that gave fair warning of the storms ahead. Writing at a time when the CACM was in its golden age, Torres Rivas would have been forgiven for assuming (as many did) that—whatever the problems of the past—industrialization and agricultural modernization would raise the standard of living of the masses, provide the social base for political reform, and finally remove from the region the humiliating label of "banana republics." Torres Rivas, however, was not afraid to challenge the prevailing public and scholarly opinion. By pointing out the weaknesses and limitations in earlier periods of growth and development, he

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showed how the new phase was unlikely to overcome the region's inherited problems. Time, alas, has proved him right. It was no accident that Torres Rivas's book first appeared in Chile. At the time, many of the leading social scientists in Latin America (including Torres Rivas himself) were working in Santiago, developing the basic ideas of the dependency school. Much of the research done then has not survived the test of time, but Interpretación del desarrollo social centroamericano is different for two reasons. First, Central America fits the ideas of the dependency school better than many other regions and countries to which dependency theory was applied. In the case of the banana industry, for example, controlled for all this century in Central America by foreign companies, the claim that development of the center and underdevelopment of the periphery are really two sides of the same coin is not unreasonable. Second, Torres Rivas allows his research to be infused with, but not dictated by, the methodology of the dependency school; there is little allusion to the chimera of " self-sustained autonomous development," so common in other dependency writings. For Torres Rivas, the development of coffee in the second half of the nineteenth century and the model of desarrollo hacia afuera (export-led growth) was not merely the best, but the only, option available; what went wrong was the social and economic organization of the industry, for which, ultimately, Central Americans themselves were responsible. Despite a paucity of scholarly monographs on which to base his interpretation, a desperate shortage of statistical material, and, indeed, limited access to the English-language publications, Torres Rivas provided an astonishing array of hypotheses to guide the reader through the confused, and often confusing, first 150 years of Central American independence. Never content merely to describe events or changes, he asks the kinds of provocative questions that serious analysis demands while never being afraid to offer answers. As a guide to future research on Central America, this book is without rival; even when the answers are unclear, Torres Rivas has the knack of pointing the reader toward the important questions, the areas demanding further research, and the topics still to be covered. Indeed, Interpretación del desarrollo social centroamericano should be compulsory reading for all doctoral students embarking on research on Central America in the social sciences,· had it been required twenty years ago, much irrelevant research might have been avoided. What is most remarkable about this book is how well the hypotheses have stood up to the empirical studies of recent years. Work on the origins and development of the coffee industry by Cambranes, Hall, Gudmundson, and others surely supports the hypothesis that coffee was an engine of growth that failed to realize its potential in most of Central

Foreword

xi

America because of the unequal relations established between the employers and the employed. Research on the banana industry by Slutzky, Meza, and López, for example, confirms the notion that foreign ownership was the chief obstacle to Central America's reaping a fair share of the very considerable benefits offered by the "green gold." All recent work on the CACM has confirmed the doubts and reservations Torres Rivas first expressed at the end of the 1960s about its capacity for transforming the economic, social, and political development of the region. The latest research has confirmed the dynamic character of the agro-export model and has recognized, as Torres Rivas did, that several of the region's republics lacked the defense mechanisms to cope with the social disruptions arising from rapid agro-export growth. And who can deny that Torres Rivas was right to focus on the rural economy as the Achilles' heel of Central American development? In a masterly section at the end of chapter 4, he identifies the price paid for uncontrolled devotion to the agro-export model for over a century: neglect of domestic food crops, absence of raw materials for industrial development (leaving industry overdependent on imported imputs), massive permanent and temporary migratory movements, and destruction of the peasantry without the creation of a permanent rural proletariat. None of these developments were inevitable, and Torres Rivas identifies with care and accuracy the policy errors and social and political bias that deprived much of Central America's rural population of a share in the fruits of land and labor productivity growth. This is still one of the key problems facing Central America after a decade of crisis; it demands a political solution, which has merely been postponed—but not resolved—by billions of foreign aid dollars poured into the region in recent years. Torres Rivas breaks down the postindependence epoch into four periods: anarchy, from the 1820s to the liberal revolutions starting in the 1870s); the liberal republic, from the liberal revolutions to the start of the 1929 depression; stagnation, until the end of the Second World War; and postwar growth as Central America was reinserted into the world economy, modified after 1960 by the formation of the CACM. Most subsequent research has found this periodization helpful. The first fifty years of independence—still the most unresearched period in postcolonial history—saw the collapse of the Central American Federation, AngloU.S. rivalry for control of a possible interoceanic canal through the isthmus, and futile quarrels between Liberals and Conservatives. It would have been easy to conclude, as many have done, that Central America's problems could have been resolved had the region not attracted so much attention from foreign powers. Yet Torres Rivas, while recognizing the damage done by foreign intervention, saw clearly that

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the root cause of the problem was the failure to transform the fragile economy inherited from colonialism by developing new products,· only such a change could in turn transform the suffocating superstructure within which both Liberals and Conservatives were forced to work in the anarchic period. The transformation of the economy finally occurred with the introduction of coffee. In view of the stagnation, if not decline, of the first fifty years of independence, it was small wonder that Central American leaders from Costa Rica to Guatemala bent over backward to provide incentives for production and export of the new crop. Access to suitable land was provided through sale or gift of government property, alienation of communal lands, and cheap credit; a labor force was made available through coercion, legalized debt peonage, and antivagrancy laws; in the absence of lendable funds in sufficient quantity, foreigners were encouraged to invest in every stage of the coffee cycle; some presidents even made the cultivation of coffee compulsory. The measures were extreme and the results spectacular. Central America, with the exception of Honduras, was thrust into the world economy on the back of coffee at a time when demand was growing rapidly. The capitalist surplus began to grow, but capital accumulation lagged far behind. Instead of transforming the whole economy through the creation of a domestic market, a generalized increase in productivity, and a modest level of industrialization, the benefits of the coffee boom went disproportionately to the small number of owners (including many foreigners) of large estates. Even the liberal governments failed to reap sufficient rewards from the bonanza they themselves had created. The chaotic monetary and financial conditions prevailing in all the republics for most of the liberal period (finally resolved in the 1920s) benefited the coffee growers and exporters to a high degree, for they sold their output for hard currency while meeting their domestic obligations in depreciated paper currency. Yet the worst-affected were the coffee workers themselves, tied to the estates by unequal contracts, often paid in-kind, and offered little or no security. They provided a cushion against falling prices in time of depression and a secure source of additional labor in times of boom. Despite the thousands of workers employed directly and indirectly in the coffee sector by the 1920s, almost no industries owed their origin to the growth of this rural labor force, whose pay and work conditions were so unsatisfactory. The labor force in the banana industry was, by contrast, much better rewarded, even by the 1920s. Governments in Costa Rica, Guatemala, and Honduras, however, committed the same mistake that had been made with coffee. Keen to see the development of a new industry, they

Foreword

xiii

offered the banana companies such generous inducements that the benefits of rapid growth accrued almost entirely to those companies. Workers spent their wages in company stores that sold goods imported free of duty; governments received derisory taxes from exports and none from profits; "independent" producers soon found their independence a fiction, as both prices and costs were dictated by the companies. The governments finally realized their mistake, but, when the contracts came up for renewal, the Great Depression struck. In the 1930s, the government's bargaining power was at its lowest ebb and the unequal relationship was not finally corrected until the 1970s—almost a century after foreign penetration of the banana industry began. Recent research on Central America in the 1930s and during the Second World War suggests that the situation was not quite as dismal as Torres Rivas first assumed, yet no new areas of capital accumulation appeared, industrialization was minimal, and the political suffocation Central America experienced during the long years of dictatorship was a heavy price to pay. The years of frustration spilled over finally in 1944, but only Guatemala of the four northern republics was able to break free completely from its dictatorial past; the Guatemalan Revolution (19441954) proved, tragically, to be merely an interlude rather than a new beginning. The postwar development of the Central American economies has received more attention than development in any other period, but, once again, the basic ideas elaborated by Torres Rivas have been confirmed. The new export crops modified, but did not undermine, the model of export-led growth, with its unequal distribution of income and distorted pattern of capital accumulation. The CACM offered much but delivered little, as it found itself operating within the restricted parameters determined by the export-led model. Export-led growth may be necessary for Central America's development, but Torres Rivas's book shows that it is certainly not sufficient, and all those technocrats in international organizations currently persuading Central Americans to embark on a new round of export expansion (based on nontraditional exports) should take heed of the limitations of previous efforts. Central America is a region crying out for comparative study using an interdisciplinary approach. Its shared colonial past, its similarities in economic structure, and its dependence on foreign trade all suggest that worthwhile generalizations can be made, which still do justice to the many differences that exist between, and even within, the five republics. Surprisingly, however, there have been only a handful of books this century that have emphasized the general without distorting the particular. One such book is Interpretación del desarrollo social centroamericano. Always sensitive to the differences between the five repub-

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lics, Torres Rivas has still managed to produce a stream of generalizations that should enrich social science research on the region for many years to come. Born of a Nicaraguan father who played a glorious role in the long struggle against the Somoza dynasty, educated in Guatemala, and now working in Costa Rica, EdelbertoTorres Rivas symbolizes the ideal that has been the dream of many political leaders from the time of Francisco Morazán—the Central American who searches for the truth without respect to national boundaries. Victor Bulmer-Thomas Queen Mary College London University

Translator's Foreword

One of the highlights of my graduate career at the University of Texas at Austin was taking a course on the social development of Central America with Visiting Professor Edelberto Torres Rivas. During that short three months, I discovered a scholar who was not bound by a strident theoretical discourse but who ferreted out the unique dialectic between dependency theory and social development in the Central American nations. Translating his Interpretación del desarrollo social centroamericano proved to be equally fascinating and rewarding. First published in 1969, Torres Rivas's work examines in five chapters the particularities and generalities of social development in the Central American nations from the early nineteenth-century independence period through the rise and fall of the Central American common market in the 1960s. A sixth chapter, concluded in January 1992, brings the reader up to date with an analysis of the failures of development and the corollary insurgent movements that collided with repressive governments in their attempts to challenge unequal development. This translated edition offers an updated bibliography and the addition of an index, while some tables, previously located in the footnotes, have been incorporated into the body of the text for the reader's convenience. I owe a special thanks to Miguel Baraona for his work on chapter 3. We had intended to coauthor the translation of this work, but family and academic demands impeded that dream. I owe my gratitude to Larry Bethune, Werner Marti, Kathy Bork, and Virginia Hagerty for their invaluable editorial work with the text, and Carolyn Poage and Ana Escomel for their skillful production work. I also want to express my deep appreciation to my spouse, Maribel Sullivan-González, for her unyielding support. Those familiar with Torres Rivas's prolific and profound prose know that translating his insights from Spanish to English is a formidable task. We have struggled together to render a finished product that is not too

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literal but captures the original meaning and intent. Wherever the translation fails to embody the rich quality of Torres Rivas's text, I accept full responsibility. Wherever questions arise from the content of the reading, you will find in Edelberto Torres Rivas a person of unparalleled integrity, receptive to your insights and comments. Douglass Sullivan-González Austin, Texas

Introduction to the 1969 Edition

The five Central American nations claim a mutual economic and social history resulting from a shared geopolitical destiny. Few historical investigations exist that examine the economic and social formation of Central America, and even fewer that furnish a perspective respectful of local differences. This book represents an attempt, without distorting regional conditions and disregarding local agents, to achieve a global perspective of the forces that favored and impeded development. This work, therefore, examines the social development of Central America. Some analytical schemes and structural observations are employed to explain development. For this reason, and for the limitations discovered in the bibliographical sources and documents, the work has a provisional objective that underlines the preliminary character of the hypothesis and proposed explanations. At the very least, the results are susceptible to total or partial modification in the future. One crucial question in this study considers the formation of the nation-state, that is, the possibility of a greater or lesser degree of autonomy achieved by Central American society as a whole and as a national expression of the domestic and foreign forces present in its formation. Economic factors by themselves do not clarify the bonds of dependence and interdependence or the forms of modernization if not compared simultaneously with the activity of social groups and classes, their relations, commitments, and conflicts. The effective linking of the Central American economy to the world market constitutes our point of departure. This linking, actualized through an export agricultural product, implied the participation of local producers and the consequent restructuring of domestic institutions. The stage prior to this strategic moment constituted only frustrated efforts at establishing a central power in response to the political rupture with Spain. The civil war that led to the dissolution of the federal covenant demonstrated the failure to produce a viable economic and political alternative. Instead, a vigorous colonial and economic inherit-

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ance prevailed for years following 1821. With the exception of Honduras, Central America began to mold itself as an agro-export society through the emergence of coffee. In Honduras, first mining and then bananas constituted the principal economic activity. The bonds of dependency to the world market acquired a new dimension with the formation of the banana enclave, the first appearance of North American capital in Central America. Although the enclave functioned only in Guatemala, Honduras, and Costa Rica, it affected the entire region's political and social life, markedly so in Honduras. The export economy expedited liberal "reformism" in Central America during the last decades of the nineteenth century and thus laid the foundation of the present five Central American republics. The banana enclave transcended itself and established ties with society through monopolisitic control of communication and transportation facilities (railroad, ports, and navigation). Beginning with these events, the commitment between foreign interests and the coffee oligarchy became essential for comprehending the limits and peculiarities of Central American development. From this perspective, agro-export activity exhibited its insurmountable contradictions and limitations and eclipsed any possibility of self-sustaining growth. By the 1930s, the Central American republics were agrarian appendices of the central economies. The leading groups, furthermore, neither had nor could have had any interest in overcoming the constituted order built on two focal points: a social structure established on an economic unity, the hacienda, and its patrimonial relationship with campesino peonage; and a political order, authoritarian and exclusive, fashioned through foreign sources of power, the supportive banana enclave interests, and its North American capital. The world crisis of the 1930s marked the beginning of the crisis of the liberal republic and the structures tied to coffee. The power of persistent historical norms was exposed. These norms, by their magnitude and duration, demonstrated the weakness of the agro-export economy. Toward the end of the second postwar period, this economic system and its dictatorships stagnated. The limited democratic possibilities offered by the oligarchy diminished under historical pressure. At this point, as at others, Costa Rica was an exception to such generalization. Two decades elapsed between 1944 and the slow consolidation of economic integration. The breach between the interests of the landholding oligarchy and those of the people who supported economic diversification stimulated a relative opening of the political system. On the one hand, portions of the urban middle class manipulated popular discontent; on the other, various vested interests pushed for industrialization.

Introduction to the 1969 Edition

xix

A new push toward development expanded the functions of the state. Under the state's direction, agro-export interests ceased to hold sway. With the exception of Guatemala, popular movements, which shook Central America in the first years of the postwar period, introduced only slight modifications into the political system and within the mobilization created by industrialization. The common market emerged as the only alternative, almost as an obligatory step toward constructing an economic and institutional framework within which the whole society would be energized. The most significant economic events of this period were the emergence of cotton and, to a lesser extent, sugar and beef, which contributed to the diversification of foreign trade,· accelerated capitalization in the countryside,· the camouflage or decline of the fruit enclave, especially in Guatemala and Costa Rica; the appearance of North American capital in local industry, associating itself with or displacing national producers,· and a vigorous, but artificial, momentum in Central American domestic commercial activity. With the meaningful "deviation" of Costa Rica (more in form than in content and direction), the landholding oligarchy, the industrialists, and the merchants attempted to resolve the causes of the political crises and the ambiguities and limitations of the process of change by means of authoritarian governments. These combined forces outlawed social struggles, excluded other sectors from the political arena, and fomented industrialization by sacrificing autonomy to the process of development.

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1. Anarchy

From the Rupture of the Colonial Covenant to the Disbanding of the Federal Republic In 1821, the captaincy-general of Guatemala became an independent republic without a war of liberation. With its colonial regime crumbling, Spain did not resist, as it did in the rest of the continent. As it lost control of the viceroyalty of New Spain (Mexico), the homeland sacrificed political domination of a territory whose economy was not crucial to its existence. The struggles for independence within this captaincy-general were always isolated outbreaks by an intellectual elite, creole or mestizo, 1 who could not succeed in articulating a long-term popular insurrection. The absence of the masses in the Central American independence struggles contrasted with victories achieved in other Spanish dominions, especially Mexico. The weakness of the homeland explained the peaceful and surprising transition from the colony to the republic, completed virtually through a formal declaration. The political change left intact the captain-general, the first chief of state, and the administrative and political colonial structure. Independence was declared during one of the region's most critical economic periods. Central America was not an important mining colony, except for Honduran and Nicaraguan gold and silver operations, whose production never matched that of Mexico and Peru. Agricultural products, such as cochineal, indigo, cacao, corn, and sugarcane,2 were exported to the homeland. Cyclical ruptures in foreign trade prevented any stability and thus fostered grave social problems. The disastrous fiscal situation inherited at independence was reflected by the mere sixty Spanish reales in the treasury. During the epoch of Spanish domination, the Central American economy was not strictly closed. As in the rest of the American colonies, the English defeat of the Spanish Empire broke Spain's monopoly. The Treaty of Utrecht in 1714 and other measures facilitated a certain

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amount of free commerce and intercolonial trade. In 1744, free trade was authorized, although within certain limits, between Peru, New Spain, New Granada, and the captaincy-general of the Guatemalan territory. Self-sufficiency was not, therefore, a colonial trait in Central America. Spanish policy attempted to transform Spain's colonies into a tolerably self-sufficient system capable of producing a liquid surplus of precious metals. 3 A commercial export economy was not perfected; rather, a weak economy was formed with extended and complementary high and low periods. Spanish disengagement intensified these economic tendencies and enabled the Central American countries, which had minimal market experience or appropriate institutions, to compete economically in the world market with scarce products dependent on fluctuating demand. Furthermore, the breaking of political ties with Spain deepened the agrarian crisis and weakened the local economy, which had been financially dependent on the homeland. The absence of a typical and extensive colonial economy, based on mining or agriculture, prohibited the constitution of a solid economic structure. Neither did it favor the emergence of local groups tied to some important productive activity. The Spanish version of mercantilism, with its policy of economic monopoly, clipped any possibility of economic growth. Ensuing political absolutism, which weakened by the beginning of the nineteenth century, fared no better. Furthermore, colonial Central American society was more often than not an administrative appendage of New Spain (Mexico). After achieving political independence from Spain, dominant conservative groups incorporated Central America into Itúrbide's Mexican Empire without any great opposition. The Federal Republic, organized in 1824, attempted to invigorate a passive colonial system. After annexation to Mexico was rejected, an event that highlighted nascent liberalism, measures were implemented to organize the state. These actions were the first frustrated attempt at modernization. Monopolies were abolished, idle and uncultivated lands were offered as private property, and disentailment of ecclesiastical goods was initiated in concert with other measures necessary to reduce the church's influence in public matters. The domestic and foreign trade sectors clamored for free trade, thus severing the weak commercial links with Spain. All of these programmatic measures pointed to antecedents of the ideological and political confrontation that, together with additional factors, would contribute to the disintegration of the new nation. As nascent, independent countries, the Central American states discovered themselves to be in possession of immense stretches of uncultivated land. With independence, a situation was legally consolidated that de facto had been slowly taking shape through the course of the previous two centuries. Remember that the Crown was, by pontifical

Anarchy

3

decree, the possessor of all conquered lands, and the king delegated to his subjects the land's usufruct, its use and development. Idle lands, the exclusive property of the Crown, coexisted with two other recognized forms of ownership: (1) legitimate titles of usufruct held by indigenous peoples,· and (2) land granted for life to the encomenderos, which was subsequently transformed into private property. The former lands, communal in character, were ceded to the indigenous peoples by Spanish conquerors in recognition of the ancient laws in place before the Conquest. The latter lands, ejidos, or "one's own land," were assigned to the municipality and formed part of the colonial policy of grouping the Indians around centralized and urban nuclei. Civil war and anarchy erupted during the five decades after separation from peninsular rule. José Colonel Urtecho considers anarchy and dictatorship the two poles of the civil war that tore the federation apart. "Independence in Central America was not a consequence but a cause of that civil war." 4 This period in Central America is remembered for frustrated efforts to organize political life in the region. Attempts to create distinct institutional and economic patterns of inherited colonialism were thwarted. No particular social group managed to dominate. The federal pact broke up definitively in 1842. The failure of liberal federalist policy expressed, in the last instance, the weakness and inability of a social class to cultivate a sense of nationalism. A central hegemonic power, which could successfully modify colonial structures, could not be constituted readily in the face of the schismatic forces of resistance. Could the civil war that tore apart the Central American Federal Republic be explained by pointing to premature independence from Spain and the subsequent absence of social groups with sufficient experience and willingness to constitute a nation? Or did political fragmentation simply reflect the economic formation the Spanish administration imposed on the Central American region? The causes of political and economic instability have been the object of conflicting interpretations. Some say that this political fragmentation was the price paid to consolidate the nation-state at a minor level. Any attempt to explain the civil war and to characterize the difficulties in crystallizing a Central American republic in this period must not overlook the physical and economic isolation produced in part by geographic accident. In addition, colonial administrative error and ineptness cannot be overstated: centralizing a region for mere administrative convenience unified the destiny of this heretofore economically diversified region. Guatemala maintained commercial links with the Viceroyalty of Mexico; Honduras sustained its trade, through the port of Omoa, with Havana; Nicaragua and Costa Rica supported their economies through trade with Panama (Colombia). The five provinces, vaguely

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united yet isolated, could not support a federal covenant without an indispensable and sustaining economic base. Though possessing wellmeaning yet imprecise dreams of building a federalist nation much in the style of the North American constitution, liberal attempts failed. The power vacuum Spanish departure created gave way to an incessant struggle between landholding groups and merchants, military and religious caudillos, and foreign adventurers. Domestic schismatic powers, stimulated by the climate of independence and by distinct political concepts concerning the institutional structure of the new nation-state, consolidated control in spite of intense localism in the five provinces. These ruling agents confronted, therefore, Guatemala's pretense to hegemony. Facio Brenes indicates that the federation tore apart as a result of the predominance of a conservative faction that felt called to lead the nation. "Guatemala, through its historical antecedents, its territorial area, its natural resources, and its demographic density, constituted the most powerful state of the isthmus." Buttressed by the powerful landowners, aristocrats, conservative clerics, and laity, Guatemala hoped to impose its creeds and institutions on the southern provinces. "And this contradictory fact... produced the fatal collapse of the young federation, because Guatemala could not impose its ideology and its conservative will on the progressive southern states in an antihistorical form, nor could the other states, with sufficient vigor and necessary cohesion, perform the definitive social transformation on powerful and feudal Guatemala." 5 The collapse of the Federal Republic of Central America represented all the historical vicissitudes peculiar to the transformation of a colony into a nation-state in which the dynamic for change was not the product of internal social forces. The new political power was constructed not on the ruins of Spanish power but on the foundation of a colonial-style administrative structure. Decadent as it was, the subsequent administration, which sought to fill this power vacuum, could not control the violent reaccommodations of social forces and thus set the stage for the ensuing civil war. From the beginning, the "dominant class"—the seignorial hacendado, the import merchants, the high clergy, and the bureaucratic and military elite—should have resisted the violence. Forces of fragmentation were internally present within the dominant class, were a consequence of the colonial debt, and were always present as the geopolitical condition of dependence. Facio Brenes's explanation falls short except for one key factor: the intense provincialism could not be overcome by a colonial administration. Without a doubt, anarchy was only a superficial fight between liberal and conservative caudillos. The root cause of fragmentation, which created and intensified the conditions of anarchy, would be

Anarchy

5

liquidated or neutralized a half-century later by curbing church power, through a growing infrastructure that would dampen local interests, and with the relative disappearance of foreign threats. The expropriations of the church and its legal and functional separation from the state drastically curbed its temporal power. This does not imply that the church lost all vestiges of power. Rather, excluded from its patrimonial role, it was reduced to new institutional limits. Cultural and economic regionalism declined when new zones of productive activity emerged as a result of the creation of of railroad and telegraph networks and intensified because of urban concentration and the politically renovated "capital" city. Traditional localism weighed heavily in the disputes between liberal or conservative cities and territories. Municipal governments were identified with merchant or coffee interests, liberal or conservative interests: witness the fights between Quetzaltenango and Guatemala City; the disputes between León and Granada in Nicaragua or between Alajuela and Cartago in Costa Rica. When thousands of small and large producers were linked to the emerging commercial activity based in the new communication networks, this intense provincialism diminished. The relative disappearance of foreign threats, represented by England and the United States, calmed the political storms. The movement of these influential forces determined much of Central American politics from the beginning. Political dependency, premature with respect to all of Latin America, occupied an important chapter in the history of the civil war and the subsequent institutional instability. Nevertheless, repelling William Walker's military intervention (thanks to the most vigorous example of Central American unity), expelling the English from the Honduran-Nicaraguan Atlantic Coast, and reluctantly accepting the debts accrued with London's creditors signaled an end to the anarchy. These events, along with the signing of the Clayton-Bulwer Treaty, established a period of relative calm and expectancy.6 English Influence in Central America To the complexity of the internal situation in Central America we must add the Machiavellian conduct of foreign powers. The vacuum created by Spain's departure was quickly filled by English diplomacy. England was quite interested in controlling trade and the wealth of the former Spanish colonies. Central America and the Caribbean Basin became a strategic area in terms of controlling transoceanic communication and decisive for military and commercial expansion. England intended to consolidate its power throughout the isthmus's Atlantic Coast, controlling definitively the Guatemalan province of Belize, and, temporarily,

6

History and Society in Central America

seizing the Honduran islands of Bahía and Roatán, and the eastern coast of Nicaragua. The British Empire, and the United States later, applied pressure, diplomatically and militarily, to forestall any unionist undertaking in the region. Foreign trade grew immediately under the effect of liberal measures, but above all as a result of the possibility of trade benefits mediated by the English and stimulated by the European industrial revolution. Between 1821 and 1825, commercial activity doubled while a climate of optimism and confidence pervaded the region.7 Exports of indigo, cochineal, cacao, cotton, gold, and silver were initiated once again. These products, though, were not destined to establish definitive links with the world market. During this period, the republic experienced its first unfavorable trade relationship. Having dismantled the barriers that prevented free trade, a considerable flow of English goods (including Dutch and French products) invaded the country under the prolonged pressure of unsatisfied local demand. As a result of the uncontrollable maelstrom of importations, Central America "exported" all its gold and silver currency, initiating a century of monetary and exchange inequalities. The British era in Central America was also consolidated by means of great public loans. The pound sterling represented the first financial link with a foreign economy. Loans were realized through the state, with the pledged guarantee of income generated through customs, maritime, or other taxable foreign trade. The first loan signed with the Federal Republic was intended to organize an independent administration. The attempt failed, together with the efforts of liberal groups to establish a federation. The incipient nature of the new power structure was clearly manifested in the type of guarantee granted and in the utilization of the resources received. The English debt facilitated unmasked diplomatic pressure and hindered domestic capitalization and ordered growth. When the federation was dissolved, the five countries assumed a proportional part of the debt. Guatemala was committed to the payment of 67,900 pounds sterling (five-twelfths of the total), though this debt remained in arrears. In 1856, its conservative government was obliged to negotiate a new loan for 100,000 pounds in order to atone for the previous debt.8 Honduras's debt also remained in arrears for many years. Well into the present century, in 1923, bondholders refused to accept any agreement to adjust the debt, which was finally canceled almost a century after its assumption.9 Honduras negotiated successively in London and Paris (1867-1870) for a total of 6.1 million pounds sterling in order to finance the construction of a transoceanic railroad, which had not been completed by the 1960s. This debt also remained in arrears and its servicing constituted a heavy burden on the Honduran state. 10 Having

Anarchy

7

canceled its portion of the federal debt, Nicaragua negotiated a loan in 1886 for 285,000 pounds sterling, in London, for the construction of a railway system. These English loans were canceled only in 1961.11 Though it met its federal debt obligations by 1840, Costa Rica indebted itself once again in 1871, pressured by the need to construct a railway toward the Atlantic. Such an outlet shortened the trip to England to three months and established Costa Rica as the first import market. 12 The Salvadoran governments were more cautious with their financial commitments. Having canceled its federal debt by 1860, between 1889 and 1892 the Salvadoran government negotiated loans in London for 800,000 pounds, guaranteed by a customs tax and by a mortgage on its national railroad.13 The policies burdened the only normal sources of income, and perhaps the only source of disposable wealth. The utilization of those resources was never adequate, and much was squandered in the madness of the civil war. Social Groups and the Crisis of the Colonial Model Each province and its schismatic forces impeded the consolidation of the greater republic. The period of anarchy, therefore, was not only the confrontation between Federalists and Centralists but also between Liberals—poor bearers of a new political design—and Conservatives, inheritors and usufructuaries of the colonial order. Beyond the confrontation between political groups, creoles, and mestizos existed the present contradiction between two principal groups. The religious latifundista, allied with the colonial bureaucrat and the landowning aristocrat, faced down the emerging property owners, who, together with professionals and Enlightenment intellectuals, who were the progenitors of the French Revolution and English liberalism, clamored for a new distribution and greater productive opportunities. Historical investigation has not clarified the postindependence role of the influential merchants. In Central America, merchants were cast as liberals when they demanded free trade. Yet many times they allied themselves with the landholding aristocrat and defended the status quo. What is certain is that foreign trade was converted once again into the most important and lucrative activity during the independence period. Merchants, associated with the growing agro-export economy, soon gained control of the loan mechanisms (previously in the hands of the Jesuits), and later aggressively opposed the first and vigorous manifestations of financial and bank capital, thus assuming a notably conservative role. This historical stage of social and political disintegration, during

8

History and Society in Central America

which the inherited colonial model persisted through political and economic institutions and through the creoles' social domination, tested the coherence of the liberal solution and the mestizo leadership. The republic did more to eliminate the inherited colonial paradigms than did the proposals contained in the formal Declaration of Independence. But the destruction of these colonial vestiges demanded nonexistent conditions and social forces. From the liberal reformist and short-lived success followed the longterm conservative reaction. The search for new products, the emergence of new social groups suffocated by the colonial order, and the desire for a new political and legal framework were effectively confronted by the restoration of the colonial social and political structure. In some countries, this temporary reconstitution was more successful than not. Guatemala's conservative regime, headed by the campesino caudillo Rafael Carrera, exemplified conservative attempts to reconstitute a colonial-style social-political order during his thirty-year rule. The conservative regime returned to the church the territorial, economic, and political power lost under liberal rule. Tithes, primitiae [first fruits], and primogeniture were reestablished, and monasteries and chapels, even the old university "ruled by the statutes of Carlos II" and replaced by the Academy of Studies throughout liberal rule, were turned over to the church.14 The Consulado de Comercio, which was founded in 1793 and preserved the ancient Ordinances of Bilbao, was restored. The termination of modern liberal legislation ended civil matrimony and the liberty to make a will, and thus "preserved the institutions (mortmain, the emphyteutic census, and entailment) that were insurmountable obstacles for a prosperous and flexible economy."15 In 1842, Honduras reestablished laws of the republic, such as the Novísima Recopilación and the Siete Partidas.16 The other provinces experienced shorter periods of stagnated government, which reaffirmed the power and privileges of the church and other supporting social groups. The economy revolved around agricultural production for local consumption while vegetable or animal dyes were exported to England. The government oscillated between distinct political factions: rural proprietors and merchants. Without any experience in public management, the regimes tried to organize themselves around two necessities they considered basic to stable power: defense and resources. The army, which emerged only after independence, was organized initially as a mercenary group to serve the besieged caudillos. Still, one could not speak of an institutional army before the end of the nineteenth century. Through taxes or contributions or colonial-style liquor monopolies or confiscations of religious and political goods, the regimes consolidated their financial resources. Within this historical and critical context

Anarchy

9

appeared the English pound sterling. The formation of legal and political institutions was slow and unequal, while the state, organized as an oligarchy, would consolidate its control through definitive ties to the world market for some years to come. The two provinces Guatemala and Costa Rica represented opposite poles in a common process of conquest and development. Spanish domination in Guatemala was characteristically distinct from that in the rest of the isthmus. For more than three centuries, the Iberian power built its hegemony in the most northern province, while Costa Rica, the poorest province, remained almost completely isolated.17 Guatemala contained the largest heterogeneous population,18 principally indigenous, whose dominant social sectors were divided among merchants, administrators, clerics, and landowners. Costa Rica's homogeneous social structure, on the other hand, was composed almost exclusively of Spanish descendants (creoles and mestizos). The other Central American countries were situated between these two extremes. Honduras, equaled by El Salvador and Nicaragua,19 was essentially mestizo, 20 but its population was heterogeneous, dispersed, and socially isolated. Honduras never integrated itself economically or politically during the colonial epoch. It lacked a local market and a surplus useful for trade.21 Colonial interests were strong in El Salvador, though weak in sparsely populated Nicaragua. The mestizo majority settled from the first moments of conquest in the humid zones of the Pacific and around Lakes Managua and Nicaragua. These structural antecedents explain why Guatemala and El Salvador passed through a violent agrarian restructuring. An emerging group of landlords, the harvesters of indigo, had attempted to consolidate their power, and the expropriation of their interests and privileges produced a bitter struggle. Costa Rica, on the other hand, slowly parceled out land and multiplied the number of minifundios (i.e., farms that are too small to support a family) and then destroyed them, not through a system of decrees, but through the irresistible urge toward concentration of land determined by competition in the world market. Nicaragua and Honduras never achieved an agrarian export economy but provided scant opportunity for exploitation of raw materials and minerals, such as wood, resins, gold, and silver. The cultivation of indigo conformed to a structure of haciendas and obrajes (workshops) in El Salvador, Nicaragua, and Guatemala. Indigo was the great export crop of the colonial period, and continued to be so, together with grana (cochineal),22 which required a distinct productive infrastructure based on small property owners. In the planting and harvesting of indigo, we discover the antecedents of a coerced labor force of indigenous campesinos, which explains even today seasonal labor

10

History and Society in Central America

migration, the peonage of the hacienda, the mozo colono (tenant farmer), and all the semiservile relationships of the work force.23 Thousands of small- and medium-sized productive lots, from a halfhectare of indigo plants to a piece of land with only two or three nopales (cochineal-bearing cactus), provided the bulk of the exportable product. This stage represented the slow transformation of the economy in which campesino families "specialized" and became partially inserted into the monetary economy. Cochineal and indigo cultivation coexisted after independence, but cochineal dye was especially important. These "plantations" not only were very small but required little investment capital and utilized family labor almost exclusively. This dye economy necessitated simple changes in the property structure and stimulated a "campesino export sector" in which organization and (traditional) technology prolonged a subsistence economy.24 Mestizos harvested these crops and thus emerged as a vigorous social group that eventually participated in the coffee economy. As spectators at the political games, they became the property owners through liberal agrarian reform. Meanwhile, the great owners of unproductive latifundios dedicated their efforts to cattle or to indigo and cochineal dye works. Their products were sold to export merchant houses in the city. In return, the export merchants delivered credits and established the domestic prices of the exported dyes while bargaining on the foreign market in Amsterdam or London. In the 1860s, the harvest of dyes fell slowly until it was overcome by the coffee market. In Guatemala, more than 200,000 manzanas were utilized to cultivate cactus for the production of cochineal.25 In that decade, the international price reached its maximum level of 150 silver pesos for a 150-pound sack,26 a price equivalent to the highest coffee prices in the twentieth century. In 1846, under complete conservative domination, Guatemala exported cochineal valued at 896,831 pesos. Cochineal's bumper crop was harvested in 1854, when 2,587,200 pounds were exported for 1,757,300 pesos. El Salvador and Nicaragua produced dyes at a lesser scale. Indigo was El Salvador's principal product, displacing cochineal, which had reached its productive height in the colonial period. In 1850,2,250,000 pounds of indigo were exported, while in the 1860s cotton and indigo production excelled. But coffee rapidly replaced the dyes. By 1879, El Salvador's harvest of colorants had fallen to an annual average of 1.5 million pounds.27 The German chemical industry's discovery and production of synthetic colors in the mid-nineteenth century displaced the harvest of cochineal and indigo in the world market. During various years, the economic structure continued to conform to its inherited colonial pattern: cacao, sugarcane, and cattle were

Anarchy

11

produced for the national market, while indigo and cochineal, respectively, met the demands of the European textile industry. Under such conditions, the colonial status quo could maintain and consolidate itself during the transition. Changes brought about by agrarian restructuring and the displacement of merchant-clerical interests set the stage for the first successful attempt to constitute a nation. With the integration into the world market engendered by the harvest of coffee, the inherited Spanish institutional model entered into crisis and the reordering of Central American society with new social actors became possible. The nation-state emerged as the liberal republic based on agro-export production. Central American liberal thought encouraged reform by converting Central America to an export region of primary products destined for the industrialized countries. This perspective promised to overcome the chronic crisis and stagnation and to consolidate a new social order. The liberal republic, based essentially on coffee production, fortified the capitalist cycle in Central America initiated with the Spanish Conquest. This system received notable momentum with the increase in trade facilitated by links to the international market.28 But precapitalist productive relations, based on various forms of semiservitude, were developed without resolving internal contradictions. Even more, similar forms of servitude, such as coerced labor, sharecropping, and payment in kind, were revived, modified, and adopted. Capitalism in the countryside gained momentum, thus fostering a general type of "colonial" capitalism that was later converted into an "underdeveloped" capitalism.

2. The Liberal Republic

Definitive Incorporation into the World Market by Means of Coffee To understand the formation of Central America's economy and subsequent ties to the world market, we must examine the five countries' mutual and unique starting points. While each country's social and political structure varied, all five confronted dependency. World capitalism's expansion in the last century determined the characteristics of each nation-state's constitution. The Industrial Revolution, therefore, enabled Central America to participate in an expanding international market. Such participation was the history of the consolidation of a Central American nationality conditioned by and subordinated to international capitalism. Our historical assumptions enable us to understand how this process took place by examining the following common phenomena:1 A. Liberal producers' initial participation in trade was based on small plots that converted, through natural means or political decisions, into the extensive latifundista property. B. Local production was traded through national and foreign intermediaries. From the beginning, coffee was a very competitive agricultural product with a growing demand in the world market. Oscillations in price levels and foreign demand obeyed high and low cycles, which unequivocally accompanied the English and European capitalist economy during the second half of the nineteenth century and the first three decades of the twentieth century. In addition, Brazilian coffee production influenced Central American's growing agro-export economy. These phenomena did not hamper the reactivation of a social and economic differentiation that transformed the traditional latifundio into the hacienda. Merchant intermediaries controlled the scarce capital and capriciously manipulated credits in order to increase yield and to build a capital base for investment in the nascent coffee industry. These traders, well placed in the productive process, stimulated a flow of urban capital

The Liberal Republic

13

to agro-industry through low-interest loans and then through direct investment. The merchants controlled, in the end, the greater part of the exportable harvest. This process motivated a sector of the coffee oligarchy to establish its own credit institutions, thus fomenting the origins of banking capital. Small and medium producers soon constituted an appendage of the coffee oligarchy. C. The reactivation of foreign trade, under these conditions, consolidated the economic and political power of a group of landowners based on the cultivation and commercialization of coffee. An economic model of exportation crystallized and depended on a distant market, which financed the coffee business. In addition, foreign investors did not concern themselves with costs or with the local conditions of production. D. Incorporation into the world market, conditioned by a single export economy, by foreign financing, and by increases in subsequent English, U.S., and German imports, was achieved in the midst of a sharp domestic monetary crisis. Monetary instability, inherited from colonial Spain, grew in proportion to the increased ties with the foreign market. One would suppose that such a situation was stimulated and maintained by intermediaries and large coffee producers, who now exercised decisive influence in the nation-state. The monetary chaos intensified with the decline of the export economy. No relief appeared until the 1920s, and not until the second postwar period for others. This vulnerability represented one of the greatest obstacles to economic and social development in Central America. E. Contractors and buyers, who speculated in local banana production and thus depended on transoceanic shipping, created a new link with foreign trade. That is, freight carriers' and buyers' commercialization of bananas enabled the formation of the banana enclave, an important factor in the social and economic development of Honduras, Guatemala, and Costa Rica. Though coffee proved to be an unstable commodity for Central America, subject to the cyclical contradictions of competitive capitalism, it rose rapidly in the world grain market during the last three decades of the nineteenth century. The price crisis, provoked by Brazilian trade policy or manipulated by the great European and North American financial centers, gravely affected these export societies. Nevertheless, coffee continued to increase in importance and quantity. Central American coffee reached its maximum output in the 1880s, producing almost 14 percent of the world coffee yield. Though domestic production continued to increase, Central American coffee fell in international demand, accounting for only 3 percent of the world market in the 1930s, its lowest point.2 The golden age of Central American coffee

14

History and Society in Central America

production corresponded to its first thirty years of expansion and ended approximately at the beginning of the twentieth century. Coffee never again regained its importance, not even during the inflationary epoch that followed World War II. Did domestic phenomena facilitate the Central American economies' definitive integration into the world market? Was export-led growth (desarrollo hacia afuera) possible only after domestic structural reorganization? Or did the contrary strengthening of foreign trade favor the appearance of national social groups capable of overcoming and modernizing the old economic and institutional structure? The explanation to be defended here is that the adjustment of the productive structure, the financing of national social groups, and the institutional and political reorganization experienced in all Central American societies assured the continuity and permanence of foreign economic ties. The Liberal Revolution and Economic Transformations As long as an agricultural economy of dyes, cotton, and cacao was feasible, the conservative social and economic order supported itself. But the cultivation of coffee demanded a new productive organizational structure and, therefore, new forms of land tenancy. In reality, a novel type of landowner emerged as a result of the alteration of the Central American social and political structure. These changes differed radically in form but were similar in content. All five countries experimented differently with liberal policies that subsequently provoked discord. The unraveling of this conflict was most violent in Guatemala and in El Salvador, peaceful in Costa Rica, and frustrated or notoriously incomplete in Honduras and Nicaragua. The violent and rapid collapse of the conservative Guatemalan regime in the 1870s initiated a profound transformation geared toward structuring the liberal republic around an uncertain and new export product backed by foreign investment. On June 30, 1871, the armed liberal movement triumphed, and in 1873 military caudillo Justo Rufino Barrios, a thirty-four-year-old mestizo, led his country through some of the most important social reforms. If the real limits of political and economic phenomena were to coincide completely, one could say that the liberal republic corresponded to a developmental model guided by a coffee bourgeoisie with a clear oligarchical profile. The 1871 liberal revolution politically signaled the decline of creole latifundistas and merchants, Central America's oldest aristocratic group, and liberal leaders promised to reorganize land tenancy, thus creating the social and political conditions necessary for the private appropriation of extensive uncultivated lands.

The Liberal Republic

15

In effect, immense convent and monastic lands were expropriated and distributed along with state-owned land tracts. 3 The Registry of Real Estate was created, and the collection of "tithes" was suppressed,4 a factor that had discouraged agricultural production and capitalization. Thus, the appropriate conditions emerged for personal credit to be converted into territorial credit. This economic measure facilitated the flow of capital toward the countryside and subsequently improved mobility and access to land. The almost gratuitous distribution of uncultivated land affected the ejidos. Ejidos were endowed lands established in the colonial period under the control and for the service of the municipalities or villages. The liberal bourgeois reforms did not completely destroy the ejidos, or their equivalent in Guatemala, Honduras, and Nicaragua.5 The liberal reform was accused of simply substituting the lay landholder for the religious landholder. In reality, a typical bourgeois agrarian reform occurred. The furious selling and adjudication of lands knew no limits: once the uncultivated lands of the church and the state were distributed, the ejidos and the indigenous communal property were sold. Though coffee had been cultivated since 1845, the first shipment to England embarked in 1855.6 Between 1856 and 1875, coffee evolved into an export product within the national economy. The state protected the product for a century, designating it to be Guatemala's primary agricultural and commercial product. Governments subsequent to Barrios's (who died in 1885) continued the liberal policy of erecting an economic infrastructure that facilitated the strengthening of commercial ties with the European market. Liberal proposals were never completely implemented in any Central American country. Nevertheless, the modernization of the economic, social, and political structure achieved under the hegemony of the coffee oligarchy was never matched again in Central American history. It is notable to point out that the first railroads and factories were built in Guatemala through public credits negotiated domestically.7 Coffee production increased in El Salvador in the 1860s. In 1846, President Eugenio Aguilar initiated coffee planting on his plantation, the Santa Tecla. Yet the cumbersome legal code pertaining to land prevented many from following his example. In 1856, liberal caudillo and unionist general Gerardo Barrios, owner of an extensive coffee plantation in Cacaguatique, required coffee's cultivation by law. In 1860, liberal power dictated the first Extinction of Ejidos Law and initiated in El Salvador the division of extensive rural property.8 In this year, coffee represented only 1 percent of total Salvadoran exports. Five years later, in 1865, coffee exports had increased to 8 percent, and in 1870, to 17 percent of total Salvadoran exports.

16

History and Society in Central America

The struggles between the diverse political factions in El Salvador during the second half of the nineteenth century clearly expressed an underlying conflict designed to throw off the economic, legal, and ecclesiastical shackles that hampered the Salvadorans. The reformist proposals of the coffee bourgeoisie were incorporated into the 1886 Constitution and remained in force until 1944. This modern legal corpus was a product of the so-called liberal revolution of 1885, headed by the violent dictator and progressive social reformer, Gen. Francisco Menéndez. During the Menéndez administration, the first railroads, telephones, and other communications were constructed in the country, thus facilitating trade and geographically unifying El Salvador. The 1886 Constitution established suffrage for those unable to read and write and granted citizenship to women. 9 In 1879, coffee was exported for a value of more than two million pesos, or, 48.4 percent of total export earnings.10 Beginning in 1880, coffee occupied first place in commercial exports. As occurred in all of Central America, the Spanish government gave the municipalities and communities ejidos to be utilized for subsistence planting and harvesting. Legal dispositions against the ejidos accelerated the process of their extinction. Subsequently, ejidos became private property dedicated to coffee planting. The May 2, 1882, law, the Extinction of the Ejidos, finished off indigenous and ejidal property in El Salvador and facilitated, more than in any other Central American region, the concentration of extensive landholdings. This policy of land distribution, accelerated in the western part of the country, paid for favors and compensated political loyalties. In 1881, with coffee as the principal export product, President Zaldívar dictated community expropriation laws. He was pressured by the nascent rural bourgeoisie to erase this form of property and called campesino communities "some of the worst kind of legal entities, whose rules stagnate agriculture." 11 In Guzmán's opinion, coffee production consolidated the hacienda as an economic unit. "In no part of the Republic," he says, "have true haciendas ever existed for land's proper utilization." 12 He complains that more people would have dedicated themselves to trade had it not been impeded by the "poorly understood distribution of land conceded to the municipalities (ejidos) and to the indigenous communities." In 1897, the Entitlement Law of Rural Land was passed, thus assuring the country's nascent rural structure. The hacendados resolved the labor shortage problem through habilitaciones, salary advances or loans. Equally in the rest of Central America, the Registry of Property was created to facilitate movement of land and capital. In the 1880s, the first banking and financial institutions, tied to export trade, appeared. The conditions under which the cultivation of coffee and liberal

The Liberal Republic

17

reformism emerged were specific and distinct in Costa Rica. After the declaration of independence, the municipal government of San José, the first political center, ordered the distribution of uncultivated lands "among those who lack their own land." Land for coffee's cultivation was distributed, producing an "agrarian reform" with far-reaching effects.13 The colonial crop in Costa Rica was cacao, a product that was not entirely displaced by coffee, though it suffered during the last decades of the eighteenth century. In what was to be Costa Rica, there existed an "equitable" distribution of land and Indians, which contributed to the inhabitants' isolation and impoverishment. In 1825, coffee and other agricultural products were exempted from the ecclesiastical tithe and therefore the number of small family farms multiplied and created the possibility for the extensive haciendas in the 1850s. Successive governmental measures dictated after Spanish rule contrasted sharply with the policies of the other Central American countries. Uncultivated lands, which would have been assigned in five years to coffee production, became private property by 1831. With the first shipment of coffee to England in 1845, Costa Rica organized, without planning, an economic and political system that slowly led to its integration into the world market. In order to achieve and assure a stable course, Costa Rica did not need to endure a civil war, as the rest of Central America did, to defeat sectors that opposed this agrarian restructuring. Neither were forced expropriations required. In 1840, Braulio Carrillo, the first coffee grower elected president, initiated the free distribution of land in San José, Cartago, and Las Pavas,14 a policy that his successors continued. Toward the end of the nineteenth century, increased coffee production was established on small and medium-sized properties, and thus constituted the pivotal point of a sustained change and peaceful development in the country's social and political system.15 While Guatemala, El Salvador, and, in part, Nicaragua and Honduras violently made room for domestic capitalism forty years later, Costa Rica peacefully opened its door to capitalism. When the other Central American countries expropriated uncultivated land or ecclesiastical property, a small group of landholders fortified a system of domination. This minority, which included liberal army officers, politicians, and merchants, enterprising immigrants and adventurers, saw in land a symbol of power and influence and in coffee the easiest road to altering one's social position. In Costa Rica, a broad group of minifundistas (campesinos who worked small plots or subfamily-sized farms) gathered to harvest coffee primarily on the basis of family labor. Neither Indians nor an abundant population inhabited Costa Rica. Therefore, the scarcity and homogeneity of campesino labor impeded the appearance of the "servitude" that

18

History and Society in Central America

abounded in the rest of Central America. Not a system of domination but a new structure was fortified in Costa Rica. In both cases, the resulting process produced a coffee bourgeoisie that entrusted itself to political power and to the consolidation of the nation-state. From the beginning, the English market became the buyer of the coffee harvest. In Costa Rica, this market financed agricultural production. British capital, furthermore, commercialized this product. Therefore, English influence was more profound and decisive in Costa Rica than in the rest of Central America, where it competed with the German, French, and U.S. markets. Successive Costa Rican governments shared a social denominator: political leaders, themselves products of the refined coffee-growing families, though motivated by a common purpose to consolidate the nation-state, were never exempt from struggles with political rivals. This coffee aristocracy, formed first in Costa Rica, searched for diverse ways to perfect political institutions and to expand its commercial economy. Violence characterized the ten-year period of 1858-1868, during the progressive dictatorship of liberal caudillo General Guardia. In the 1880s, the coffee oligarchy experienced its epoch of splendor. The modernization of state institutions was associated with the visible hegemony of the liberal hacendados. The so-called Generation of '89 consolidated social and political domination and established the definitive bases of Costa Rican rural democracy,16 which, along with the agroexport economy, exhausted its potential by the 1940s. The other two Central American countries, Nicaragua and Honduras, "detoured" in some form from the formative "model" of a common export economy. Neither country constructed a productive structure similar to that in Guatemala or El Salvador in the second half of the nineteenth century, nor did they establish favorable social and political conditions for development, as did Costa Rica. Therefore, they did not consolidate a national economic base or a coffee bourgeoisie or a traditional landholding oligarchy. On the other hand, these countries suffered severely during the civil war and, as a consequence, lent themselves to political instability caused by the dispersion of people in a relatively large territory with no adequate means of communication. In spite of the fact that colonial inheritance was relatively less important in Nicaragua and Honduras, liberal reforms were tardy and incomplete and did not create the necessary conditions for a hardy export agricultural economy, as they did in the rest of Central America. The most important economic activity of these two countries was gold and silver exploitation, achieved first with Spanish capital, English capital during the second half of the nineteenth century, and thereafter, U.S. capital. Mining was the principal source of foreign exchange until

The Liberal Republic

19

1917, and constituted 15 percent of foreign trade until the 1950s.17 This production never contributed to national development, but always functioned, even during its heyday, as a foreign enclave. The mining economy marginalized national producers and never even indirectly strengthened the dominant political groups. The campesinos' small subsistence economies subsequently expanded and, therefore, impeded the appearance of a national export-oriented agriculture. The exportoriented economy emerged only when organized by U.S. capital, with bananas in Honduras, and later, through coffee in Nicaragua. Liberal reformers discovered their limitations in the conditions established by the Honduran-Nicaraguan social and economic structure. The lack of social and ecological integration, domestic and foreign centripetal forces, which dispersed the population, the absence of a productive economy from the colonial period, and the weakness of social groups impeded substantial reforms. Nicaragua remained particularly affected by its excellent geographical position. Because its geography favored the construction of a transoceanic canal, it became a battlefield for English and U.S. imperialism. England seized the Miskito territory, almost a third of the national territory situated on the Atlantic Coast, and tried to consolidate its domain through the fictitious Miskito Empire.18 Yet the Filibuster War of 1855-1858, and the United States's military occupation of Nicaragua from 1910 to 1930, provoked more dire consequences. The civil war in Nicaragua, colored by marginal ideologies, was more an expression of the rivalry between the two municipal governments of León, an agricultural and liberal city, and Granada, trade oriented and conservative. The struggle against the U.S. filibuster, William Walker, which was financed by southern U.S. racists, ruined the weak national economy and never unified the factions. Walker's defeat by the combined Central American armies consolidated conservative power and opened a parenthesis of more than thirty years of political peace and economic stagnation.19 The conditions for a liberal economic policy in Nicaragua, as Castillo points out, were stimulated by distinct national and international circumstances.20 In 1892, José Santos Zelaya, a nationalist military caudillo and a visionary reformer who was unscrupulous and arbitrary, imposed liberal policies. In 1893, the state's religious tithes were abolished and mortmain and conventual lands were liquidated.21 Zelaya succeeded in incorporating Mosquitia into Nicaragua's territorial sovereignty. The degree of British control exerted by its consul and the captain of the frigate Cleopatra was revealed by the events that occurred during the military occupation of 1894. The expulsion of English troops consolidated liberal power at the end of the century and enabled the establish-

20

History and Society in Central America

ment of a centralized government. Yet foreign pressures to build a transoceanic canal distorted the consolidation of a nationally based economy. The United States Marines' occupation of Nicaragua was a shameful chapter in Latin American history, and it created a new dimension to Nicaragua's political and economic development. In the end, Zelaya was overthrown in 1909, when he refused to grant canal rights. Unlike in Guatemala and Costa Rica, liberal reform in Honduras failed to construct the nation-state in the latter half of the nineteenth century. After thirty years of anarchy, in the 1860s, liberal governments tried to create, by means of political reform, an export-oriented economy controlled by national producers. In 1876, the liberal government of Dr. Marco Aurelio facilitated the distribution of immense ecclesiastical landholdings and uncultivated lands by means of the Agricultural Law. The effort to organize the nation, economically and politically, and to strengthen internal communications was frustrated for decades. Coffee and other commercial agricultural products were relegated to second place behind bananas.22 Honduras incorporated its economy into the world market at the end of the nineteenth century by means of an export product that was controlled by foreigners from the beginning. In reality, foreign interests controlled the Honduran economy. In Luis Mariños Otero's opinion, foreign business organized and benefited from the three-stage development of the Honduran economy.23 These three stages clearly differentiated a metal age, predominantly silver and under Spanish control; a cattle or leather stage, until the end of the nineteenth century; and the banana era. The hacendados of Olancho, Yoro, and Choluteca achieved economic and political influence and mobilized national resources only in the cattle era.24 First wood then banana exploitation signified the return to foreign dependency. The national productive sectors and dominant groups always seemed to be economically dependent and politically weak. Social Relations under the Oligarchy's Hegemony Coffee growers progressively evolved into decisive social protagonists during Central America's integration into the world market and thus transformed themselves into the political oligarchy. These liberal reformers in Central America propelled a campesino-bourgeois agrarian reform in different degrees, energized an economic system by distributing land, and reworked the corresponding social structure. As a result of this achievement in the second half of the nineteenth century, an institutional and political structure was advanced through a single strong power. "Fluid borders" ended and important economic regions

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were integrated, fundamentally through the construction of railroads, docks, telegraphic services, and electrical energy. The decrease in rural dispersion, prompted by the strengthening of the modern coffee hacienda, and the growth of the urban population favored the constitution and consolidation of a central government.25 The property-owning class, its desire for profit stimulated by the increase in coffee's price, encountered a scarcity of labor. Campesinos remained bound to a subsistence economy (tied to their communal lands or small plots) or defended themselves through subsistence means when the previous production cycle of cacao, sugar, and indigo came to a grinding halt. Some Central American agricultural zones were completely abandoned or slumped because of the retreat and disappearance of foreign demand. Culturally isolated from new, productive labor forces and, at times, ecologically disassociated from the market, the oligarchy resorted to force in order to harmonize export agriculture with the campesino economy. The transformation of the extensive latifundio (ecclesiastic, state, or ejidal) into the coffee hacienda and the appearance of the minifundio formed part of the expansion of colonial capitalism and revived servile patterns in social relations and production. Central America offered a clear example of how land's utilization for profit and accumulation could develop in tandem with patrimonial institutions. The new landowners resolved the chronic problem of a labor shortage by stealing "colonial decrees" from the grave, by promulgating laws against "vagrancy," and by establishing habilitación laws, all of which amounted to forced recruitment of campesinos for the coffee harvest. By virtue of these liberal laws, intermediaries were entrusted to contract campesinos for seasonal work on the haciendas.26 The habilitador (labor recruiter) advanced the campesino a certain amount of money, thus accomplishing two discrete purposes: guaranteeing a labor force, and paying for "donated" future services. These mechanisms led to the establishment of a personal bond that was, for all intents and purposes, slavery: labor was extorted and a patrimonial relationship between the agricultural peon and the hacendado was established. The appearance of trabajo forzado (compulsory labor) had, without a doubt, its origins in the colonial epoch. Before independence, indigenous campesinos oscillated between servitude on the encomienda, as Bagú says, and the slavery of the mita. Compulsory labor was coerced under unjust conditions, accentuated by cultural and legal impediments. This "salaried" labor force assumed various forms according to the historical context and to business necessities. This situation was particularly grave in Guatemala, where the indigenous campesino, usually at home in the pre-Columbian habitat situated in the temperate zones of the

22

History and Society in Central America

central meseta (plateau), was removed from agricultural zones key to commercial production. Nevertheless, the indigenous campesino adapted in all of Central America, but with less difficulty in Costa Rica, thanks to the coercive apparatus offered by the liberal state and supported by local authorities. Many scholars question whether the "salary advance" that the recruited campesino received, frequently after coercion or police terror, corresponded to a particular form of compulsory labor (disguised slavery). And if deception was involved, can one speak of a relatively free work force? The work certainly was obligatory, but the campesino was remunerated with small plots (temporarily) or with money. Salary compensation was simply a fiction that did not succeed in hiding the real nature of the relation. The utilization of recruitment methods that superseded economic enticement, such as land and personal subjugation, constituted servile relations. A feverish search for profit fueled this relationship within the framework of the capitalist structure. Indigenous peoples could not remain idle. The liberal order dictated laws that could be explained only by a capitalist dynamic, colonial capitalism. These measures led to a persisting custom in Central America: seasonal migrations that displaced hundreds of thousands of minifundist campesinos who searched for work during harvest. Seasonal migration provided some income. Small landowning and landless campesinos lived in a seminatural economy, moving from one coffee plantation to another, only to earn a temporary, low salary, which they considered an additional source of income. 27 As U. Hla Myint points out, referring to other underdeveloped areas, the "system of migrant labor reinforced a structure of low salaries and low productivity":28 (a) it was not possible, nor was it feasible, to select and train a specialized work force,· (b) a temporary work force did not encourage hacienda owners to pay high salaries or offer other advantages in order to maintain permanent workers,· and (c) during depression periods, when the labor force exceeded harvest needs, the excess labor force could be dismissed and returned to its subsistence economy. Until recently, the antecedents of the hacienda as a productive entity were debated. Does the hacienda date back to the colonial epoch or, more exactly, was it rooted in the Conquest's encomienda? No, the hacienda had nothing to do with the encomienda or with other Conquest institutions, although the servile relations established with the indigenous campesino workers were assimilated under the personal domain of the colonial encomendero. The unproductive latifundio emerged as a capitalist enterprise—the hacienda—as a result of capital investment in and through the market's demand on the hacienda. Foreign trade valued the land and pressured for other forms of productive organization. The more

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solid argument, supported by historical verification, is that the market gave life to the hacienda,29 a possibility born in the moment of capitalism's world expansion. When Central America's colonial isolation was shattered, the region's economy accepted the agricultural specialization that was imposed by the world market's imperatives, and thus altered the general character of the hacienda's productive social relations. Is it possible to establish a historical typology of the latifundio, as Antonio García attempts, 30 and to differentiate, in Central America's case, the colonial hacienda from the extensive hacienda? The cacao plantations of Guatemala and Costa Rica corresponded to the first type, as did the indigo farms and the sugar hacienda. The extensive hacienda was the great unproductive property, marginally cultivated by indigenous sharecroppers (aparceros). Income from this property was almost nonexistent and the money that the property owner received was more akin to a tribute. Both forms evolved with export cultivation, giving birth to a hybrid type of hacienda that combined characteristics of the capitalist enterprise and the seignorial latifundio. Central American coffee haciendas were "modern" compared to the colonial structure, in which the encomienda and the indigenous community (except for the proliferation of small campesino properties in Costa Rica), were constituent elements. But the true colonial-style agrarian structure, as García points out, paradoxically did not flourish before, but after independence, with many of its seignorial traits still intact. The consolidation of the Central American hacienda was achieved in the second half of the nineteenth century, and even earlier in El Salvador and Guatemala. "Hacienda" included different types of productive properties, for example, the colonial cattle hacienda and property dedicated to the harvest of domestic food staples. The hacienda was frequently confused with the coffee plantation. The first distinction one should make is that in this Latin American region the hacienda was a large operation, tied to the foreign market, that consolidated to export a specialized agricultural product. Because of this historical circumstance, the production of domestic consumer goods was rapidly displaced by the parcelario (small landowner) or the agricultural minifundista.31 Nevertheless, neither the final destination of the products nor the territorial size of the operation fully defined the hacienda,· rather, the hacienda's internal social structure determined the utilization of this land. The hacienda was a capitalist enterprise that operated with relatively limited capital and with an untold number of nonspecialized workers who cultivated a product normally destined for the foreign market. The prominent attribute, though, was the type of relationship established

24

History and Society in Central America

between property owners and their workers. The hacienda needed a work force, typically resident, in order to pay the workers a combination of money, merchandise, free usage of certain installations, and personal services.32 Land, therefore, fulfilled a twofold purpose: not only did it produce, but it also immobilized the campesinos through subsistence plots, by compensating their salaries, and by anchoring them. The hacienda, then, represented one of the first stages of capitalist development. Its revitalization in Central America was a direct response to the productive needs of an expanding market. The secondary traits, differentiated in each country, were marked by two circumstances: the preexistence of an abundant or scarce work force,· and the extension of available, concentrated, or dispersed land. Where there was an indigenous campesino population, dedicated to subsistence agriculture, especially on Guatemalan and Salvadoran communal lands, the "reformist" liberals fell back on diverse forms of compulsory labor. But domestically, another adaptive transformation was produced: the mozos colonos, campesinos stripped of their land for diverse reasons, rented living quarters permanently and thus became workers contracted "for life." With this worker attached to the land, relations were established that socially and politically affected the Central American social structure. In effect, the subsistence plots and partial payment revealed a coerced labor force and a not-so-free labor pool. The nonmonetary compensations and the personal relations established tied the campesino to the land more or less permanently. 33 The coffee economy and its consequent insertion into the world market augmented capitalist development in Central America. Some say that this accomplishment came about through the reestablishment of feudal social relations. The peons, or mozos colonos, usually were considered an integral part of the hacienda, given the fact that their permanence and disposition to work were constant.34 These were undoubtedly patrimonial relations, but they served a basic capitalist economic structure. Prior to or immediately after independence, the exploitation of the mostly indigenous campesino work force, and of campesinos as people, preserved a certain patriarchal flavor yet conformed to the necessities of the local market. As coffee occupied a progressively more important place in the world market, domestic exploitation was insufferably cruel. Subsequent experience confirmed this: in moments of crisis or stagnation, the most extreme forms of the servile relationship diminished or eased. But the callousness of that treatment does not warrant our qualifying these established relations as "feudal" in the epoch of triumphant liberalism. It was a simple capitalist relationship established in the productive process.

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The theoretical categories do not readily clarify social reality when we utilize the notion of "servitude" in historical analysis. A minimal logical transition separates the notion of "servitude" from the categorical affirmation "feudal." The nature of the peon's relationship (or the mozo colono's) with the hacendado was certainly more patrimonial than capitalist. Ownership of the land, the only condition that separated the dispossessed campesino from the property owner, verified a certain and irresistible "privatization of power." This power did not hinder paternalism's persistence, understood in the Weberian sense, within the hacienda. These social relations persisted for more than a century as a consequence of the unequal growth of the capitalist system's periphery. Moreover, the economic stimuli did not necessarily translate into a national modernization, but created modern poles conditioned by the existence of permanently underdeveloped areas. Internally, the inequalities between the export and the subsistence economies constituted the system's contradictory unity. The original process through which capitalism developed presupposed a previous form of class society and, in essence, the transformation from servile labor to a salaried work force (as a decisive productive mode).35 The penetration of new productive activities in Central American agriculture and the demand for a work force, stimulated by foreign demand and by the liberal "revolution," modified the subsistence economy without disintegrating it. The mozos colonos (or coffee workers), though originally from a campesino economy, were incorporated into the market economy, deprived of the means of production while occupying salaried jobs part-time. One portion of their activity and a segment of their life depended on their capability as natural small producers. With capitalism's penetration into the countryside, the subsistence economy did not disintegrate but, rather, modified itself, adapting to the colonial-style structure that the system assumed in the periphery. This circumstance did not generate the process of original accumulation. Furthermore, capitalism began in agriculture as a result of the foreign demand for certain crops, not through urban growth and manufacturing investment. The Social and Political Framework of the Coffee Republic With the increase of foreign trade, merchants began to play an important role while banking and financial capital organized around the commercialization of coffee. The coffee growers' hegemony superseded that of all dominant groups. But jointly with the coffee growers, other sectors participated in the market's favorable period. This explained the inter-

26

History and Society in Central America

oligarchical differences, which never caused profound contradictions, but, rather, produced conflicts based on social prestige, regional, political, or religious matters. One such symptomatic conflict in the formation of the social structure was generated between the merchant and the agricultural oligarchies. For example, in 1867, a group of affluent "liberal" Guatemalans tried to establish a mortgage credit bank, but the group's reduced influence over the current government, caused by the merchant oligarchy's control, impeded the bank's establishment. The role of the merchants, who controlled the only available capital, diminished when liberal measures facilitated the movement from personal to territorial credit.36 This conflict was never absent in any Central American country. In 1858, local merchants in Costa Rica impeded the establishment of the first national bank and further agricultural development through an unusual coup d'état that culminated in the execution of the national hero, Juan Rafael Mora, a representative of the agricultural landowners. True social differentiation began with coffee, as one Costa Rican essayist says, transforming a closed economy and culturally isolated country into a foreign-oriented market. Between 1850 and 1880, the differences between farmers and "exporters" became more noticeable as the large coffee growers consolidated.37 One sector of the minifundistas lost land to intermediaries—merchants, exporters, or owners of beneficios de café (coffee-processing plants)—and the large army of peasants and workers without land swelled and was transformed into a more or less free labor force of agricultural workers. Small property became an obstacle to increased exportation in proportion to the increased foreign demand of Central American products. The amount of available land and the quantity of invested capital became determinant. The concentration of land intensified, and small productive plots disappeared or became appendages to the export houses or to the great landowners who controlled the industrial coffee installations. Ties with the British market (and later the European and the North American) assured development trapped by abrupt price fluctuations, cyclical contractions of the foreign market, and a commercial and financial network committed to unilateral decisions. Forced to abandon other crops, such as indigo, cochineal, or cacao, the whole economy began to depend on a single product and a single export item. With export-led growth truncating almost all domestic development, coffee's economic structure in Central America became a precondition for growth, the only possibility for the entire region's life and domestic activity. The entrepreneurial spirit of the hacienda coffee grower always benefited from the state and rarely confronted it. Coffee growers deter-

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mined the distribution of land, thus creating the legal and cultural structure that sanctioned the social relations responsible for the expansion of the economic system. And they specified the mechanisms necessary to resolve the apparent contradiction between the potential supply of labor and its difficult mobilization. Over the long run, both the supply of land and cheap labor reduced the enterprising drive that preferred extensive cultivation, manual labor, and traditional harvesting practices. Capitalization, in these economic situations, did not depend so much on the "decision to save" as on the appropriation of the surplus of an agricultural work force. Nevertheless, during the first decades the innovative spirit was an important factor in social changes. European immigrants contributed with their spirited efforts. Although they were never able to establish a pronounced immigration policy, Italians and Belgians settled in Costa Rica, and Germans moved to Guatemala and El Salvador toward the close of the century. In 1888, 6,856 foreigners were in Costa Rica, the majority of whom were Europeans tied to coffee's trade and production.38 In Guatemala, the importance of German capital was even greater. The 1896 overproduction crisis forced many insolvent businesses to hand over their belongings to German capitalists.39 The importance of foreign hacendados was less in El Salvador and Nicaragua,40 and was practically nonexistent in Honduras.41 After the instability of the civil war, the state acquired legitimacy when it began to constitute itself as a centralized and strong power, and later, in more permanent conditions, as political stability, as geographical space, and as a historical continuum. Toward the end of the nineteenth century, the coffee oligarchy's interests became society's interests and thus vindicated the emerging state. Banana investment appeared subsequently or simultaneously and indirectly invigorated the political structure without altering it. Though the political advantages obtained by economic concessions granted to U.S. capital established new forms of dependency, that capital constituted a new support for the system. Thus, the coffee bourgeoisie sealed its international alliance with the colossal and monopolistic foreign capital. This historical period can be summarized in its double impact: the emergence of the liberal nation-state, and the initial and vigorous drive toward the capitalist development of a trade economy. These phenomena imprinted upon the economic and political system ambiguities and contradictions characteristic of peripheral capitalism, or "underdevelopment." The "liberal" state did not orient its economic policy according to the European classic canons on its conversion to an important protagonist of development and to a center of economic decisions.42 In Europe, the

28

History and Society in Central America

liberal state was created by a new social group, the bourgeoisie, " which renovated the economic and social environment," 43 while in Latin America, it was initiated through the rigorous adaptation of the institutional apparatus to economic activities tied to the foreign market. But state liberalism, trying to democratize, to create a new legality, and to function as an exclusive and authoritarian "democracy of landowners," was contradictory in its institutional and legal structure. The social content of the "political class," in the long run, did not vary substantially. The coffee bourgeoisie, mixing and adjusting their interests to the export market while excluding and dominating the rest of the social sectors, admitted to power the old latifundists and intermediary merchants. The violent moments, driven by anticlerical sentiments or expropriation policies or liberal-conservative political disputes, did not mean, as was frequently supposed, a radical substitution of one social sector for another; rather, they demonstrated an enhancement of the scheme of domination. In summary, liberal legalism meant oligarchical domination. Power in Central America manifested itself as two forces: political monopoly and bureaucratic arbitrariness. First, an elite rule powerfully rooted itself in the ownership of land, in agricultural production, and in foreign commitments. The second force, linked to the first, was the absence of a universal standard and a certain "privatization" of power. Put another way, the elite radically separated political ideals and concrete practice, bifurcating the legal formality of the liberal legal code and its concrete content and daily application. Legally, the liberal reforms transformed into a system of modern codes that sanctioned the right to private property, regulated market relations, and gave a formal validity to liberal rule imposed on a vast majority of the population. The recognition of a stable authority sanctioned the right to order and the duty to obey. The existing social heterogeneity produced a greater concentration of power in proportion to the extent economic and cultural asymmetry was evident. This proposition, useful only for a formal analysis, explained the differences between the existing oligarchical powers. For example, Guatemala, where a maximum heterogeneity was present, and Costa Rica, where a minimal heterogeneity was present, demonstrated contrasting historical alternatives. Many interpretations exist concerning the formative process of the nation-state in Central America. With the demise of the traditional social structure and the ordering of a modern state, anarchy first destroyed the colonial inheritance of administrative unity, and then gave birth to five countries from the womb of civil war. The liberal ideologues, losing sight of the fact that no economical

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forces or social groups were capable of controlling the exercise of authority, discovered their sources of legitimacy in the management of the double fiction of an elected authority and constitutional-legal control. Would it have been possible to institutionalize a presidential and constitutional system—with appropriate checks and balances—on a mass of slaves locked within subsistence economies, on countries that had not achieved domestic economic integration? The limits of such power did not produce resistance from the affected masses, but enhanced liberals' control derived from both their position on top of the social structure and their alliances with stronger external powers. What effects and what rights would the nineteenth-century Central American constitutions grant if there were no possibility or protagonist capable of utilizing them? The recognition of the division of powers, between an executive and a legislature that formed part of the consolidation of the modern nation-states, was implanted in Central America much as it was in the U.S. Constitution. Yet there never was any exercise of such a division of powers. The executive emerged with an indisputable concentration of decision-making powers. The exercise of that power generally exceeded that of Congress or Parliament. In the best of cases, congressional actions sanctioned those decisions necessary to maintain formal institutions and legitimated the monopoly and arbitrariness of the liberal state. The organization of the financial and treasury system, based on new economic relations, fortified the state, though it sealed its fate with foreign trade and the uncertain bonanza associated with international prices. There was no strong fiscal structure at a time when one was needed to fortify the central government. The pound sterling contributed negligibly to public expense but was a disruptive factor in Central American development.44 In the absence of a domestic market with taxable wealth, import and export taxes constituted a suitable instrument for gathering budgetary income. Campesinos supported the system by constituting the most important source of productive wealth. Their "marginality" guaranteed the urban integration of other social groups—export and import merchants, coffee growers and producers, and, to a lesser degree, speculators and landlords—who benefited from and dominated the peak of social stratification. The meaning of urbanization changed as the "city" and the "hacienda" constituted distinct structures. With the predominance of an agro-export economy, the possibility of an autonomous rural zone emerged. That is, agricultural property no longer was a weakened prolongation of urban life. In another sense, the "city" reinforced its position as the final stop in the agricultural-mercantile productive

30

History and Society in Central America

process. With the enclave economy, though, the flux of goods no longer passed through urban centers, the institutional point where political decisions converged. The appearance of the first urban worker sectors dates from the end of the last century. In San Salvador, Guatemala City, and San José, the first light industries producing consumer goods—textiles, foods, and beverages—appeared, motivated by or complementing an export economy. The manufacturing initiative, although scarce, corresponded generally to European immigrants, but in its totality, except for industries installed on Honduras's northern coast, businesses were founded with national capital. Foreign industrial investment appeared, except in Honduras, following the First World War, when English and German capital diminished as a result of the unimpeachable effects of free competition or as a result of decisions provoked by the war. Nevertheless, social differentiation appeared as industrial-business groups and corresponded to a stage of greater economic development, which flourished after the Second World War. The Emergence of the Banana Enclave By the beginning of the twentieth century, Central America had been incorporated into the world market through coffee exports to England. Now Central America enhanced these ties to the world market through the introduction of bananas, an agricultural product backed by the United States. The spirited and powerful liberal groups negotiated a partnership with the United States that assured greater benefits to the more-developed country. The United States guaranteed these profits through extraeconomic measures, which included military intervention, diplomatic pressure, and partial control of public institutions. Investment in bananas, which was exclusively U.S. capital, could not transpire without capital resources and industrial techniques that made such business profitable. At the beginning of this century, the appearance of refrigerated transportation, railway construction, and faster maritime navigation enabled the development of the banana industry. During the transition in the core capitalist countries from free competition to monopoly, two or three developed countries dominated the world market by dividing distinct geographical zones among themselves.45 Banana cultivation achieved certain levels of commercialization in the local market, beginning in the mid-nineteenth century in Guatemala, Honduras, Nicaragua, and Costa Rica, and spread through all of Central America due to its parallel cultivation with coffee.46 The banana's economic significance as a strategic product cannot be mea-

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sured by its export volume or by its influence over the whole economic system.47 Rather, its strategic importance was embedded in its comprehensive and independent business organization, the strength of which originated in power sources outside the productive area. The technical conditions of production, added to the perishable nature of the product, favored the fruit's harvest, transportation, and commercial distribution by a single enterprise.48 The plantation inaugurated a modern system of land occupation and productive organization that led to industry's vertical integration as an enclave. For banana production to reach optimal conditions of commercialization, local production systems needed to be purchased. Beginning with this initial buy-out, the control of all of banana's productive stages and related strategic economic items—railroads, pier and port installations, maritime transport—transferred to and revolved within the closed orbit of the banana company. The fruit enclave reached high levels of technology and capital and, in a parallel fashion, radically isolated itself from local markets. Such an accomplishment was possible only in a monopolistic economy that was founded on the absolute control of production and transportation. The economic autonomy of the fruit enclave resulted from the inexcusable legal exemptions granted by the state. Local producers who controlled production and linkage with the world market transformed themselves into a new social and political force and challenged, though not decisively, foreigners' mounting economic interests in domestic purchases and control. Foreign economic interests maintained influence and pressure through a more or less competitive trade policy or through the manipulation of prices and credits. Linkage with the world market through a single agricultural product controlled by foreign entrepreneurs involved other consequences. Foreign investment, in whatever form,49 was subsequent to the emergence of social groups, like the hacendados, who played a double role of producing for the foreign market and organizing a central authority. These social groups succeeded like no other Central American group before them in organizing the economic and political life of the Central American nations. The banana enclave consolidated itself when ties to the world market were established and when a local authority ruled relatively well in most of the Central American countries. The banana plantation, while affecting the social and economic system, chiefly limited the historical possibilities of political autonomy. The permanent loss of autonomy affected the nation-state's formation and resulted in a political order that facilitated or sanctioned its heteronomous condition. Nation-state formation in Central America occurred under circum-

32

History and Society in Central America

stances in which domestic economic and social forces were conditioned by ties to the world market and to a particular source of foreign power. In such conditions of dependency, the nation-state partially consolidated itself while domestic economic groups could not or did not have the opportunity or the necessary vigor to forge a distinct course. The liberal oligarchy's inevitable domestic conflicts facilitated these concessions in order to create favorable conditions for the consolidation of its hegemony. But even within the purest conception of the liberal state, the transfer of the nation's public operations to foreign powers, in honor of the free market, would be inadmissible. These public operations, to say the least, were the legitimacy of the liberal state's authority. With their negotiations capacity reduced, local power groups, under diplomatic pressures, political interference, and military threats, surrendered their political potential to foreign capital. The banana plantation became a political concession. Reflecting on the possible attitudes of the local economic class, we could speak of the absence of an enterprising spirit. This class initiative appeared to dry up prematurely or to detour. If in the last decades of the previous century these groups were capable of constructing railways, founding banks, and vigorously developing the coffee industry, what then, in the first decade of the 1900s, caused them to surrender important productive sectors to foreign investment? Was a limited negotiating capacity sufficient to explain a lack of enterprising initiative within the local elite? Beginning with the existing situations in that epoch, conditioned historically by a social and economic structure oriented toward foreign markets, one could not explain all by the complete lack of pioneering spirit. Such limitations, which have never been clarified adequately, impeded any possibilities for Central American capitalists to convert from simple banana harvesters to typical capitalist entrepreneurs. Innovative capacity could not emerge ex nihilo. This economy, by means of its geographical proximity and technological strength, was ready to be organized rationally and with solid capital and technological investments. The Central American banana companies' monopolistic control developed in two stages. The first stage corresponded to the system's penetration, concessions accompanied by some capital investment, which achieved a certain economic diversification. The second stage corresponded to the consolidation of the "enclave" and the reinforcement of the monopolistic operation. During the first phase, an innocent optimism prevailed among national leading groups concerning the modernizing virtues of railroads as vehicles of progress and plantations as an opening of new zones and new sources of work. In the second phase,

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the fruit enclave, the depressor of the local market, was accepted as an irreversible fact. Its demise, some foretold, would produce greater maladies. Honduras presented the most typical case of the agricultural enclave for two reasons: it possessed an extensive stretch of land, possibly the most fertile in the whole country, accessible directly to maritime transportation; and it lacked a local market more or less structured and nationally integrated. The lack of an integrated local market evidences the economic discontinuity between the productive capacity of the Atlantic Coast and the potential yield of the interior valleys, where the majority of the population lived. More economic continuity appeared between the coastal plains and the interior valleys in Guatemala and Costa Rica, and in Nicaragua a thirty-year lapse of economic continuity ended in the 1940s.50 Banana investors, always seeking railroad and maritime transportation concessions, negotiated contracts with the state. In 1871, Gen. Tomás Guardia, the Costa Rican president, decided to construct a railroad in order to open San José and connect the central plateau with an Atlantic port; he completed ninety-eight miles of his goal. One contract underwritten by an English company enabled the completion of this interoceanic route in 1890.51 By 1880, bananas were an important product in Costa Rica, harvested by local producers on minuscule plantations that averaged thirty-five hectares. In 1889, banana exports climbed to 2,962,771 stems. 52 In 1890, 777 large plantations and hundreds of small ones produced 991,025 stems for a total of 405,672 pesos. In 1884, the year in which the Soto-Keith contract was negotiated, Costa Rica exported 420,000 stems,· by 1907, it reached a volume of 10 million. Between 1917 and 1920, Costa Rica exported an average of 8 million stems. By the 1930 world crisis, production declined in all of Central America. The United Fruit Company (UFCO), founded in 1889, began to build its own railway through its subsidiary Northern Railway Company. In 1905, the Ferrocarril Central, or the Costa Rica Railway Company, and the Puerto Limón docks on the Atlantic were leased to Northern, with which UFCO controlled almost the entire railroad system.53 In Honduras, local producers dominated between 1860 and 1900. These producers were inundated by the problems of uncertain demand and the disorder of competition provoked by dock owners and transporters, who generally purchased the fruit. Although Atlantic coastal production was important, the exportable quantity was never constant. Productive conditions were not modern, and transoceanic transportation to New Orleans and Mobile was always a disheartening obstacle for local harvesters. The conversion from foreign transporters to foreign

34

History and Society in Central America

cultivators began with the arrival of refrigerated maritime transportation. The Vaccaro brothers transported their own production in 1899, and successively constructed railroads, planted sugar, and complemented their economic activity with a bank and with soap, beer, alcohol, and lime production, all of which revolved around the plantation economy. The Vaccaros7 investment was integrated, in 1926, into the Standard Fruit and Steamship Company. On the other hand, beginning in 1902, Samuel Zemurray dedicated himself to the sale of bananas in the U.S. market and founded his own company, the Cuyamel Fruit Company. After 1911, the Cuyamel Company acquired valuable land concessions (for example, ten thousand hectares in the Puerto de Tela sector) and constructed its own railroad, thus becoming the most important producer in Honduras.54 Until 1912, UFCO, which limited itself to the purchase of small quantities of bananas from Honduran nationals, entered slowly into fierce competition with national and foreign competitors. In 1913, the Tela Railroad Company, a subsidiary of UFCO, began to control part of the Honduran railway system, and by 1924, UFCO had 87,800 cultivated acres of a total 400,000 in its possession.55 In the first quarter of this century, Honduras's Atlantic Coast, for all practical purposes, was occupied by three great fruit companies. Competition was initiated in the New Orleans market and relocated quickly to the Central American market. 56 Domestic political fights intensified the fruit companies' competition, until the great market crisis of 1929 guaranteed UFCO's purchase of Cuyamel's extensive properties. The same sequence could be described in Guatemala. Bananas had begun to emerge slowly as an important export item, harvested by local producers who utilized foreign freighters to assure the U.S. market. In 1901, the Guatemalan government, representing local producers, and UFCO negotiated the first agreement pertaining to sustained banana transportation. 57 Previously, the government had negotiated a contract with the Central American Improvement Company (CAIC), for the completion of the transoceanic railway in order to facilitate overland transportation between the Atlantic and the Pacific coasts. On August 31, 1900, the Guatemalan government contracted with the North American CAIC to finish the project. The first liberal government, through a national effort, had initiated the railway's construction in 1874 and succeeded in completing 136 miles. In order to finish off the remaining 61 miles, Guatemala gave up the rights to its operation for ninety-nine years, and furthermore granted the Puerto Barrios dock and a stretch of land for its installations. Included also in the deal were tax exemptions and free material imports. The company finished the railroad in 1908.58 Successive and complex negotiations determined, on the

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one hand, that the transporting company could be transformed into a producing and selling company, thus displacing the northern local planters. On the other hand, when International Railways of Central America (IRCA) assumed control of the whole national railway system, 59 UFCO completed the monopolization of bananas and their national transportation. The export industries, says Jonathan Levin, were always established close to a sea, a river, or a railroad.60 The preexistence of land, a work force, and, as Levin says, the international mobility of capital and the enterprising spirit contributed to the growth of the banana enclave, as did land and market accessibility.61 The presence of a capitalist operation, with new investments and technological levels, did not produce the awaited employment opportunities and modernization. It demonstrated its inability to transmit satisfactory growth in the long run. An analysis of the nature of the export industry must begin with the autocratic control of the native market and the degree of integration in the metropolitan economy in order to correlate the national experiences of the banana enclave with development possibilities. Foreign-owned plantations in underdeveloped countries never constituted a "vanguard sector" in the national economy because they represented primary production, not industrial manufacturing. Under Hla Myint's hypothesis, plantations failed to transform themselves into a modernizing vanguard because the underdeveloped countries' system of cheap labor perpetuated a structure of reduced salaries and low productivity.62 This hypothesis relativized the Central American case, where foreign plantations inserted themselves, resulting in psychological, sociopolitical, and economic disruption. Because banana production was a self-sufficient and isolated sector, tied only to the foreign market, the banana companies' salary structure was proportionally superior in prevailing terms. Banana workers' salaries were, normally, 100 percent to 300 percent greater in relation to those in the rest of the country. The problem was that consumption was channeled through the tiendas de raya (company stores), the enclave's commercial businesses. These stores sold nationally manufactured and imported goods at favorable prices. Their operation isolated laborers from the local market and alienated any possibility of tying the agricultural worker's consumption into the national market. In the broader process of development, the fruit enclave exported its profit. The difference between investment in Central America in the 1890s and the 1900s and other worldwide regional investments, where modern export industry inserted itself in an underdeveloped and premercantile economy, could not be discarded. Therefore, one could speak of banana investment only in relative terms, since the banana

36

History and Society in Central America

enclave received important productive concessions, such as free land, long-term leases, railroads, docks and port installations. A comparison of national investment with foreign investment in the banana industry reveals interesting conclusions, which are available in some inaccessible reports. For example, in 1930, UFCO's active balance showed investment in Guatemala and El Salvador to be eighty million dollars. Of this eighty million, the company could only prove that it put forth 25 percent of that investment. Did the historical circumstances, which enabled the local society to "contribute" to the enclave's constitution, distinguish the colonization characteristic of dependency in Central America? The support offered by the national dominant groups cannot be overshadowed by the foreign banana companies' decisive economic strength. Because Costa Rica and Guatemala had a good infrastructure, the banana companies had to invest less in those countries. Remember that local governments additionally bolstered the international companies through local financing of railways and other secondary systems. 63 Under these conditions, with or without strong capital investment, the banana enclave additionally reduced the limited local market by monopolizing (partially in Guatemala and Costa Rica and totally in Honduras) those services destined for local producers or consumers. The Honduran banana railroads, for example, were exclusively constructed in the plantation zones, and, to this day, the country lacks a transportation and communication system that integrates the principal productive centers situated outside the Atlantic Coast area.64 It was granted that the local market's smallness, by itself, discouraged private investment. But the local market could have been stimulated by channeling foreign resources, or by reinvesting profits destined for the export industry into domestic activities. Such reinvestment in the domestic market could have facilitated the growth of the export industry by strengthening the country's infrastructure, not for the export industry's sake, but for the country's sake. Railways, canals, docks, and ports, strategically constructed for the country, would have benefited the export industry as well. Only in exceptional and verified cases did such a thing happen in Central America. Rather, the plantain economy required railroad systems, financed by local Central American governments, to be finished before the enclaves arrived. In short, banana production historically associated itself with the construction or administration of an infrastructure reoriented toward private operations. Could one say that local ruling groups provided a wide array of preexisting national productive conditions to support the banana enclave? Or was it the foreign companies' "nature" to wait for

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the underdeveloped countries to construct favorable conditions guaranteeing the enclaves' successful operation? The scarce connections with the local economy were accented by the predominance of the foreign sector through its tax-exempt status. Productive profit, therefore, increased without passing through the national market. Tax exemption reflected the weakness of the power groups, including the Guatemalan and Costa Rican ascending oligarchy. The banana companies generally began paying taxes to the state thirty or forty years after initiating operations. Until 1930, UFCO paid two cents on every dollar per exported bushel in Costa Rica and Guatemala, and one cent for every dollar per exported bushel in Honduras. These taxes increased in the 1950s. Toward the end of the 1920s, the banana industry in Guatemala contributed 1.9 percent of its total exported value while coffee contributed 8.7 percent of its value. In Costa Rica, coffee paid taxes at 11.8 percent of its value, while bananas paid only 1.4 percent.65 The exemptions granted to the banana businesses became incomprehensible. The privilege of company tax exemptions not only seriously affected the notion of the universality of tax, but also limited state sovereignty. Establishing taxes enabled the state to exercise its public right to distribute responsibility among the citizenry. And the exercise of this public function could not be bargained away. The banana companies' monopolistic control over port installations, railways, and maritime transportation constituted another element of the domestic market that depressed development. The resulting tariff differentiation discriminated against national capitalists. In Costa Rica, shipping railroad cargo from an interior point to a port was more expensive than maritime transportation, which carried cargo from a national port to the European market. A similar phenomenon occurred in Guatemala and El Salvador. Eighty percent of coffee was picked on haciendas or agricultural ventures situated on the southern coast of the Pacific Ocean. Instead of shipping via one of the three Pacific Coast harbors, the load was shipped to the Atlantic Coast port, Puerto Barrios. The railroads, owned by International Railways of Central America, charged exorbitantly for heavy cargo shipped short distances while lowering fares proportionally for cargo shipped longer distances; thus, it made it more convenient to ship the cargo to UFCO's Atlantic port. As shown in table 1, the railroad-sea transport monopoly discouraged local businesses and reduced the expansion of the domestic market due to tariffs and other expenses. In addition, many transport lines were not useful for domestic development and, in the best of cases, were onerous to national producers.

38

History and Society in Central America

Table 1. Guatemalan Tariffs on Coffee Shipment, 1915 and 1930 Year

Origin

1915 Guatemala City Candelaria 1930 Ayutla Ayutla Guatemala City Guatemala City

Destination

Miles

Port Barrios Port Barrios Port Barrios Ocós Port Barrios San José

194 331 378 13 198 75

Total

Tariff

Ton/Mile

$14.8 $7.0 Q11.0 Q 6.3 Q11.8 Q10.0

— .029 .48 .06 .13

Source: Dana G. Munro, The Five Republics of Central America, p. 69; and Kepner and Soothil, El imperio del banano, p. 175. To what point did the banana companies modify the development of the Central American countries and impose, as a consequence, a distinct direction and content? The consumption of locally manufactured goods was notably restricted to the population's middle and high sectors because access to the earnings of the best-paid workers in the country was impeded. The enclave economy did not stimulate or link itself to these countries' weak monetary economies and thus reduced the potential of creating a local industry and achieving a diversified economy. From another point of view, the banana companies' degree of specialization for the international market discouraged local producers, who operated with little commercial experience and limited capital resources. In reality, multiple factors established a vicious circle and resulted in a loss of willingness (efecto de desgano) on the part of the adventurous business person. The free export of profits, which adopted the form of repatriation of earnings and capital, and free import and export favored the establishment of the banana plantations. These two characteristics typified, in Central America, the operation of the enclave economy. International transactions took place within the enclave's particular economy, and not through legal and institutional state channels. In Honduras, the banana companies and their subsidiaries exported and imported, not through Honduran customs, but through "the adjustment of intercompany accounts, like transfers between subsidiary companies of a wellintegrated corporate structure." 66 In a similar situation, an enclave economy, structured through organizational channels belonging to and detached from the state, made whatever development project difficult and insecure, or at least limited by these irregularities. Neither the exact volume of national imports nor profits nor expatriated profits retained in the exterior nor control of the

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net investments and divestments of these companies was ever known. In Honduras, for example, it was difficult for many years to calculate the exact balance of payments and the extent of the country's foreign trade. The Central American nation-states were not capable of knowing the amount of expatriated capital extracted by the banana companies. A system, though, of "double accountability" exhibited figures for one country and another set of figures for the foreign headquarters. The banana enclave imported, on its own account and in foreign currency within the enclave, materials and manufactured goods under a legal shelter that did not worsen the country's balance of payments. Nevertheless, one wonders if everything imported served, directly or indirectly, the operation and amplification of the banana industry. Under these conditions, the nation-state could not have in its hands all the tools necessary to promote development, or at least to exercise control over the direction of the country's economy. In a word, the right to exercise sovereignty within one's national borders was truncated. In such a situation, the national and geographical borders did not coincide. Could one speak, then, of the existence of a nation-state with partial political sovereignty? Added to these exposed irregularities, did a group of legal anachronisms or a defective state constitution operate without full authority within the spatial and institutional environment? When the resulting Central American development scheme is analyzed, beginning with the banana enclave's constitution in Guatemala, Honduras, and Costa Rica, one cannot begin to point out all the enclave's effects on the local market without trying to understand how domestic groups favored or accommodated this situation. The banana plantation differed qualitatively from the coffee hacienda by recruiting its labor force through economic mechanisms. By virtue of its capitalist character, the banana plantation's domestic relations differed from the coffee hacienda's national economic structure. The plantation functioned as a capitalist business, with highly specialized, systematized production, in which "productive factors especially [promoted] capitalist accumulation." 67 The banana plantation operated under the supposition that the labor force was abundant and therefore cheap. It dealt with a free work force whose exclusive pay was a simple salary. As an agricultural organization, it corresponded to a superior level of capitalist development in comparison with the hacienda, and, therefore, the plantation acted as an agent of social and cultural change. For example, new social groups and institutions, such as the plantation agricultural workers and the industrial railroad workers, manufacturing and port workers, formed. In Honduras, for example, the plantations occupied an average of thirty thousand workers, which constituted 3 percent of the active population.68 In Costa Rica, at the beginning of

40

History and Society in Central America

the 1950s, UFCO employed an average of twenty-one thousand workers, 10 percent of the country's total agricultural workers. The plantations and UFCO constituted the greatest source of monetary income for individuals. The banana plantation affected national society in yet another way. The enclave's insertion in an export economy, the appearance of an export industry, the investment it represented, its high degree of specialization, and its foreign character tended to be autonomous and selfsufficient in a society that already depended on an agro-export product.69 It reinforced society's orientation toward the foreign market, accentuated the nature of the yearly agricultural product, and reinforced dependency on world markets. Banana interests became identified with local economic and political factors within a historical reordering of dependency. The enclave's economic activity sought the direct and discrete control of existing means of transportation—railroads, docks and ports, and subsidiary maritime companies. The banana industry relied on extraeconomic measures to assure advantages in the initial competitive stage and to consolidate a monopoly.70 In Central America, the banana companies participated in power plays favoring political instability, which translated into institutional disorder, party conflicts, and prolonged dictatorial periods. The importance of the banana enclave in the scheme of development transcended its limited economic significance to assume a decisive social and political role. The banana companies were not "colonial enclaves" but "national enclaves" that assumed the presence of a dominant political class at the local level.71 From the enclave's consolidation, the banana companies' relationship with the state was decisive. Economic connections with local society were established in the contradictory form of independence and integration. Independent export activity didn't depend on internal markets, yet it merged with the local market by creating urban public services, which stimulated the local economy. The political effect of this contradiction contributed to the consolidation of a landholding oligarchy supported by foreign powers. The loss of control over vital aspects of the underdeveloped country's economy was carried to its limit in the nation's politics. The conditions under which the dominant political groups granted diverse concessions expressed the resulting dependency, which lasted until the post-World War II period. An alliance between the landholders and banana interests sealed the state's and society's fate. Institutional stability depended on such an alliance and was interrupted at times by internal conflicts in the banana companies,72 or by frustrated national attempts to modify the status quo.

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Changes in this development scheme were complex and multidimensional. After the 1930 economic crisis, new concessions were negotiated that authorized the banana companies' transfer to the Guatemalan and Costa Rican Pacific Coast and to a similar move within Honduras's Atlantic Coast.73 These agreements tested the landowning oligarchy's negotiating capacity. Evaluating three decades of the banana enclave and its administration and control of railroads, docks, and ports would highlight new contractual terms, which corrected legal abnormalities and economic disadvantages. But the 1929-1930 crisis had provoked unemployment and other economic problems in the countryside. From this point on, the new accords not only consolidated the banana industry as an enclave but also amplified its control over public services and infrastructure works. The banana companies had successfully expanded their influence within the national economies.

3. The Decline of the Agro-Export Society and the World Crisis of 1930

The Social and Political Effects of Export-Led Growth A stable export economy can emerge around the export of raw materials or agricultural products by means of domestic transformations and the presence of favorable political conditions. But this export activity can only be a prolonged transitional phase designed for the consolidation of a domestic market conducive to development hacia adentro (domestically oriented growth). Due to the aforementioned presence of domestic and foreign factors, however, a stable society did not crystallize in Central America. Even before breaking from colonial bondage, the isthmus economy of substitution, with its scarce mineral products and even less important agricultural products, began to complement the metropolitan economy. There were, then, bursts of export-oriented growth. Nevertheless, with the introduction of coffee and bananas, these short-lived stages of export activity rapidly evolved into the long-term economic alternative, the only one possible from the point of view of the dominant economic groups. It is important to observe, nevertheless, that the export-led growth implicit in the single-crop export economy of Central America was not only the easiest alternative, but also the only possibility at the time in view of the international conditions imposed by the central economies in the expansionist phase of manufacturing. Without appropriate technology and abundant capital available, the only option was international trade through the production of simple domestic crops. Furthermore, agricultural production was very important for the industrial economies. In exchange for such local "specialization," the industrial economies offered all types of indispensable manufactured goods for the agricultural societies. In addition, European creditors in general and, more specifically, English financiers offered their assistance to build up a national infrastructure (railroads, for example), which would not only facilitate access to markets for rural agricultural products, but would

The Decline of the Agro-Export Society and the World Crisis of 1930

43

also supply metropolitan manufactured goods.1 Technological discoveries arrived at the periphery only as consumer goods and services, while the domestic productive structures remained unaltered by such inventions. The first phase of the coffee " industry," therefore, was based on these preexisting resources, which had no alternative use and which required little investment or technical skill. Toward the end of the nineteenth century, however, the coffee industry profoundly modified its operation and thus consolidated itself as a new social group. In spite of the violent contractions in the international market, Central American export products—with coffee in first place—always found adequate demand. Until the period just before the First World War, the Central American economies exported to the European market and imported manufactured goods from the same. The situation began to change with the parallel deterioration of European influence (English) and the emergence of U.S. capital; the consolidation of the banana enclave with its new course in foreign trade and its control over land and sea transport systems in Central America; and, in general, the strengthening of U.S. influence in the Caribbean. This pole of political and economic power became the most decisive factor in the development of these societies. That the World War of 1914-1918 did not affect the region as much as the market crisis did was clearly revealed by the decline in international coffee prices in 1897, 1907, and 1920. The whole social and economic structure suffered a series of prolonged contractions caused by the enormous jump in Brazilian coffee production. Brazil increased its coffee production by more than 50 percent. Prices fell to less than half the average at the beginning of the 1890s.2 The immediate effect of this crisis was seen in the surge in campesino unemployment and mounting domestic debt payments in arrears, all of which led to inevitable consequences, both fiscal and monetary, that in turn affected both state and society. The development scheme, based on the expansion of the agrarian economy, was conditioned by the heretofore hidden limitations of the productive sectors. Furthermore, these crisis periods created an increasing concentration of land, a process that was well under way by 1850. Faced with the impossibility of paying their credits, many mortgaged debtors transferred their land to the owners of mills and coffee plantations. During that period, the foreign landowner appeared, especially the German landowner in Guatemala, El Salvador, and Nicaragua. These foreigners became an influential group among exporters,3 and, with their enterprising spirit, contributed by introducing more rational and intensive cultivation techniques on the coffee farm.

44

History and Society in Central America

The crisis of 1897 provided a pivotal opportunity for the more affected social sectors to reassess the export economy and its resulting socialeconomic structure. Nevertheless, the risks of a single-crop economy and the stagnation of the local market were considered only in passing. Therefore, in 1907, the crisis generated domestically a sharp scarcity of foodstuffs, price increases for manufactured goods, and the abandonment of some productive handicrafts. One of the consequences of export-led growth was an absolute and relative decline of agriculture destined for the domestic market. The coffee bonanza of the good years caused important staple crops to be abandoned. An agricultural crisis ensued, though latent in the peak periods, which ultimately reinforced a dependency on single-crop exportation. Production of other important trading items, such as cacao, sugar, and cotton, was halted.4 The coffee growers' crisis affected the political structure, provoking instability and disorder. The depression of 1897-1900 pressured El Salvador's President Gutiérrez to abandon power; in Costa Rica, the financial structure, both public and private, weakened and paralyzed domestic commerce, " discrediting the gold standard, one of the greatest achieved expressions of the liberal period."5 In Guatemala, the economic crisis marked the beginning of a long liberal dictatorship, which offered through blood and armed power, an order and security that domestic and foreign interests demanded. In all, many of the effects of these depressions were mortgaged through the presence of an extended domestic economy of subsistence, an economy that continued functioning and that was only slightly modified by the appearance of the new agro-export order. At that time, a social class capable of carrying out a total reassessment of the export economy did not exist. The oligarchs arrogantly blocked all access to state levels of decision making. The campesinos constituted a social mass lacking political organization and social conscience. In the urban centers, a middle sector emerged through a slow formation conditioned by and dependent on the landowning oligarchy. Nevertheless, prior to World War I, the agrarian system began to be questioned, although in a limited fashion, by the dominant groups who still embraced the inherited colonial perspective. The alternative offered was a return to the "self-sufficiency of the previous epoch," not development based on new agricultural products and an enlargement of the domestic market. 6 An optimistic projection of the future was always considered within the framework of the potential of the agrarian sector and was oriented toward the production of consumer goods for domestic use. An unequivocal fatalism led to the reinforcement of a cycle of crisis and dependency that grips Central America to this day.

The Decline of the Agro-Export Society and the World Crisis of 1930

45

A particular expression of these bonds of dependency was observed in the generalized belief that the Central American countries, geographically small, poorly explored, and without important mineral riches or hydrocarbons or other kinds of natural resources, were destined to participate in the international division of labor as simple and specialized producers of a single agricultural product. This belief was sustained until the post-World War Π period by the unimpeachable fact that coffee financed, directly or indirectly, a certain economic progress. This progress permitted changes and adjustments in the institutional order, though these changes and adjustments did not always translate into effective means of social progress. With the 1929 collapse in Brazil and in other coffee countries, the colonial-style ideology, which identified the country's interests with those of foreign trade, disintegrated.7 Two decades of stagnation passed before any similar disintegration took place in Central America. The oligarchy never evaluted the adverse effects of an export economy. Thus, the small but powerful landowning Central American oligarchs nourished for many years the belief that the country they managed, with the same administrative style with which they directed their haciendas, was destined to be a simple provider of coffee for European or North American consumers. The oligarchy maintained a power structure that guaranteed them an internal social order, obedient and cheap labor,8 and an infrastructure of public services constructed for such an end. With their profits protected in banks or in foreign stocks, invested in houses or sumptuary goods, economic and moral security were guaranteed. The condition for this social order was the existence of an ample labor force of campesinos. The coffee crop was, from this point of view, a "colonial" crop, since the possibilities of mechanization were minimal. In addition, the labor force required no specialized training. The strengthening or diversification of the domestic market, or its integration on a national scale, was not very important from the oligarchical perspective. The whole system was able to function without any change and for a long time. Even more, the unchanging local conditions of production, especially the relative ease of regulating salaries, translated into an advantage in the world market and into greater profits. The export economy was not capable by itself of energizing or creating a domestic market, neither during its bonanza periods, as in those moments of the first stage of expansion, nor in the 1920s, before the world crisis. In the 1920s, export-oriented groups strengthened themselves while preserving the domestic social structure. The profits derived from this trade, unforeseen since they did not correspond to an intentional policy of investment, were not always applied using productive principles and hardly affected salary levels. Monetary costs never

46

History and Society in Central America

had much importance for the coffee system, since it took advantage of the preexisting semislave labor force. The coffee system maintained the labor force under these conditions almost until the 1960s.9 Foreign incentives provoked unexpected profits, which were hoarded in a few pockets, but did not produce the expected theoretical sequence between increased revenue and demand, subsequent peaks in investments, greater labor force, and salary increases. Campesino wages did not match expanding purchasing power. According to Celso Furtado, the increase in productivity (a secondary effect) did not benefit those who produced for the export-oriented economy. "The mass of paid salaries in the export sector," he affirms, "[was] the nucleus of a domestic market economy." 10 But the external incentives would not de facto translate into salary increases in Central America—neither in quality nor in quantity—because they were produced within a system that did not fully support the free wage earner. On the other hand, a substantial part of revenues remained in the hands of the exporter, the intermediary who was not necessarily a national. As was common in other Latin American societies, the dynamic element of the system was not the volume of rationally applied and pursued investments, but, rather, fluctuating foreign demand. Economic growth was substantial, and unforeseen profits always produced a feverish search for more. There was no control and no correspondence to investment or to planned efforts. Thus, the achievements of the business venture in the countryside were limited. "Profound" growth, within or outside the rural zones, did not correspond to the coffee growers' mentality. In developing societies, the rate of investment reflects—sociologically—the behavior of the landowning social groups. However, the coffee oligarchy, influenced by institutional factors, increasingly expatriated its profits, consumed and accumulated, in spite of the fact that, under those circumstances, "the people who invest benefit more than those who consume." 11 In this vicious circle, the point of convergence constituted a narrow local market supported by the very same export economy ordered to assure a minimal level of profit. Never, as has been said, did the high prices of coffee translate into salary increases. The campesino masses remained distant from such oscillations and during this period never succeeded in applying sufficient pressure to better their social conditions. In the whole preliminary stage of the export economy, the foreign incentives provoked a reorganization of the agrarian structure, expressed in the relative modernization of the coffee hacienda. Changes in the hacienda, such as regulating the size of the employed labor force, increases in the salaried sector, and growth in commercial trade, stabi-

The Decline of the Agro-Export Society and the World Crisis of 1930 lized income. But in the 1920s, the landowning oligarchy unscrupulously depleted the possibilities of coffee's development without apparent worry about or knowledge of such limitations. During the first three decades of this century, the Central American oligarchy, failing to take advantage of the opportunities at the peak and not building on experience derived from prior crises, reflected all the weaknesses of its social formation and its ideological behavior. As history has pointed out, the oligarchies, having missed the real opportunity for constructing a viable agro-export society, a half century later slowly became an impediment to development. National Variations on Dependency I have attempted to analyze the historical emergence of the exportoriented sector and to understand how it inhibited domestic growth in each nation. I shall now analyze the resulting social and political changes in Central America during its export-led development phase or the structures that emerged as a result of commercial ties to the foreign market within world capitalism. Central American societies established new interdependent relations as a result of substantial changes in the world capitalist market from the 1870s to the 1920s. With colonial domination now broken, the Central American region confronted the possibility of organizing itself as a nation. It struggled to achieve this status through its articulation with the world capitalist market based in England, and in Europe generally. The expansion of the capitalist system in its competitive and manufacturing phase, though, established the conditions under which the Central American states were constituted. This interdependence translated into subordination and dependence in virtue of the system's general laws imposed on Central American society. Central America, thus, became a zone of dependent capitalism and, in its domestic compliance, exhibited social and institutional mechanisms that reflected this dependency. Aníbal Quijano points out precisely that "decolonization formed part of the transformation of the system of production and of the capitalist market, produced intermetropolitan power shifts, and as a consequence, altered the system of dependent relations." 12 While modifying its participation in this market structure through primary products, Central America redefined its terms of linkage and, thus, constituted, in the independence era, the first moment of dependency.13 The appearance of U.S. capital and influence in Central America did not simply mean a displacement of power within the metropolitan center, but evidenced substantive variations in the relations of interde-

47

48

History and Society in Central America

pendency, which were altered within the capitalist framework. Initially, U.S. influence in the Caribbean area decisively withered Spain's predominance in the colonial metropolis. Yet the United States acted more in political terms than in economic terms, appearing as an " external factor" within Central American dependency. U.S. diplomatic pressure and military threats during the middle nineteenth century did not carry the same economic weight they were to have at the beginning of the twentieth century. During the period of the Clayton-Bulwer Treaty, the young but imperialist United States momentarily compromised with the great British military and economic power. The first moment of dependency corresponded to the stage of manufacturing capitalism's consolidation, when sure sources of raw materials and a growing demand for industrial goods were needed during the "industrial revolution." The second moment of dependency corresponded to industrial capitalism's monopolization. In this study, the United States represented this industrial capitalism. Its productive structure, almost autarchical with its rapidly expanding domestic manufacturing market's need for raw materials, functioned distinctively from the English structure. In this way, direct private investment appeared along with direct control of the productive wealth of peripheral societies. This initiation of monopolistic and financial capitalism established new forms of interdependence through basic necessities within the general structure of the capitalist system. U.S. political influence in the whole Caribbean, enhanced by Spain's defeat in the War of 1898, signaled a marked increase in direct investment and stiff competition, with a decided advantage over the British Empire. Toward the end of the nineteenth century, two countries, Mexico and Cuba, accounted for almost 80 percent of total U.S. investment in Latin America. Although this investment increased generally in Latin America in absolute terms, it decreased progressively in relative terms in favor of investment in South America.14 In 1897, the Central American region had a greater volume of U.S. capital invested in it than did any other part of Latin America. In the first thirty years of the twentieth century, U.S. direct investment increased some seventeen times, from $11.5 million in 1897 to more than $200 million in the 1920s. More than 40 percent of this investment was concentrated in Guatemala, except in the decade's final years, when banana investment increased in Honduras. Nicaragua had the lowest investment percentage. As demonstrated in table 2, it is important to point out that, although U.S. investment was important, the United States's relative presence in the rest of Latin America remained constant. British capital in Central America appeared not as direct investment, but as public loans. Sufficient information, though, is lacking to allow

The Decline of the Agro-Export Society and the World Crisis of 1930

49

Table 2. Direct U.S. Investment in Central and Latin America, 1897-1929 (millions of dollars) Country

1897

1908

1914

1919

1924

1929

Costa Rica 3.5 El Salvador — Guatemala 6.0 Honduras 2.0 Nicaragua — Central America (excluding Panama) 11.5 Latin America 304.3

17.0 1.8 10.0 2.0 1.0

21.6 6.6 35.8 9.5 3.4

17.8 12.8 40.0 18.4 7.3

13.0 12.2 47.0 40.2 6.8

20.5 24.8 58.8 80.3 17.3

31.8 748.8

76.9 1,275.8

96.3 1,977.6

119.2 2,779.3

201.7 3,645.8

Central America as % of total Latin American investment (including Panama) 7.0

5.1

7.0

5.8

5.1

6.9

Source: UNECLA, El financiamiento externo de América Latina (December 1964): 13. me to detail the cases that constituted an exception to this behavior. Only in Costa Rica did British capital own a railroad line by investing 4 million pounds in the Northern Railroad Company. In El Salvador, the first direct British investment realized in the 1890s bought a railroad, but was followed and surpassed by U.S. capital.15 Although information for the first years after the Second World War is not available, more than 16.2 million pounds sterling made up British investment in Central America, 60 percent of which was bound for Guatemala. British investment, though, was almost nonexistent in Honduras and Nicaragua and, in general, was reduced to the cigarette industry (British American Tobacco Company), some banks (Bank of London), and two or three life insurance companies.16 The Caribbean and Central America were converted rapidly into investment and productive zones exclusively for the U.S. consumer market. This circumstance entailed a parallel, although inverse, movement with declining European and British investment (except in Costa Rica). In the last decades of the nineteenth century, Central America was part of a group that sold more goods to the United States and bought more from Europe, giving birth to a "triangular" exchange, which modified slowly between the world wars to an exclusive bilateral exchange with the U.S. market. 17 This realignment did not alter the nature of the linkage with this

50

History and Society in Central America

market, since coffee continued to be the great national product. But this linkage solidified foreign control of national economic sectors through direct private investment. In this way, the second stage of dependency complemented and reinforced the first stage. U.S. investment capital targeted some industrial branches of agriculture (bananas, sugarcane, and some vegetable fibers). Vital public services, such as maritime and land transportation and communications, were controlled simultaneously. The First World War drastically affected international trade with Europe and resulted in Germany's decline as an important market for Central American coffee. The expropriation of some German businesses resulted not in their nationalization but in their transfer to U.S. possession.18 At this time, U.S. interests amplified their control over the national economy. They took possession of the electrical energy industry in all of Central America between 1910 and 1920, and established themselves as a monopolistic distributor of fuel and, later, of air transportation (Pan American Airways and TACA). Such investment corresponded to "traditional" U.S. investment because it was exclusively directed toward agriculture and the service sector.19 Foreign private capital in many of these sectors, taking advantage of an unprotected and open market created by the absence of national businesses, replaced former proprietors. The state's defense of the open market was socially impossible because of the influential political and economic forces in power circles. The landowning oligarchy refused or, for structural reasons, probably could not control directly or indirectly through the public sector all the productive activities affected by U.S. direct investment. 20 Governmental policy, on the other hand, was always the same: admit foreign capital without restrictions,· guarantee monetary exchange, exemption, low taxes, and other privileges. The substitution of the dollar for the pound sterling in public loans occurred more or less in this time period. The state's contracted debt was applied less to the proposition of productive investment than to the repayment of old debts owed European creditors, especially the British.21 Changing creditors did not ease the weight of public debt; rather, it aggravated the debt and became another trait of the direct and explicit U.S. predominance in the region. During the 1920s, almost all the region's countries negotiated state bonds offered through the U.S. financial market. Though Honduras and Costa Rica delayed, all the other Central American countries entered the twentieth century offering bonds with little or no backing. One must observe, though, that the U.S. financial market and the Central American national public sectors moved with caution in their negotiations, generally relying on the guarantee of income gathered from import and

The Decline of the Agro-Export Society and the World Crisis of 1930

51

export taxes. The guarantee and success of foreign credit depended, to a great extent, on the evolution of exports. The surge in coffee exports in the second half of the 1920s was, therefore, associated with the increase in the issuance of bonds and credits in the U.S. market. Nicaragua, in the final stages of the Zelaya period, successively issued bonds valued at $1 million in 1904, and another $5 million in 1908, destined to make payments to England or to cover governmental expenses.22 Costa Rica, on the other hand, continued to depend on the European market, 23 and not until 1927 did it go to New York creditors to negotiate a loan for $8 million for the repayment of pending debts and the support of public works. During this same year, Costa Rica received another loan for $1.8 million directed toward the electrification of a central railway. By 1908, Guatemalan bonds were issued in the United States for a total of $5 million, and between 1924 and 1928, Guatemala received $5 million more for the construction of the Altos electric railroad, which was not completed, and a hydroelectric plant. In addition, Guatemala issued bonds, at 8 percent, to pay for a railroad construction debt of $2.5 million. 24 Finally, in 1923, El Salvador incurred a large loan of $16.5 million with which it intended to fund successive debts with the English market and to make overdue payments to the railroad companies.25 Monetary Problems and the Financial Sector The foreign trade imbalance, almost a permanent trait of the region's economic system, was reinforced by domestic and international factors. This imbalance was, as a consequence, associated with the resulting dependency of the agro-export society's linkage with the capitalist market, and was reinforced by the official ideology of the coffee oligarchy, which discovered in liberalism the source of and inspiration for its economic policy. The trade lapse was brief, or weak, since this linkage formalized, at least in theory, another type of economic orientation. The theoretical justification of certain economic practices in the name of liberalism in the international commercial terrain led to the formation of monetary and exchange irregularities, fiscal deficits, unfavorable trade balances, and sudden oscillations in domestic prices, all of which affected development and burdened Central American society until the Second World War. An analysis of the causes and consequences of such structural irregularities clearly defines the underlying social conflict of the social groups that benefited from and were affected by the diverse critical moments. Though many of these problems had their immediate roots in the colonial period and in the transfer of its causes to the republican period,

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here it is possible to analyze only the moment in which the imbalance became definitively associated with the attempt to consolidate Central American nationality, accomplished under the liberal aegis and beginning with Central America's incorporation into the world market. Free trade and the elimination of fiscal and administrative obstacles responded to local interests and to the dominant central economies. Although this orientation benefited and sustained the coffee oligarchy for some time, European and English participants took the lion's share of these benefits and controlled the instruments of commercial exchange. In other words, financial dependence translated into domestic monetary disorder. Beginning in 1870, the repeated efforts to guarantee the balanced functioning of the monetary system by adopting the prevailing bimetalism were useless, particularly in Guatemala and Costa Rica. When the monetary system was limited to foreign trade and to a few operations of the urban sector, the system did not need much money in the country and only required what was necessary for the "exchange" of exports for imports. Before the First World War, though, the exchange economy gradually improved and paralleled the expansion of Central American coffee production (1870-1880 to 1900-1910) during adverse international circumstances. Carlos Manuel Castillo points out that the critical period was between 1873 and 1916, when the price of silver fell and gold became scarce because of the exhaustion of new deposits,26 the adoption of the gold standard in the industrialized countries, and the discovery of new deposits of silver.27 Bimetalism entered into crisis during the increase in coffee exports. Silver, devalued constantly, lost its monetary significance in the world market precisely when the Central American governments were trying to regularize the monetary system based on silver. In Guatemala, and until 1900, the principal metal money was silver because gold coins, minted in 1875 by the recently installed liberal power, had completely disappeared by 1880.28 The first bank bills were issued by the National Bank of Guatemala in 1874 through the sale of ecclesiastical properties. 29 Paper money slowly became unredeemable until 1897, when it became legal tender. In Costa Rica, the difficulties were similar, and the installation of the gold-based currency in 1900 coincided with a crisis that affected export commerce and weakened this monetary reform. In 1922, gold became the legal standard but never was able to match demand.30 In 1912, Nicaragua, and Honduras in 1918, attempted but failed to adopt gold as the base of their currency. They failed because of the weak domestic base of their productive systems. Honduras's problem was the "nationalization" of its money.31 In 1879, Honduras completed the first

The Decline of the Agro-Export Society and the World Crisis of 1930 monetary reform based on silver, which ended with the metal's depletion. Successive attempts faltered in 1916, 1919, and 1931 (when the lempira was created), but finally succeeded in the 1950s through the Central Bank's gradual substitution of the lempira for foreign currency.32 In Nicaragua, silver's devaluation also frustrated the attempt to regulate the monetary supply between 1871 and 1872. In 1894, Nicaragua legally regulated the value of its currency, and in 1913 U.S. bankers recommended the creation of the Córdoba to be on a par with the dollar (the silver-based currency had reached twelve hundred to one).33 Nicaragua suffered from its financial weakness. The Bank of Nicaragua, for example, in 1894 became a subsidiary of the Bank of London of Central America, now named the Bank of London and Montreal, which operated in the whole region. In 1912, the National Bank was founded, constituted according to law and with residency in Connecticut, with 51 percent of its stock in U.S. bankers' hands. 34 El Salvador experienced related problems. In 1880, the recently founded private banks authorized the issuance of money, and later paper money, and stabilized the monetary system by 1930.35 The crises related to foreign trade were reinforced by the behavior of the public sector, which was fiscally weak because it constantly issued unguaranteed bonds and unproductive domestic loans. Regulation of the monetary system, the cardinal sin in liberal orthodoxy, was imposed on all of Central America and was maintained and caused by free convertibility. Thus, the export and banking sectors and large foreign capital interests were favored. Paper money did not resolve the weakness of foreign trade, yet it accelerated the rhythm of monetary depreciation, with long-term consequences for productivity. Such misfortunes were, nevertheless, accepted as inevitable consequences of the natural economic order. Did these phenomena point to the leading groups' incapacity to run the system efficiently, or did they express the insuperable weakness of a developing agro-export society? Undoubtedly, both produced the imbalance. But the elite groups thought that falling prices or a bad harvest produced these "natural" consequences. The history of monetary devaluations in this whole period testifies to something more than improvisation: dominant interests took advantage of and speculated with the financial system while the foreign banking sector, on the pretext of scarce dividends, raised the exchange rates in conjunction with external fluctuations, thus capriciously manipulating such transfers. Import merchants, to pay international debts, were subjected to rapid fluctuations in the exchange rate. Furthermore, unbridled speculation unleashed a long-range inhibiting effect on investments that were not

53

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export activities or land speculation. These sectors were always opposed to inconvertibility and monetary reform. In Costa Rica, the confrontation between importers and agricultural exporters caused by the foreign exchange rates, or in Guatemala, the confrontation between the banking sector, strongly influenced by the coffee growers, and the state, caused by the exchange rate, exposed the extent to which the export group had disassociated itself from the whole of society. The Costa Rican conflict was public and provoked political instability. In Guatemala, the great export interests impeded monetary reform for two decades and bogged the country down in virtual stagnation. Fifty years of constant monetary depreciation affected important social groups and strengthened a minority of export coffee growers, national and foreign bankers, and banana growers. The weak middle groups—employees, workers, and other urban sectors—lived with unending difficulties. During the greater part of the last half of the nineteenth century, declares John Young, salaried workers continually confronted the difficult situation of trying to catch up with the cost of living, always receiving less than they were owed. This, he adds, explains in part why the class of patrones (employers or bosses) and finqueros (farmers) favored the devaluation of the national monetary system. 36 Agricultural peons and, in general, the poor inhabitants of the rural zones were no strangers to such vicissitudes but were affected to a lesser degree. In Guatemala and El Salvador, and less in Nicaragua, the only people to accept South American printed money, from the beginning of the twentieth century, were the Indians. Salaries were paid partially with money and during long periods with fichas, pieces of tin or simple vouchers signed by the property owner, which circulated within the region of the landowner's social prestige.37 Speculation in the banana plantation sector was facilitated by its enclave structure, by purchasing and selling foreign goods with foreign exchange, and by paying taxes and salaries in national currency. In countries like Honduras, the banana companies were the state's principal source of foreign exchange until the postwar period and intervened as lenders or guarantors of official credits in the international arena.38 The problems with constant monetary devaluation intensified during crises because the state, to provide funds, authorized particular banks to issue bills without sufficient backing. The slowness with which this situation ended should not be judged only as the persistence of a structural irregularity in the face of the frustrated attempts of governing groups to control the ungovernable play of market forces. Rather, dominant interests in the agro-export economy endured; a minority of coffee intermediaries, tied to international financing, were direct beneficiaries.

The Decline of the Agro-Export Society and the World Crisis of 1930 Guatemala offered one example during many years. Referring to the attempts to reform the monetary system, Young indicates that the higher the exchange rate chosen, the lower the corresponding value of the peso and the less expensive government reform. Banks and exporters preferred as low an exchange rate as possible because the government's debt to them would be higher. At the beginning of the 1920s, popular agitation in favor of reform increased with a public protest before the National Assembly to halt the decline of the peso.39 What was certain was that attempts to mint and circulate money, generally silver, served only to encourage capital flight, a consequence of the vicissitudes of foreign trade. The state applied a liberal policy and ceded to individual groups its prerogative to issue money. With a financial base constantly weakened, the vicious circle closed with new unsupported monetary issues authorized by the state, and the inflationary spiral soared.40 Therefore, the abandonment of free exchange could have had its point of departure in weakened foreign trade, and especially through the position of the banking system and the weakening of the local system of production. The Central American countries took advantage of the brief period of growth in the 1920s to adopt a gold-based monetary system and to reorder monetary circulation. The last countries to adopt the gold-based system were El Salvador, in 1920, and Guatemala, in 1924, but the world crisis of 1930 caused new breakdowns and postponed the possibilities of consolidating reform in the whole region. The climate of the postwar period and the international monetary instruments facilitated the adoption of successive institutional measures that enabled monetary and exchange stability, the adoption of the Central Bank, and its utilization by the state to direct this policy. In actuality, Central America looked for ways to adopt a common currency within the framework of economic integration.

55

4. The Difficult Transition: World Depression and Postwar Growth

The advent of the world capitalist crisis in the 1930s did not signify the end of one historical period and the beginning of another for Central American structures and institutions. Rather, it pointed to a transitional stage that lasted approximately fifteen years. In some Latin American societies, the crisis created the conditions for an unintentional and superficial change. In the isthmus, this time was characterized by growing contradictions and weaknesses accumulated by export-led growth during the preceding thirty years. The decades that preceded the crisis enabled the establishment of a certain degree of development, though it was unequal, limited, and dependent. Social change, tied to export trade, reflected such inequality because it was realized under the aegis of a social group that slowly lost its reformist and modernizing capacity. From this point on, boom periods fluctuated within a general framework of constant deterioration of established world market relations.1 Did the relatively advantageous position of the coffee industry postpone the emergence of a national economy and delay economic and social development? At what moment was the potential development of the coffee economy exhausted or, more strictly speaking, was its managerial productivity depleted? Did the rhythm and content of change suffer from the moment of Central America's definitive integration into the world market until the instance in which the single-export economy's insurmountable weaknesses were exposed? All traditional attempts to answer these questions deviate toward a more general interpretation of the historical obstacles of development and, more specifically, attempt to establish when and how Central America should have industrialized. Critics, with a "colonial" or "coffee-growing" mentality, blame failed industrialization and deny the historical fact that, contrary to what happened in other Latin American societies, foreign trade did not energize domestic structures. As a consequence, export-led growth

The Difficult Transition: World Depression and Postwar Growth

57

lasted until it used up its potential and failed to take advantage of the two world wars and the 1929-1933 crisis to encourage domestic development. Some middle-class sectors, critical of the situation, adopted a pessimistic ideology, shunned reform, and provided no alternative to these events. Some argue that capitalism's "natural" development in this peripheral region initially produced, in some cases, or aggravated, in others, complex social and political problems. The image of "natural" development, rooted in a questionable economic metaphysics, emphasizes how economic growth rescued people from the blind effects of the market. Regulation of the market did not correspond to the liberal state, since the laws of "nature" balanced the market. Though U.S. investment increased until 1929 and trade in tropical fruit increased, Central America's fruit exports steadily lost their relative importance. 2 Prior to the 1929 crisis, the limitations of capitalist development, nevertheless, had not been totally exposed. It was evident, however, that the consolidation of an agro-export economy and the creation of some reduced poles of urban economic activity did not modernize other sectors. For a long while, many believed that traditional economic and social formations would disappear as they were replaced by more modern, capitalist types. Such claims never proved true, and the total structure continued to operate with slight changes. Capitalism did not expand or propagate itself, not even in moments of growth, and national strategic groups seemed, by their actions, to reinforce the intransigence of the establishment. Friction between oligarchic groups or produced by permanent authoritarian regimes generated periods of instability, frequent in the political order, and brought about U.S. predominance in the region. Social tension did not achieve political expression, and regimes like that of Estrada Cabrera in Guatemala owed their long life (in this case, twenty-two years) to the imposition of the domestic peace desired by coffee growers. In addition, the regime handed over railroads, electrical energy expropriated from the Germans, and concessions of land, docks, and other privileges to U.S. companies. Given the presence of the coffee-growing oligarchy, democratic possibilities did not exist, or dried up prematurely. An exception to the rule, Costa Rica scarcely altered the succession of an enlightened agro-export elite, popularly known as the "families" par excellence, which came to power through the Tinoco brothers' military coup in 1917. The system of "notable" parties in Costa Rica operated in the country efficaciously as a paternal democracy. The effects of U.S. hegemony were felt in a thousand ways. In the

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Caribbean, Cuba, Puerto Rico, Santo Domingo, and Haiti were submitted to direct U.S. guardianship. Interest in a transoceanic passage through Nicaragua always preoccupied U.S. leaders. Once the canal was constructed in Panama, they maintained Nicaragua as an option for an alternative canal. U.S. occupation of Nicaragua in 1911 ended liberal rule and therefore heightened political conflict. The conservative governments, after the expulsion of liberal dictator José Santos Zelaya, were the fruit of U.S. influence. In 1924, U.S. troops withdrew temporarily, and the country was submerged again in civil war. Social and political decomposition produced a U.S. protectorship. Instability manifested itself as two contradictory phenomena: the guerrilla struggle of the nationalist leader Augusto César Sandino, and the dictatorship of Gen. Anastasio Somoza.3 Liberal ideals of achieving democratic government with restricted suffrage, elite representation, and an institutional division of power were momentarily achieved in the rest of the region in the 1920s through the governments of Herrera and Chacón in Guatemala, and Quiñónez Molina and Romero Bosque in El Salvador.4 In Honduras, the rivalries of traditional factions were also resolved by civil war and U.S. intervention. Extreme political instability was nourished by the inter-banana company strife, which ended in the 1930s. The military dictatorship also became a historical necessity for the dominant classes, except in Costa Rica. In the 1920s, worker and campesino movements emerged and developed in all of Central America within a relative international peace and economic boom. The victorious Mexican Revolution, though influential, was silenced and forgotten. Its violent development, along with the Russian Revolution and international socialism, aroused social struggle. Central America was influenced by these international events through the efforts of a small group of intellectuals and artisans. Future social historians of this region will discover the roots of the conflicts generated by these groups. More modern union organizations and protest movements emerged on the banana plantations. The 1925 workers' strike of the Cuyamel Fruit Company in Honduras and the 1921 workers' strike in the Río Escondido in Nicaragua revealed a new ideological behavior that had nothing to do with the campesino "checkmate." Rather, their demands entailed petitions to reduce the work shift from fourteen to ten hours and to increase salaries. Workers' organizations on the banana plantations were economic movements without political content and corresponded to the awakening of a nationalist conscience, a movement postponed for another generation due to the 1930s crisis.

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59

The 1930 World Crisis and the Stagnation of Central American Society The world crisis in the capitalist system in 1929 translated into an immediate and brusque decline in coffee's international prices, a reduction in demand, and contractions in the offer of foreign manufactured goods caused by the generalized weakening of foreign trade. The crisis initiated a long period of economic and social stagnation with dire consequences for the political system. But the entrenched and powerful oligarchy impeded the search for alternatives to solve the crisis quickly. This notable difference distinguishes Central America from the rest of Latin America. The rigidity of the social structure, the failure to take advantage of options prior to the depression, the lack of economic diversification, and, above all, the absence of other social groups weakened the political economies for more than fifteen years. Central America waited until after the Second World War to recover the level of economic activity it enjoyed in the 1920s. In Central America's underdeveloped economy, the effects of the crisis were less violent but more prolonged. The 1930 crisis did not provoke violence because of the capacity of the subsistence economy to absorb and to protect the masses of rural campesinos. With the economy's vitality dependent on the foreign market, the decline of the foreign market translated into a decay of the monetary sector, which produced not catastrophic consequences but imbalances requiring slow recuperation. Previous fluctuations and the depression could not by themselves reduce the standard of living of campesinos, who found themselves on the margins of the economy. On the other hand, agricultural entrepreneurs could continue to operate even though their profits diminished. The dominant social groups, which had delayed and impeded development, prolonged the effects of the crisis. Between 1930 and 1945, domestic productive capacity did not increase nor did exports diversify, and coffee prices suffered the most violent and persistent decline in all of the crop's history. In 1932, Costa Rica's exports reached their lowest point and did not recover to 1929 levels until 1945. In 1926, for example, coffee exports totaled 42.4 million colones, bananas 23.6 million. In 1932, coffee and banana export income decreased to 23.7 million and 10.7 million colones, respectively.5 Between 1931 and 1932, the value of coffee exports dropped 40 percent.6 El Salvador, Nicaragua, and Guatemala reduced their exports on the average 55 percent over a four-year period beginning in 1929. Coffee prices in all of Central America recovered in 1946. The decline of the coffee price index produced disastrous results for El Salvador, where coffee represented 90 percent of total exports. In 1925, this index reached

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200 points (assuming a 100-point index for the period 1934-1938), while in 1928 and 1933, it diminished to 181 and 73, respectively. Not until 1946 did the coffee price index reach its old level.7 In 1930, Guatemala exported 125 million pounds of coffee, a quantity superseded only seventeen years later.8 In Nicaragua, 1925 coffee production levels recovered thirty years later. Terms of trade reached their lowest point in 1932, and recovered only toward the end of the 1940s. During this whole period, the internal consequences of the 1929 crisis, along with the external consequences of the "price war" unleashed by Brazil in 1937, were superimposed and therefore impeded the slow recovery. Immediately after this phenomenon, the 1940-1941 wartime contractions crunched the Central American economy. All these negative factors, completely foreign, postponed the rejuvenation of the socioeconomic structure until the end of the Second World War and structurally explained that the crisis was not transitory in nature, but, rather, a prolonged stage of economic stagnation.9 The depression affected economic activity and paralyzed it in many aspects. The chaos was greater in El Salvador, less perceptible in Honduras, though the whole region suffered virtual stagnation. In all, the agrarian crisis translated into the temporary abandonment of the coffee harvest, the abandonment of lands, and campesino unemployment. Unemployment spread in the cities, gravely affecting the labor sector and the middle class. The commercial and public sectors reduced their activities. The behavior of the banana economy was initially distinct. In 1930, Honduras reached its highest production level, and the fall in price was offset by an increase in export volume. Because of this circumstance, Honduran society resisted the general contraction well, relatively speaking. A slight trade surplus was produced from 1931 to 1936, though, later, it would steadily worsen. For the rest of the region, the banana sector's income represented only a minimal part of national income. The critical effects in Honduras were translated into a gradual and slow paralysis of its economic mechanisms. The net territorial product "grew" at an average rate of 0.7 percent in fifteen years, and only in 1946 did it register for the first time a per capita income as high as that of 1930.10 In El Salvador there was no economic collapse, but the social repercussions aggravated the crisis. More lands were abandoned and rural unemployment increased because this country was the smallest and most populated in Central America. In the coffee zones, campesinos found less available land to work as a refuge and a defense in a selfsustaining economy.11 Official policy intensified the profound social unrest, and, at the beginning of 1932, a campesino uprising exploded in

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61

the region of Izalco and spread rapidly throughout the western part of the country. The military government of Maximiliano Hernández Martínez, with the help of the great landowners, ferociously suppressed the rural insurgency, killing more than thirty thousand, and extended the repression throughout the country in order to limit the social pressures of the crisis.12 El Salvador's campesino rebellion reverberated profoundly in the rest of Central America and alerted landowners to the mobilization of the masses, which, for the first time, attempted to demonstrate their political potential. In Nicaragua, some campesino sectors of the northwestern zone, spurred on in part by unemployment and the misery of 1930, actively supported Sandino's guerrilla movement. Although begun for different reasons, Sandino's war gave birth to cries for agrarian justice. The discontent in the rural zones translated into a demand for land, and the central government yielded to campesino's demands in order to pacify the country. The treatment meted out to the discontented and the organized urban social groups precisely illustrated the different oligarchical states in Guatemala and Costa Rica. In Guatemala, coercion was immediate and visible; in Costa Rica, formal democratic legality necessarily appeared as the first instance of repressive measures. Ubico's military government in Guatemala repressed social agitation, executed one hundred union leaders, students, and politicians in 1933, and decreed laws "against vagrancy" in order to suppress rural discontent. Costa Rica's oligarchy, challenged by a powerful strike movement in 1934 in the banana zones, channeled the conflict institutionally. In spite of the distinct social-political measures, in the final analysis, the Central American governments proceeded with the current oligarchical instinct: they immediately restricted bank credit, public investment, and budgetary expenses. Thus, the oligarchies demonstrated not only the classic application of a conservative political economy but also the absence of one, in circumstances that would historically have justified the adoption of unconventional measures within a liberal standard of economic behavior. The state stimulated a deflationary policy that reinforced the effects of the crisis in the long run and minimized the possibility of mobilizing existing resources through institutional mechanisms. Investment credits in Guatemala diminished from twenty-eight million dollars in 1929 to fourteen million dollars in 1944. Budget reductions slashed up to 40 percent of the bureaucracy's salary in Honduras, Guatemala, and Nicaragua. The anachronism of such measures was demonstrated by a 1939 policy to save the fiscal surplus. In an export economy, where fluctuations have nothing to do with domestic and

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foreign costs, a policy that subordinated domestic monetary stability to foreign parity should not have been applied. The oligarchy's conservative policy was stimulated, nevertheless, by a half century of monetary and exchange instability. The state's financial base, chronically weak, suffered even more. Reflecting the general social decay, state activity diminished. Thus, the public sector could not play a more decisive role in the management of such problems. State revenue, a good indicator of the level of economic activity reflecting consumption and achieved productivity, declined an average of 40 percent. Not until the end of World War Π did state income levels match those of 1928-1929 in Guatemala, 13 and El Salvador's recovered in 1944.14 In Honduras and Nicaragua, the situation worsened, with reductions up to 50 percent within three years, followed by a slow recuperation in the 1950s. In 1933, Costa Rica implemented a minimum salary policy in the countryside, attempted protectionist measures, and created the Instituto de Defensa del Café (IDC—Institute of Coffee's Defense) with the goal of assuring the quality of the harvest, commercialization, and assigning credits to planters. 15 In the rest of Central America, measures were directed more to saving the indebted landowners or to limiting the unbridled speculation carried out by banks and some large property owners, both domestic and foreign. In 1933, a moratorium annulled or postponed the payment of debts negotiated at the beginning of the crisis. The Banco Hipotecario (Mortgage Bank) and a limited social improvement (mejoramiento social) institution were created to combat speculation. In 1930, the Asociación Cafetalera de El Salvador (Coffee Growers' Association of El Salvador) was organized and vigorously defended landowners' interests. In 1933, the Oficina Central de Café (Central Coffee Office) was founded in Guatemala as a dependent organization of the Ministry of Agriculture and was charged with directing coffeegrowing policies, promoting foreign consumption, protecting the hacendados, and offering technical and financial assistance. If Central America's protectionist policies are compared to those in other countries, like Brazil, the coffee export sector was not adequately safeguarded. Nowhere in Central America, not even in Costa Rica, was there a systematic defense of employment or control of coffee prices. Such a defense would have been decisive in augmenting the potential of the small manufacturing sector and initiating the problematic task of overcoming the traditional means of production by fortifying the domestic market. Coffee production decreased relatively less than export volume, but prices were reduced almost 50 percent because of the 1937 Brazilian coffee policy. The Salvadoran government prohibited the importation of machinery

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for sugar and cotton refineries "in order to maintain the volume of employment in the countryside." Another proof of the defense of the traditional structure was the October 26, 1939, decree (No. 68) that proposed a policy of ample protection of national handicrafts. This decree prohibited the establishment of factories with more than twenty thousand colones (eight thousand dollars) in capital. These factories would produce shoes, sheet metal or zinc goods, brick, soaps, and other items. 16 In no Central American country were the necessary domestic conditions present to initiate internal and export-led development, and growth alternatives based on import substitution were blocked by reduced national markets and the scarcity of financiers and technicians. The economic crisis became a political treatise inspired by the necessity to maintain the status quo. In the 1930s, the social forces capable of modifying it were not prepared for a task that would be attempted twenty years later. In other countries, protecting the export sector benefited the manufacturer indirectly. But domestic incentives were not sufficiently vigorous to bring about a transfer of capital to urban production. Although it was not feasible to wait for the creation of a consumer market, a new and distinct political arrangement in the power sphere was required sine qua non by incorporating other social groups and by modifying the politicalinstitutional structure. The absence of such conditions explained the apparently incomprehensible course of Central America. Industrial investment did not interest the landowners, and they preferred to invest in the foreign stock market. Neither should one forget that the landowning class was conditioned by foreign incentives from the beginning. Furthermore, coffee production mobilized international capitalists to act as intermediaries in domestic production and in coffee's commercialization in the European-North American markets. Business houses and the international banking system fulfilled these roles. When foreign incentives lost strength, these financiers began to invest in specific sectors of the international productive structure. On the other hand, the flight of national capital, within the framework of a world economy, did not consider national interests but only simple and certain profit. With the crisis, foreign debt payments were suspended. At the end of 1935,100 percent of dollar bonds owned by Guatemala, El Salvador, and Costa Rica were in arrears,17 and 77 percent of the total $23.6 million was held by U.S. shareholders. The problems with foreign exchange also delayed the payment of the English debt. In 1939, the value of circulating Central American bonds in pounds sterling rose to 7.3 million. 18 In general, at the end of 1945, a great part of the foreign debt was repatriated, thanks to the favorable settlements achieved by the Central American

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countries during the Second World War (though the rewards of the settlement were to be mishandled). In 1931, Nicaragua and El Salvador, and Costa Rica in September 1932, introduced the control of foreign exchange. In the 1930s, the redistribution and relocation of Guatemalan and Costa Rican banana plantations to the Pacific Coast occasioned the divestment of U.S. capital by nearly 50 percent. The departure of foreign capital, which returned two decades later, contributed to the general weakening of economic activity.19 It should not be forgotten that the construction of the Pan American Highway took on great importance. The Second World War stimulated construction of the Pan American Highway for strategic purposes,· construction was "tied" to loans through international credit institutions. In 1941, the Eximport Bank granted to the Salvadoran government $1.7 million, $3.2 million to Guatemala, $5.8 million to Nicaragua, and $5.0 million in 1940 and $2.0 million in 1942 to Costa Rica, all of which was allocated for materials and equipment to construct the international highway. The closing of the European market as a consequence of the war pointed to an irreversible change. In the postwar period Central America emerged selling a single product to one market and depended on the same market for its manufacturing necessities. During the five-year period 1930-1934, Central America sold 19.6 percent of its total coffee harvest to the United States, and almost 75 percent to Europe. During the following five-year period, 1935-1939, the average proportion of exported coffee to the United States increased to 39.8 percent, and during 1940-1944, the amount doubled, to more than 87.2 percent of the region's total coffee exports (see table 3). The economic situation began to vary slowly beginning in 1940, when the more evident causes of the crisis disappeared. Yet renewed domestic and foreign difficulties impeded the awaited recuperation. A conservative orientation provoked by Brazil's price war dominated political and economic decisions that led to new and successive declines in the value of coffee. The average of coffee exported toward the end of World War II finally matched the average exported during the five-year period 19341938, although production did not decline.20 During the 1940s, the United States initiated a system of national production quotas and unilateral price control. In this period, and as a consequence of the difficulty of access to or loss of the Southeast Asia productive markets, a certain agricultural diversification was favored with the implantation of "war" harvests such as rubber, essential oils (citronela, African palm oil, lemon tea), and fibrous plants (kenaf, abaca, and others) produced by United Fruit Company for the U.S. government.

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Table 3. Percentage of Coffee Crop Sold to the United States by Each Central American Country Country Guatemala El Salvador Honduras Nicaragua Costa Rica

1930-1934

1935-1939

1940-1944

27.1 18.2 25.2 12.6 15.1

51.0 59.7 23.5 44.5 20.7

90.4 84.7 94.4 98.4 68.4

Source: International Institute of Agriculture, The World's Coffee, pp. 417-421. The crisis and economic stagnation exposed the ruling groups, which entrenched themselves in order to block alterations in the social system. During this period, between 1930 and 1940, the crisis of the oligarchicalliberal order occurred. Nevertheless, in this transitional stage, festering social conflicts did not explode, and would not explode until the postwar period. The conditions were slowly growing that would produce the crisis of the coffee growers' republic and its problematic resolution. Therefore, the economic crisis postponed the political crisis. Central America, excluding Costa Rica, endured a reinforcement of foreign domination and witnessed the increasing intransigence of the oligarchy, which conserved its unalterable power for three or four more decades. Though their social program did not vary, the governing elites dominated politically by means of middle-class military leaders. Members of other groups represented the property-owning class in the government, and professional armies emerged as decisive power brokers. The reinforcement of the most negative aspects of the intervening oligarchy was illustrated by the military dictatorships of Jorge Ubico in Guatemala, 1931-1944; Maximiliano Hernández Martínez in El Salvador, vice-president in 1931 and president from 1935 to 1944; Tiburcio Carias Andino in Honduras, 1931-1949; and Anastasio Somoza in Nicaragua, head of the National Guard beginning in 1929, and president off and on from 1937 to 1956. All were generals from the middle class, with the exception of Ubico, and all, except for Somoza, were overthrown by popular movements in the postwar period. Adverse political conditions and the increasing influence of the oligarchy (minority governments, violent exclusion of political opposition, and, in general, the blocking of other social groups' participation and preferential treatment for coffee and banana interests) affected all social sectors politically and socially, including important rural property-owning groups.

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This accumulation of social tension and the postponement of solutions produced Central America's economic stagnation, delayed the modification of the traditional standards of behavior, and reinforced paternalism and the predominance of the farm or hacienda owner by facilitating the emergence of a natural economy or the self-sufficiency of various rural regions. The concentration of economic power hindered political democracy, mortally wounded in this period when all was done to save the system. But the authoritarian "solution" was the means to make the popular sectors pay the price for economic contraction. These popular sectors included campesinos, urban labor sectors, employees, bureaucrats, small landowners, merchants, artisans, professionals, and, at the end of the depression cycle, almost all social groups. In summary, this period was unfavorable for the development and consolidation of national society in Central America. It not only exhibited the effects and limitations of the liberal reform of the previous period, but also demonstrated the impossibility of modernizing the political system and its economic base under questionable oligarchiclandowning leadership. The agrarian base of the coffee-growing economy could not be the cornerstone of a popularly demanded social renovation. But, probably, the most important and most long-range effect entailed the reinforcement of Central America's dependency. A definitive economic, technological, and financial shackling became irreversible while capitalist formation was maintained within the margins of a world capitalist market. Social and Political Changes in the Postwar Period Oligarchical Power in Crisis With the end of the Second World War, the traditional balance of power wavered after fifteen years of economic and social stagnation. An international climate of anti-Fascist victories aroused social movements stifled by authoritarian politics. The accumulation of tensions and problems superseded the precarious balance of power bit by bit until all authoritarian governments were finally deposed. Middle-class intellectuals led popular movements and especially influenced the urban masses. At the beginning, popular movements formed a broad, national, antioligarchical front that facilitated the overthrow of the regimes of Ubico in Guatemala and Hernández in El Salvador. Nevertheless, more or less popular movements, such as Guatemala's Arevalismo, El Salvador's Romerismo, Costa Rica's Figuerismo, and Honduras's Villedismo, constituted typical national-reformist expressions of the middle class, with its programmatic content, its leadership, and its relations with other classes. Popular discontent channeled itself, with particular exceptions,

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into the diffuse objectives of political democracy, freedom, and respect for human rights, in sum, the reconstitution of a bourgeois legality capable of liquidating the open breach between the façade of liberal constitutionalism and the despotic exercise of power. If one were to discount the particular traits of these phenomena, the common denominator would be the mobilization of the urban popular sectors (artisans, workers and other salaried people, employees of the public and private sectors) directed by important sectors of the middle class (students, professionals, teachers, army officials, and small landowners and merchants). The emergence of middle groups in politics did not signify their immediate incorporation as a class into the dominant structure. Rather, it represented an extremely heterogeneous, initially weak and inexperienced social group. Toward the end of the 1940s, traditional parties, liberal and conservative, were replaced in Costa Rica, Guatemala, and El Salvador in order to provide space for elected and unstable political organizations headed by middle-class elements. Honduras and Nicaragua preserved their social orientation, although their leaders attempted to change their social origin and objectives. J. Medina Echavarría indicates that the breaking of the traditional two-party system, which accompanied the decline of the traditional hacienda system, was the result of a profound transformation that gave birth to a new middle class and an ideological confusion mixed into these phenomena. The resulting power vacuum sacrificed the legitimacy of the traditional two parties.21 Beginning in 1945, popular participation and the configuration of changing forces expanded slowly in some countries, violently in others. The social, modernizing sector of each society found no bedfellows among the traditional landowners, the least affected by the stagnation. The postwar period, nevertheless, revived international trade, and its brief inflationary period elevated coffee prices anew to optimum levels. But a new model for interpreting national reality was coming of age, proposing domestic industrialization and diversification of foreign trade as national objectives. Although more effective measures were not implemented, industrialization was encouraged and, in the 1950s, became the synonym of development by changing the dynamic and orientation of state activity, social classes, and above all, foreign power groups. The scope of growth through various decades produced profound changes. Between 1945 and 1950, one such change was the emergence of urban middle-class groups through the transformation of old sectors tied to handicrafts and to secondary trade or through the public and private bureacracy's incorporation into the expansion of services and renovated merchant activity. Formal education, encouraged by the state and by

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new occupational sectors, favored this process. Contrary to some hasty generalizations, Central American urbanization was proportionally and relatively slow and, in all cases, did not manifest a "metropolitanization," as in many of the South American capitals, where migration toward the cities provoked an unmeasured growth of a single urban center.22 Middle sectors emerged as modernizing groups without having political organization or an adequate ideology to effect pressure on the power structures. With some variation, middle-class action in El Salvador and Nicaragua, and forcefully in Guatemala, coincided with the attempts of the landowning oligarchy to transform itself internally. With the emergence of the middle class, popular participation and some modification in the dynamic and orientation of the state's activity were made possible. Union organization and workers' participation in political activity were facilitated directly by the activity of the middle sectors. Though the middle class's action enabled workers and other popular sectors to mobilize, an effective integration was not achieved. On the contrary, a precarious and temporary relationship was maintained. In general, the political participation of the popular masses in Central America, conditioned by their economic and social situation, was diminished or controlled by old and new forms of paternalism or was violently excluded. Political integration, expressed by populism in other parts of Latin America, occurred only sporadically. At this time, unionization became possible in Central America, though it never stabilized and amplified participation. In general, unions appeared as weak and elite opposition groups that included artisans or the traditionally organized railroad and plantation workers, or the state sponsored the unions' development.23 Important pressures in the postwar period originated with the popular sectors. The unions' professional demands upset the political order and finally produced conflicts that the state had to resolve. Nevertheless, it became possible for the numerically small industrial workers to achieve a certain integration into the market. Their demands were satisfied or transformed rapidly into simple salary petitions and other social advantages limited to the business environment. The promulgation of social laws in the postwar period authorized the organization and operation of unions under the state's more or less strict control and limited them to the private, urban business environment. Social change barely touched the masses because of the unions' weakness and the popular sector's susceptibility to other social sectors' manipulation. Popular movements, which emerged in the postwar period, assumed "antifeudal" objectives, moving from general criticisms of the mono-

The Difficult Transition: World Depression and Postwar Growth export economy to rebuke of the agrarian structure. The pressures in favor of the modification of the traditional ownership of land, an unsupportable and stagnant system during the previous fifteen years, obliged Guatemala to undertake an agrarian reform that sought to establish new social relations by creating a foundation made up of new rural property owners and a modern agricultural proletariat.24 Various political groups, not necessarily business-oriented, pressured for industrialization. Furthermore, this objective emerged within a limited framework, on the one hand, through pressures generated by middle-class consumption, and, on the other hand, through an antioligarchical fight that restricted and intimidated the propertied classes. Could there be industrialization without changes in agrarian structures? What forms did this process adopt in Central America when these managing groups were weakened or not present? Under what conditions did the landowning oligarchy accept modifications of the status quo, alterations to political and economic rule? In the postwar period's political movements, proposals for modernization and change were unequivocally present. The common denominator of these attempts was a more or less elaborate criticism of the political and economic system. As a consequence, more pragmatic than viable development demands emerged, given the content and manner in which they were supported. The spirit of nationalism also awoke within the Central American people. Criticism of the system never threatened that nationalism, not even in Guatemala, where radical modification of the rural structure began.25 The weakening of the traditional forms of the agro-export sector's domination opened up the possibilities of development within the postwar period. No Central American country was unaffected. In Guatemala, El Salvador, and Honduras, the governments that emerged after the crisis of the 1930s were replaced by middle-class leaders or political groups who headed popular movements. 26 Even Costa Rica experienced a violent adjustment in its legal and bureaucratic structure in order to adapt to the new tasks of economic growth.27 The consequences of this opening, which rested on a relative restimulation of the export economy as a product of the inflationary period of the world market, enabled new class alliances within the political system. This situation could hypothetically have enabled the assent and recognition of sectors linked to both industrialization and new productive networks. Only a specific study of each country could verify such a proposition. It was not possible to do a detailed analysis of each of these phenomena, and although it is difficult to generalize, it is necessary to venture some reasons for the systemic crisis and its result. At this time, new interest groups tried to gain political and social recognition. They

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emerged as a consequence of the postwar period and produced a rapid diffusion of aspirations and a critical search for new solutions. I speak of crisis because these groups were not able to consolidate new mechanisms of institutional participation and therefore cast doubt on the sources or roots of power and representation of the landowning sectors. A "crisis of participation," in the first case, and a "crisis of representation, " in the second, were narrowly connected. One social sector was not substituted for another, nor did a new legality emerge. In varying degrees, an incomplete, precarious, and forced breach within the old oligarchical rule occurred. But such an opening of the political system was sufficient to unleash, or initiate, the critical process that still affects the region and that fundamentally expressed the search for legitimacy through universal suffrage, party structure, and the implementation of a new national objective: the industrialization and fortification of the domestic market. In other words, these mechanisms appeared as middle-class demands, confused at times with popular demands. Democratization and industrialization constituted the leitmotiv of the political process. From there on, only the new social groups in the 1950s struggled for popular education, a functioning legal system, social legalization, political protection, and industrial protection. The flexibility or permanence of a minority of large, traditional landowners and the real exclusion of other social groups facilitated the paternalism of the hacienda. Changes within the hacienda system appeared as limitations on political power, with the admission of new social groups, surely offshoots of the old coffee growers. But in the local sphere, especially in the rural zones or zones distant from the capital, the old social and political power did not alter its relationship with the campesinos, indigenous or not. As Medina Echavarría points out, this phenomenon was summarized as the premature transition from a historical system of power based on the hacienda and the old two-party system to one based on urban structures in industrialization, which enabled the formation of the so-called parties of the masses.28 Although other interest groups were allowed to participate in decision making, the basic structure was not altered. Such was the case of the agricultural empresarios (entrepreneurs or managers), who were linked to the export economy together with the emerging industrial groups of bankers and merchants. These groups tried to transform themselves into representatives of the "general interests of society" and to confer legitimacy on the state and the power system itself. Remember that these new entrepreneurs were the unleashed modern representatives of the old coffee-growing oligarchy. In other words, it seemed that, at the

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state level, the traditional economic groups adapted to the new social conditions imposed in this period while preserving the system with few and discreet concessions. Finally, another aspect of the political crisis began to be evident with the attempts to modernize the state without altering the nature of its support base. The resulting contradiction seemed to propose, in extremely polarized terms, the modernization of the institutional apparatus and the necessity of development. Superseding the old institutional structure and the system that supported it would be possible only with the total and direct reorganization of the economic system, not through gradual withdrawal based on increasing demands for reform. To develop successfully required a series of structural transformations that would weaken the traditional sources of power. Such was the case of the disputable measures used to vitalize the public sector over and above the private sector. Such were the debated policies to energize the public sector by nationalizing basic social services, and, in general, to guarantee the state power as development planner. These measures were initially proposed by middle-class parties and similar groups. Nevertheless, the result was different. One could speak of a certain enlargement of the traditional functions of public power and a greater institutional participation in economic and social life. But the state was not able to situate itself in a strategic position and undertake the historical role of directing the movement from an economy stimulated by the foreign market to one encouraged from within by national development. Economic dependency acquired new dimensions in the postwar period within the institutional and political system. "Modernization," for example, explained the institutional adjustment in the state apparatus that facilitated not so much the participation of national economic groups in the world market as the consolidation of foreign interests in the local market. The banking system and the financial institutions, in general, actually were modernizing sectors within the nation-state. They tried to fashion another type of state, not only dealing with the agencies in charge of fiscal policy, but also working with the police and the armed forces. The modernization of the repressive apparatus still remains top priority. In summary, the difficulties in finding an equilibrium through a social and political alliance that forced compatibility between diametrically opposed powers created a new form of social and political instability with the constitution of authoritarian-developmentalist regimes. These distinct purposes, now allied, included the transformation of the economic system without altering the rural structure,· the modernization of

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political institutions without accepting the free play of the party system and mass organizations,· the intentional policies of planning and development while exclusively supporting the private sector; and industrial investment along with social pressures to consume. The common denominator was the military presence and the renewed oligarchical style of government exhibited in the region since the 1950s, with the notable exception of Costa Rica's formal democracy and political stability. Unbalanced Economic Growth These political changes were accompanied by, or made possible, a relative revival of the Central American economy through the concurrence of fortuitous factors unrelated to its internal dynamic. The more important changes were the revival of international trade and the subsequent demand for traditional products at prices temporarily favorable and a renewed abundance of foreign resources. The high income earned through the coffee trade was a consequence of external factors and not a result of a national policy of investment and aggressive agricultural development. The demand for foreign goods and services favored not only the recently acquired capacity to import but also Central America's ability to retool or create new product lines after the war, with the ensuing surplus of foreign exchange. As demonstrated in table 4, the region's monetary reserves in 1937 were $17 million; in 1945, they totaled $84.1 million. This circumstance enabled Central American governments in the 1940s to pay almost all of the English debt and the greater part of U.S. private credits. The public foreign debt pending in 1945 was $37 million: $14.5 million corresponded to Costa Rica; $11.6 million to El Salvador,· and $10.9 million to Guatemala. The growth of the national economy corresponded to the most prolonged period of world market prosperity in the present century, and the prices of raw materials benefited the peripheral countries during this stage while other agricultural products maintained a high level compared with the situation twenty years before. There was an attempt in this period to order fiscal and monetary policy, such as the constitution of the central bank and other political-economic instruments. In addition, attempted social reforms during this favorable climate, in the short run, made the postwar period an advantageous time. In Costa Rica, the average annual territorial product from 1946 to 1954 reached 4.9 percent per inhabitant, and in El Salvador, 3.8 percent. In Guatemala, in the 1950s, the national product grew at an annual rate of 4.5 percent. The economic revival in Nicaragua never defined itself. Better said, disordered growth, years of stagnation, and from 1956 on, a

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Table 4. Central American Gross Monetary Reserves (Gold and Foreign Exchange Assets) (millions of dollars) Country

1937

1945

1950

Costa Rica El Salvador Guatemala Honduras Nicaragua Central America

1.1 6.6 7.8 0.8 0.8 17.1

7.6 28.1 40.0 1.7 6.7 84.1

18.8 40.9 37.3 10.7 3.1 110.8

Source: UNECLA, El financiamiento externo de América Latina, table 12, p. 26. profound depression of its agrarian economy highlighted this period. There was no significant displacement of the rural population, and the virtual withdrawal of some sectors' productive apparatus reinforced the rigidity of the social structure. 29 As stated in chapter 3, Nicaragua's incorporation into the world market was delayed by the extreme weakness of its social groups. The slow and distorted formation of Nicaragua's political economy was directly related to the political climate created at the beginning of this century by the problem of control and by the opening of the transoceanic canal. Although from the beginning of the twentieth century a coffee agro-export base was formed, Nicaragua never produced more than 10 percent of the Central American volume, and banana production never stabilized, as it did in the other Central American regions.30 Also in Nicaragua, the colonial ejido was transformed by liberal influence, but diverged from the Central American "model" as a result of the emergence of a cattle sector oriented toward the domestic and the Costa Rican markets. "Cattle raising filled in part the vacuum created by the lack of development in the export sector of the Nicaraguan economy."31 With the cotton harvests in the postwar period, Nicaragua undertook its most important effort to consolidate the economic system and to develop basic infrastructure (electrification, highways and communication, port installations, and monetary stability). "The fact that the consolidation of Nicaragua's foreign trade was delayed by nearly three-quarters of a century and that it coincided with the fragmentation of multilateralism in foreign trade and with the initial movements toward economic integration differentiates this country's policy and economic development." 32 When the cotton (or sugar) boom began in 1950, Nicaragua's agricul-

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tural entrepreneurs, temporarily abandoning traditional goods, led Central American production. In the middle of the decade, far from the bonanza of the postwar period, the first cotton crisis ensued and practically paralyzed the country's economy. A real divestment then took place through the abandonment of great expanses of cultivated land. When cotton prices began to fall in 1955, manufacturing production grew only 0.3 percent and, until 1960, diminished per capita consumption of industrial and agricultural production more than 50 percent. In Honduras, the export sector recovered to its previous levels in the 1950s. The Honduran economy was the most vulnerable in the region because of its dependency on foreign-controlled production. The sharp distortion provoked by the banana enclave and the resulting dependency of 50 percent of the population persistently blocked all possibility of domestic development. Therefore, the most visible characteristics of the economic system were its weakness and its national disjointedness. For example, the appraisal of Atlantic coastal land, the banana plantations' property, devalued the rest of the country's land, creating passivity and reinforcing isolation. Until 1950, for each 100 square kilometers of land, there were only 3.2 kilometers of highways. The northwestern portion of the country, the largest and richest, was geographically and economically isolated. During the 1950s, the gross domestic product grew some 0.7 percent per person.33 In general, the growth of the Central American economy from the end of the Second World War to the middle of the 1950s was only a functional recuperation of a system interrupted in the 1930s. With normal operation of the economic system reestablished, society confronted, after two decades, a nearly doubled population with the same problems that had affected it in the 1920s. These problems were essentially the underdeveloped consumption of domestic agricultural goods, the persistence of mono-exportation, the concentrated growth of income, and the slowness of manufacturing-industrial development. Economic growth achieved through traditional agro-exports did not improve the campesino standard of living and income. The concentration of land equaled the concentration of income. It is not possible to quantify this phenomenon for the urban industrial sector due to the lack of precise information, but data on income derived from the agricultural sector are available. Although the information on agricultural family income (table 5) is estimated, it is a valid estimation. Luckily, we can compare the disparity between the income of the large Guatemalan and Salvadoran landowners with that of their landless peasants or workers. Wealth was disproportionately concentrated in Central America, as in the rest of Latin America. The absence of distributive policies directly or indirectly reinforced the belief that this was the case. The distribution

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The Difficult Transition: World Depression and Postwar Growth Table 5. Average Family Income from Agriculture, by Socioeconomic Group (U.S. dollars) Socioeconomic Group

Nicaragua El Salvador Guatemala Costa Rica

Large estate owners 18,226 Medium-sized property owners 2,247 Small-sized property owners 717 445 Small plot campesinos 370 Landless workers

25,748

40,000

20,473

7,106

8,000

2117

1,408 420 229

1,300 220 340

1084 908 727

Source: CEDA/CAIS, Tenencia de la tierra y desarrollo rural en Centroamérica, table 19, p. 85. Note: This table presents average income according to agricultural census data based on the formula of land tenancy. Luckily, these socioeconomic categories correspond to my typo-logy of "multifamily large," "multifamily medium," "family," "subfamily," and "landless workers." vehicles, such as social security, public education, and social welfare, were limited to workers with a proportionally larger income. The process of capital accumulation was slow but accelerated during the 1945-1960 period and was associated not only with the highs and lows of foreign trade, but also with the consumption habits of the property-owning groups. The boom in these years stimulated the following: an increase in luxury residential construction and the emergence of the elegant neighborhoods typically found in the capitals of underdeveloped countries,· uncontrolled growth of luxury imports and, especially, the massive transfer of capital to the foreign market; and the depletion of resources as a classic behavioral trait of national capitalists and, apparently, capitalists in all of Latin America. The extent of the flight of private Central American capital was not known, since many people exporting it were not required to register the amount with the corresponding authorities; many overcharged on import invoices, acquiring foreign exchange on the margin of the official market; and many did not repatriate the income earned from exports. The coffee-growing bourgeoisie utilized this mechanism in order to hide a good portion of its profits overseas. As shown in table 6, Salvadoran and Guatemalan property owners, constant exporters of capital, headed this movement and in the exterior maintained $116.5 and $65.9 million, respectively, from 1945 to 1962.

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Table 6. Movement of Private Capital from Central America (millions of dollars) Country

Net Errors and Omissions in Balance of Payments 1945-1950 1951-1955 1956-1960 1961 1962

Total

Costa Rica El Salvador Guatemala Honduras Nicaragua

+9.8 -24.4 -22.8 + 4.2 + 3.4

+10.6 -44.1 -16.2 -12.6 -7.4

+20.6 -28.7 -22.5 + 8.4 -9.8

-2.2 -14.1 -4.4 - 1.6 -7.5

+5.6 -5.2 — + 1.8 + 1.5

+44.4 -116.5 -65.9 + 0.2 - 19.8

Total

-29.8

-69.7

-32.0

-29.8

+ 3.7

-157.6

Source: UNECLA, El financiamiento externo de América Latina, table 78, p. 86. The single-export economy continued during the postwar period and began to change. Though coffee lost its relative weight with respect to new agricultural products of temporary importance in the world market, this did not signify a change in the systemic structure but pointed to diversification in the traditional export model of raw materials or agricultural products. Central American cotton exports rose to $4.3 million in 1950 and to $125.3 million in 1964, 40 percent of which belonged to Nicaragua. Beginning in 1964, cotton production began to suffer. Sugar production and export increased from 2.3 million tons in 1950 to 6.5 million in 1964.34 Though demand for cotton and sugar fluctuated in the international market and did not respond to the domestic market, producers favored the transformation of the unproductive latifundio into a modern plantation and, consequently, the appearance of a modernizing agricultural entrepreneur. The organization of cotton, sugar, and cattle production, with these innovative methods—credits, technical assistance, a salaried work force, and capitalist renting of land—created a movement that, without intending to, introduced social changes in the countryside. Most important, these new agricultural entrepreneurs lacked land; the value of leased land subsequently increased. The exogenous drives that facilitated or precipitated the emergence of modernizing nuclei in the countryside posed problems for the traditional agricultural sector's transformation, problems paralleling the hacienda's modification and the formation of the farmer and the capitalist entrepreneur. One could suppose that over a long period, both rural

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entrepreneurs and those investing in urban manufacturing grew out of the traditional landowning sector. This process induced from the outside encouraged the transformation of the oligarchical bourgeoisie. Within this general framework, foreign investors became crucial once again. Governmental and international institutional investment capital (such as from Eximbank, BIRF, AID, and IDB) replaced private and direct investment capital. With the end of the Second World War, the Central American countries repatriated their foreign debt and committed themselves to new loans to invigorate their economies. Private capital revitalized Central America in the 1950s and was initially a mere reinvestment of the companies' profits. At the end of the 1950s and decisively in the 1960s, new investment propelled industrial manufacturing, petroleum exploration, and refining. The increase in foreign capital investment almost paralleled that in the rest of Latin America. In 1944, direct U.S. investment in Central America was $173.1 million; in 1950, it rose to $254.2 million. Almost half of this was in Guatemala; scarcely 3.5 percent corresponded to Nicaragua. In 1960, investment in Central America amounted to $471.4 million. This abundance of foreign capital translated into greater income for the public sector. More than 50 percent of foreign capital destined for the Central American countries, with the exception of Nicaragua, went to the public sector, while the private sector also received constantly increasing support. In the first five years of the 1950s, 62 percent of foreign capital went to support the private sector, while in the second five-year period, 61 percent went to the state and its institutions. During the 1960s, foreign investment varied through direct investment in the private manufacturing sector. The other important trait was the qualitative importance of government donations, which, in Central America during the 1950s constituted the most important source of foreign funds.35 During this same decade, of $471.4 million, $161.4 million were official donations, $107 million were long-term loans, and $142.7 million were direct investments. This last amount began to be directed toward manufacturing, especially with the relative advantages offered by the common market. In Costa Rica, after bitter nationalist opposition in the Constituent Assembly (1949-1950), petroleum exploration concessions were authorized. After Arbenz's overthrow in Guatemala in 1954, similar arrangements were granted. Investments in petroleum refineries were the thirdlargest investment of private foreign capital after agriculture and manufacturing. Luckily, though U.S. capital began to move toward the industrial sector, it did not definitively abandon "traditional invest-

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ment" in agriculture. The principal company, the United Fruit Company, slowly began to abandon its banana plantations in Guatemala and reduced its harvests in Honduras and Costa Rica, alleging uncontrollable plant diseases and hurricane devastation. It relocated to other regions of the continent. Ecuador displaced Honduras as the largest banana producer, a fact that signaled a variation in the systemic structure. In Costa Rica, UFCO had duplicated its 1940 investment of twenty-two million dollars by 1950, and extended its cacao, abaca, and palm oil plantations. 36 In Guatemala and El Salvador, local cultivators reappeared and sold their harvest to commercial intermediaries, like UFCO. Thus, these businesses began to diversify their crops, as in the cited case of Costa Rica. In Honduras and Guatemala, abaca, kenaf, and palm oil plantations grew, while cotton and sugarcane also prospered in Guatemala. 37 Banana and plantain production maintained a level of 1.8 million tons from 1950 to 1964, compensating for diminishing Costa Rican and Guatemalan participation and a slight increase in Salvadoran and Honduran yield. From 1964 on, banana production dwindled and cotton became the second most important crop in Guatemala and the most important in Honduras. U.S. investment was divided between the primary sector and the industrial manufacturing sector. Industrial manufacturing was oriented toward "traditional" industry—consumer goods such as foods, textiles, and beverages—with the exclusive purpose of satisfying domestic demand. This situation in effect supplanted national private initiative and limited local efforts. One should not forget that these investments were made through great international consortia. Central America's lethargic journey on the road to industrialization was notorious, and the social structure and political factors—foreign and domestic—that directed and energized it slowed progress. In the 1960s, Central America's industrial development contributed 15 percent of the national product, while in the rest of Latin America, it contributed 24 percent. The level of Central American consumption of industrial products measured less than half that of Latin American consumption, and one-sixth of what an Argentinian consumed, in spite of the fact that the region's inhabitants earned, in theory, almost two-thirds the average Latin American income. Both the lack of a preexisting consumer market and the absence of a dynamic supply and demand slowed industrialization. To this point, one must question the appropriateness of growth in Central America associated with the industrial sector, this sector's inability to contribute to the increase in national productivity and to serve as a vehicle of occupational absorption. Will the price of such growth occasion problems in the balance of payments, fiscal deficits, and high prices for popular consumption?

The Difficult Transition: World Depression and Postwar Growth The Achilles' Heel of the System: The Rural World The physical and cultural impact of the Spanish Conquest and three centuries of subsequent colonization violated and disintegrated indigenous society. The result was a capitalist and mercantile society that never transcended the failing efforts of a preindustrial economy. Although the agrarian base of Spanish colonization was weak, its indisputable heritage continues in the social and political structure of rural Central America. Central America was an agricultural colony of marginal products, with exceptions centered in the exploitation of scarce minerals. The long-term social and economic effects of political independence did not translate into a single substantive modification in agriculture and accentuated "colonial" capitalism's traits, inherited from Spain and fortified under English-U.S. hegemony. The coercive and unyielding dynamic of an international capitalist division of work that inspired and benefited old creole landowners and new mestizo property owners modified Central American rural structure. It was a domestic change that did not alter social relations,· it simply increased the concentration of land, the expropriations of ejidos and indigenous communities, and the forced and violent incorporation of indigenous people into the productive system. The resulting historical movement, which began in the middle of the nineteenth century and continues to this day, was the formation of a land tenancy system in which the large property owner constituted the base of the productive system, the political power, and the social organization of the Central American nation. Furthermore, the monopoly over land accompanied natural subdivisions. Antonio García points out that the traditional types of precarious land tenancy common to all of Latin America, such as the colonato and sharecropping, were linked to social domination. 38 These complex and persistent social relations were perpetuated through the peninsular conquest and colonization and were fortified through the world capitalist market. The productive tasks realized by the Central American peripheral countries converted the isthmus into an agrarian "appendix." This condition, in the first place, explained the structure of the rural world and the nature of its class relations and, second, pointed to society 's economics, politics, and culture. The current property structure in the countryside, the setbacks of agricultural-cattle production, and the luck of millions of people (which really established the degree of development achieved) constitute the best balance sheet of the function and ramifications of capitalism in a dependent agriculturally based society and the conditions for its mod-

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ernization. Sixty-five percent of the Central American population lived in the countryside, and almost one-third of the regional goods and services were produced there. This ambiguity colored postwar economic growth. The nature of the socioeconomic matrix was traditionally agrarian. A modernizing structure, supported by its relative rigidity and immobility, was constructed. It limited itself without seeming to alter itself. Confirmed by 1960 agrarian census data, specific economic phenomena, such as little dynamism in the growth of the farming sector and the increase in campesino underemployment, 39 signaled a warning. These data proved that agricultural workers with little or no land represented 86 percent of the work force in the Central American countryside. These circumstances aggravated social problems and destroyed any possibility of improving on development's good intentions. The structural " duality" inherited from the colonial period did not weaken in the 1945-1970 postwar period. Foreign demand encouraged an economic infrastructure that favored single-crop cultivation. A colonial-style structure that independence could not rejuvenate accomplished the rest. And, finally, the type of crops, such as cotton and coffee, facilitated the monopolization of land, the concentration of income, the "oligarchization" of prestige and power, and, finally, the rigidity of social structure. I speak of a "duality" only in order to record the first and most important effects caused—or produced by—colonial-style, capitalist modernization in the traditional periphery. When development was not initiated by endogenous sources, external forces intervened, adapted to the host society, and initiated the development process. Economic modernization and social backwardness were contradictory facts that went hand in hand and, through the effects of capitalist "insertion," converted themselves into a new axis of structural imbalances. The large landowners spoke very clearly of this self-controlled agrarian capitalism, which did not expand but adapted itself to the point that its impurity seemed to deny its very essence.40 Export agriculture— coffee, bananas, cotton, and sugar—constituted the modern sector of the rural economic system. Before, it had produced domestic food staples,· now, it was stagnant and deficient. Both forms of agriculture rested, nevertheless, on a common structure, the socioeconomic complex of the latifundio-minifundio and the subsequent relations of the contradictory collaboration between a mercantile economy stimulated by and conforming to a foreign economy and a campesino economy with endogenous roots. The problems of Central American agriculture highlight the fact that economic backwardness and poverty were due more to the underutilization of existing natural resources than to the deficient productive

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capacity of same, while underemployment of human resources accentuated this misery more than did low productivity. There was a narrow relation, a positive sign, between the concentration of land and rural unemployment. Furthermore, the greater concentration of property always meant the squandering of the useful dominion of the same. As the natural tendency of the rural economic system reinforced both concentration and squandering of property, and as the state demonstrated its inability to remedy the situation, the national power structure nourished and protected this situation. The size of landholdings did not constitute land tenancy. Rather, land tenancy embraced the legal means of land acquisition and the type and nature of social relations that land tenancy encouraged. Sanctioned by the state or derived from old usages and customs, legal relations— private, public, or ejidal property, renting and sharecropping, usufruct and precarious occupancy—grew out of the social relations of production, thus constituting the structure of rural society. Table 7 exhibits land concentration by the size of the measured unit, but not the concentration of more than one farm in the hands of one landowner, or by family or by economic interests. 41 The contrast is notable: 79 percent of all farms represented approximately 750,000 families and operated an average of 3.5 manzanas per family, while an elite landowning group, composed of 4,850 families, constituted scarcely 0.5 percent of the total population and operated an average of 1,660 manzanas each.42 Both groups controlled 9.8 and 38.4 percent, respectively, of the usable land. This average distribution hides inter- and intranational disparities and reflects the greater concentration of land in Guatemala. This land division was minifundist and resulted from the rigid monopolization of this productive means. Nevertheless, in El Salvador, where land was for the most part fragmented, 47 percent of the Salvadoran farms comprised less than 1 manzana, maintaining an average of 0.5 manzana. Costa Rica and Nicaragua occupied an intermediate position thanks to the scope of a middle stratum of 50-500-manzana units where the small rural bourgeoisie was located. Finally, Honduras exhibited a strange situation in light of the tendencies of rural capitalism: relatively scattered concentration of great landowners,· predominance of familial and subfamilial plots; and, in both cases, forms of precarious renting or tenancy. National or ceded ejidal lands were more common in Honduras than in the rest of Central America because there was less human pressure on the land in a poorly integrated territory; there was an increase of this pressure only in the capitalistic and wellintegrated agrarian zones in the market economy. The agricultural worker predominated in the agricultural and tropical economy, while

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Table 7. Concentration of Land, by Farm Size (%) Central Costa

America

Size Microholdings

Area No. Area No. Area No.

0.7 24.1 9.1 54.8 16.2 15.0

Subfamilysized farms Family-sized farms Multifamily 35.6 medium-sized Area 5.6 farms No. Multifamily 38.4 large-sized Area 0.5 farms No. Total Farm Area (thousands of 971 manzanas) Total No. of Farms 20,322 (thousands)

El

Guate- Hon- Nicar-

Rica Salvador mala

duras

agua

0.3 43.7 2.9 24.3 14.2 19.8

3.9 47.2 18.0 44.2 20.6 6.7

0.8 21.3 13.5 67.1 13.5 9.5

— — 12.4 67.5 27.5 26.4

— — 3.5 48.6 11.2 27.4

41.2 11.3

19.8 1.5

31.4 2.0

32.7 5.7

44.1 20.3

41.4 0.9

37.7 0.4

40.8 0.1

27.5 0.4

41.2 1.5

114

226

348

178

102

3826

2261

5320

3452

5461

Source: CIDA/CAIS, based on the agricultural censuses of each country, 1950. the sharecropper or precarious minifundist campesinos prevailed in the areas of the campesino economy. Given the contemporary distribution of land, to what extent was the existing rural and social structure the result of a social division of domestic work imposed by the supply and demand of the hegemonic nations ? In effect, coffee and banana production precipitated the concentration of land and the expulsion of thousands of campesino families to marginal zones. With that expulsion, the traditional hacienda or state lands (or ejidal lands, or the indigenous communities) were transformed into modern banana plantations or coffee farms. Meanwhile, basic food stuffs, especially to meet urban demand, were acquired through importation and from the traditional hacienda or small plots. This division of production enabled the large landowners to modernize and to make a profit but distorted the countryside's productive system. A permanent shortage in the supply of staples and a contradictory specialization were imposed on the small property owner, who had no disposable technology, no resources, and no access to the market. As the size of agricultural operations increased, the intensity and scope of land utilization diminished. The extensive latifundios, technically called multifamily large estates, dedicated only 9 percent of their

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land to cultivation, whereas the small plots dedicated 75 percent to cultivation. This difference would not have been a problem had there been no demographic growth. But a growing population pressured the rigid Central American agricultural structure. Consequently, the underutilization of productive resources produced, directly or indirectly, campesino under- or unemployment and deterioration in the population's standard of living.43 Productivity levels were inversely proportional to the size of the productive unit. 44 With productivity calculated on the average gross value, the corresponding productivity of the subfamily plots was three times that of the large latifundios. Production on small plots averaged 86 Central American pesos per manzana; production on the extensive latifundios averaged only 27.60 CA pesos (see table 8). It was not the strongest argument in favor of parceling land, but it was the most visible symptom of the sickness of the latifundio economy and the last critique of the extensive, absentee, and colonial-style use of rural Central American land. In effect, the comparison between the large latifundios and small plots should be made on the basis of the cultivation of the same product on productive units of similar size. The farms of 3.5 hectares in Guatemala produced 4,978 kilos of coffee per hectare,· the properties of 8,900 hectares delivered only 1,432 kilos per hectare. 45 In El Salvador, cotton production on parceled plots was 2,669 kilos per manzana, on the latifundios, scarcely 1,830 kilos. Probably the outstanding result of Central America's agricultural and economic structure and the immediate reason for the region's social rigidity was the functional division of tasks, which determined a productive specialization. That is, the large landowner produced for export, Table 8. Gross Value of Agricultural Production, by Farm Size (Central American pesos/manzana) Size

Guatemala

Subfamilysized farm Family-sized farm Multifamily medium-sized farm Multifamily large-sized farm

Costa Rica

El Salvador

Nicaragua

56.0

142.3

96.8

49.0

27.4

55.4

67.7

32.8

35.4

31.4

79.4

29.8

14.3

25.0

52.9

18.1

Source: CEDA, Tenencia de la tierra y desarrollo en Centroamérica, pp. 69-70.

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while the other agricultural operations produced for domestic consumption. It is natural that in this distribution of productive tasks the large landowner earned a twofold economic advantage: externally, because export agricultural products achieved the highest market value, and, during low market periods, enjoyed state protection,· internally, because consumer goods were priced low because of their origin. The value of crop production directed to the foreign markets 46 was at least 4 times higher than the value of crops destined for the domestic consumer.47 In Costa Rica, production for export was 3.4 times greater than production for domestic consumption, while in El Salvador, it was 3.7 times greater, and in Nicaragua, 4.8 times greater (see table 9). This situation has changed slowly in the last twenty-five years. If comparative data on Central American production were available, the impression of a deliberate specialization would be confirmed. There are many reasons. On the one hand, not all export products were cultivated on large properties nor were the large properties dedicated exclusively to export products. In Nicaragua, if sugarcane was cultivated on large estates, coffee and cotton were grown on small and medium-sized properties. In Costa Rica, only 13 percent of the worked coffee land belonged to the large estates. With bananas and cotton predominant in Guatemala and El Salvador, cotton was cultivated on medium-sized properties, as in the rest of Central America, using high technology and intensive land usage. On the other hand, 83 percent of the arable land dedicated to the production of crops destined for the domestic consumer was concentrated in small farms of fifty manzanas in El Salvador. In Costa Rica, only 9 percent of the harvested land was dedicated to production for domestic consumption, and in Nicaragua, only 11 percent. The social and human dimension of this analysis reveals that people construct social, economic, and political relations on the basis of access to and use of land. Human dependence on land had, in Central America and, especially, in the indigenous zones, an economic, religious, and Table 9. Destination of Production per Manzana Cultivated

Country El Salvador Nicaragua Costa Rica

Foreign Market (CA pesos)

Domestic Consumption (CA pesos)

291.5 232.4 318.0

78.9 48.1 92.2

Ratio of Foreign to Domestic Production 3.7:1 4.8:1 3.4:1

Source: CIDA estimates, Tenencia de la tierra y desarrollo rural, p. 66.

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ceremonial significance. It was said that when Indians withdrew from ritual reverence of land they were no longer men. Land is the basic means of production for the dominators and the dominated. But for Indians, it was, furthermore, a symbol, a definition of social prestige, and the immediate source of power. Land was the reason for and the origin of life and psychological security and the axis of familial and social organization. In societies like Central America, with little economic differentiation and in the initial stages of industrialization, land maintained a high social value. With little technical development, land was the principal source of power and wealth. Whoever controlled land and water dominated the work force and occupied, unlawfully and indisputably, the central authority. The forms of control and interpersonal relations explained, in general terms, the model of stratification and class. For our purposes, I want to point out characteristics of the rural world, the predominant forms of relations of production, and the true nature of class in the countryside (table 10). Central American society resulted from the hybridization of diverse economic and social formations. The general divisions of the class system were difficult to establish because diverse structures and contradictory mechanisms of social differentiation coexisted. The more frequent classifications of the rural world repeated the image of the traditional pyramid with unadorned innocence—upper, middle, and lower class—and, in some cases, identified these geometric steps with color lines—white, mixed, or indigenous.48 Others went further and saw feudal impregnations everywhere and reduced social structure to a dichotomized system of landlords and an immense and homogeneous campesino mass. 49 In the nation-state, the general lines of class separated and differentiated the large landowners from the medium-sized property owners, and these from the campesinos with little or no land. But the social stratification of rural Central American society was heterogeneous and changing. Guatemala was diverse because of the existence of a strong indigenous population and communal forms of property, where economic determinants strictu sensu were confused with ethnocultural and religious factors. If indigenous people were classified as campesinos together with nonindigenous groups, at the local or the regional level, their assignment to a cultural subworld would relegate them even more to the bottom of the social structure. The stratification process in Costa Rica obeyed a distinct dynamic wherein the generalized minifundio and diffused medium-sized property became concentrated and campesinos were displaced. But the displaced campesinos did not take refuge in a subsistence economy, as they did in the rest of Central America.

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Table 10. Composition of the Rural Population, by Type of Tenancy Country

Total

Central America Total Pop %

Costa Rica Total Pop %

£1 Salvador Total Pop % Guatemala Total Pop. %

Honduras Total Pop %

Nicaragua Total Pop %

Landless Minifundio Medium-sized Large Sectora Propertiesb Farmsc Workers

6,680,353 100.0

1,533,244 22.9

3,944,389 59.0

843,980 12.6

358,740 5.4

679,351 100.0

287,734 42.3

169,142 24.9

137,748 20.3

84,718 12.5

1,543,566 100.0

241,183 15.6

1,189,896 77.1

87,449 5.7

25,038 1.6

2,092,463 100.0

344,737 16.5

1,543,895 73.8

165,795 7.9

38,036 1.8

1,448,836 100.0

378,720 26.1

722,646 49.9

282,534 19.5

64,936 4.5

908,296 100.0

284,870 31.4

316,810 34.8

170,654 18.8

135,962 15.0

Source: CIDA, Tenencia de la tierra y desarrollo rural, table 18, p. 18. Also called "microholdings" and subfamily-sized farms, or better, farms smaller than ten manzanas. b Family-sized farms, or farms between ten and fifty manzanas. c To facilitate presentation, "multifamily medium" and "large multifamily" were joined in one category, those farms larger than fifty to sixty manzanas. a

An agricultural border was never achieved in Honduras and Nicaragua. The state, de facto or through a mere constitutional declaration, was the owner of extensive zones in which subsistence plots proliferated, like mushrooms after the rain, by means of diverse forms of precarious tenancy. Commercial crops and the "civilizing mission of coffee" did not succeed in filling the empty spaces, and the forms of stratification varied. Compare the landless campesinos of Nicaragua and Honduras with the extreme case of El Salvador, which reached its productive "border" a long time ago.50 Salvador's landless campesinos, between emigration and domestic underemployment, withered away without work. Nevertheless, in the region's five countries, capitalist and precapitalist economic structures coexisted, and in all of them, in some form or fashion, "modernization" stimulated by foreign demand produced a

The Difficult Transition: World Depression and Postwar Growth change that became more heterogeneous than what was initially understood as a structure along simple dichotomized lines. It was not difficult to establish the emergence of a "rural middle class," regardless of the fact that this class was not able to form itself either as a subproduct of delayed modernization in the countryside or as an immediate effect of the onerous colonization programs promoted to halt agrarian reform. The latifundio entailed a specific form of land utilization and better defined itself as a system of economic relations in the power of the great property owner who controlled a domestic and foreign labor force. Integrated into the regional or national market, the latifundio was the axis of the whole social structure. Social differentiation in this latifundist structure admitted social components that could be classified as a "middle stratum": administrator, steward, office assistant, overseer, chief, shift leader, and guard. The labor recruiter, the shopkeeper, the moneylender, the truck owner, and other sectors not strictly linked to agricultural production, but that facilitated or depended on it, formed an intermediate stratum between the hacendado, the farmer or large estate owner (terrateniente), and the peasant and mozo. Nevertheless, though socially different, members of this middle sector conformed to a power structure that had its immediate and visible origin in the monopolization of land and water, credit and marketing, and in the exclusion, exploitation, and dominion of a vast number of small landowners or dispossessed campesinos. More important, this intermediate group defined itself by the extension and forms of land utilization. In census reports, it comprised 10 to 15 percent of the population, and through its productivity and direct access to the market maintained relative autonomy from the latifundist structure. Rural social stratification rested in many ways on land ownership, but was difficult to analyze because of the existence of other poles of social differentiation, some of which were traditionally and deeply rooted in campesino culture. In a society in which land was the principal source of wealth and, even more, the base of social and cultural prestige, the concentration and monopolization of this wealth turned the social structure extraordinarily rigid. The rural system was considered closed because opportunities for social ascent through access to land were nonexistent. The other determinants of social rank that operated in the urban world, and especially in economically differentiated societies, were absent here; land was a fixed and exhaustible good but constituted the social means of wealth. A definitive and irremovable hurdle between the property owner and the landless impeded the mobility of social groups in the countryside. The productive complex and the power base on which the rural social

87

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structure rested were constructed around extensive properties. For this reason, land tenancy entailed a network of interpersonal relations that assumed access to land and productive conditions. The large property owners were not homogeneous, and their social differentiation was recognizable not so much by the amount of disposable land but by the forms through which proprietors appropriated income from the land, produced a surplus, and economically organized their business. The traditional large estate landlord was the great property owner whose extensive operation did not entail commercial export crops but national consumer products (such as the cattle latifundio). Part of the land, nevertheless, was destined for a variety of precapitalist tenancy (sharecropping), from which landowners extracted a proportional share of income and appropriated part of the campesinos7 surplus. The dominant class in the countryside entailed two very defined groups: the coffee bourgeoisie and the modern agricultural entrepreneur. Though both participated in the commercial agriculture sector, they differentiated themselves by management techniques, by the type of products they harvested, and, basically, by the correlation of the social relations in which they participated as landowners. Central American coffee growers nourished the image of what is imprecisely called the landowning oligarchy. The coffee growers were the modernizing entrepreneurs of the colonial-style order. Nevertheless, the nature of the coffee crop, on the one hand, and the rigidity of the social structure, which rested on the reiterated practice of precapitalist forms of social production, on the other, transformed coffee growers into a conservative element, immersed in the traditional sector of society. The modernization of Central American agriculture, initiated in the first years of the postwar period in the form of newly demanded products such as cotton, sugarcane, and beef, facilitated the emergence of a new type of rural bourgeoisie more akin to the capitalist entrepreneur, who differed from the coffee grower in production techniques and in social traits. A new type of hacienda capitalist appeared in Central America as a result of foreign demand for essential oils and fibrous vegetables, and, more recently, for cotton, sugarcane, rubber, and other products. The hacienda capitalist was common in the whole region and was not hindered by semiservile ties in Costa Rica, Nicaragua, and, initially, Honduras. Agricultural entrepreneurs constituted the head of a new structure of economic exploitation in the development process and utilized new financial resources, technology, productive specialization, and a regimen of capitalist leasing and salaries. Nevertheless, labor relations strictu sensu established with migrant peons and with the general campesino labor force were never modernized.

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It was debatable whether modernization in Central American agriculture was producing a new rural bourgeoisie, a product of the traditional oligarchy's modernization. It can be argued that the agricultural entrepreneur together with the traditional landowner and the coffee grower formed the rural Central American bourgeoisie (in the broadest sense of the term), a group that constituted 5 percent of the population. Since these conceptual elements were naturally related, these dominant strata determined many other subordinated categories of workers such as the tenant farmer, the sharecropper, the seasonal worker and the migrant worker (voluntario or cuadrillero), the agricultural worker, and others. These categories comprised in part campesinos with little or no land and the small landowning campesinos (parcelarios) of the rural economy. Landless workers together with minifundist campesinos formed the most disparaged and exploited social sector of the rural structure. They encompassed more than 5.5 million people, which was equivalent to 82.1 percent of the total rural population.51 They were a heterogeneous mass. We can distinguish five types of social characteristics that emerged as a result of negotiated obligations to the landowning hacendado or the agricultural entrepreneur and as a result of the nature of the social and economic relations network that determined the specific form of working the land. The groups were the colono (tenant farmer), the aparcero (sharecropper), the jornalero (seasonal worker), the obrero agrícola (agricultural worker), and the campesino minifundista (campesino working a subfamily-sized farm). Campesino labor, which formed part of the capitalist forms of production and distribution, did not convert the landless worker into an agricultural worker. In Central America, the number of landless campesinos tended to increase, unlike in the first European capitalist societies. Social impoverishment in the Central American countryside did not produce a national, expansive, and dynamic capitalism that weakened servile ties, freed the rural work force, and facilitated the rational and intentional use of resources. On the contrary, the "decomposition" of the Central American rural world was slow and was brought about, to some extent, by domestic social forces, but primarily by exogenous drives derived from foreign demand or from the limited influence of urban modernization. Landless campesinos continued to be campesinos and became much poorer. They tied themselves to the productive process through marginal salaries or management strategies such as sharecropping, peonage, and other types of underemployment. The work force was not freed but marginalized within the same limits of rural society.52

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History and Society in Central America

Though these categories served to characterize the Central American work force, each region varied from this homogeneous classification. Without a doubt, Costa Rica and Nicaragua possessed more-modern agriculture and less-polarized social structure. In Guatemala and El Salvador, the latifundio-minifundio axis was proportionally more important and contained acute differences, an observation that explained the apparent paradox that in both countries the number of landless workers was lower than in the rest of the region. In Costa Rica and Nicaragua, the minifundist sector was smaller while the volume of landless campesinos was proportionally more important. 53 The latifundio-minifundio social complex rested on the typical articulation of colonial capitalism because it combined a campesino economy and commercial agriculture destined for export or for the domestic market. 54 This constant fluidity did not produce "modernization" in the social sectors, in customs, or in interpersonal relations. The sharecropper-campesino was not a simple renter, and the nature of "renting" varied according to the degree of development achieved in the rural economy. It is interesting that the forms of tenancy and access to land in Central America were ambiguous and contradictory and exhibited precapitalist and capitalist attributes. Sharecropping was a variant of renting that depended on the degree of pressure on the land and on the functions that the small plot fulfilled in the whole latifundio economy. Sharecropping adopted multiple forms, but basically it was the landowners' temporary granting of small plots for campesino cultivation. The contracted linkage was precapitalist because campesinos had to hand over part of their harvest; they never paid a money tax or worked days or months on the owners' lands. In Costa Rica, being a cane cutter (machetero) was a less-onerous form of sharecropping than was being a Guatemalan seasonal sharecropper (mediaría) or Salvadoran sharecropper (aparcería a partir). The character of this productive relationship was demonstrated by sharecroppers as isolated producers who dedicated part or all of their production to family consumption and paid the rent in work or in in-kind service. This type of rent payment corresponded to an incredibly backward, servile form of social relations. The landowner could not seize the surplus product but could collar a part of the campesino's necessary product, thereby subjugating the producer and maintaining old patriarchal relations and cultural and political control. This modified economy was based on the unsecured personal loan. The process of change in the countryside revalued land, diversified productivity, and diminished the patriarchal mode. Nevertheless, sharecropping handed over part of the harvest, at times up to 50 percent. This system still prevails in some Central American regions, especially where the seignorial hacienda

The Difficult Transition: World Depression and Postwar Growth persists. Capitalist forms penetrated the countryside and, in spite of the resistance of the campesino economy, continued to subject the campesino economy to a regimen of production and circulation. Sharecroppers were progressively obliged to sell part of their harvest in the local market. 55 It is necessary to define what we mean by the term "campesino economy." Within the campesino economy, the sharecropper emerged permanently and the peon seasonally. Both groups shared the available small plots or minifundios. They practiced typical family subsistence farming. Yet the sharecropper sold some produce in the local or regional market, while the peon sold labor to the capitalist hacienda. We are not dealing with a classical subsistence economy but with a family operation that did not internally accept a social division of work and that labored within an impoverished, scarce, and decreasing productivity. Without a doubt, the result of the campesino's slow impoverishment was the loss of land through debt and demographic pressure combined with traditional norms of hereditary succession. The campesino economy was situated on small plots adjacent to or in the heart of the hacienda or in minifundio zones and generally derived from the primitive community.56 Although the campesino economy was common in all of Central America, the indigenous economy was frequently found in the Guatemalan Highlands,57 in the western and extreme eastern portion of Honduras, and in some regions of Nicaragua. Because of the almost personal production, the campesino economy was tied to and coexisted with the commercial economy. The campesino might be, for a time, a salaried worker or a local merchant, an agricultural worker or a market vendor. This did not alter the individual status of impoverished campesinos or the general standing of their stratum. From these diverse possibilities, it was economically important and sociologically significant that small landowners or minifundistas abandoned for periods of time their campesino economy to work as salaried laborers in the commercial export crops, such as coffee or sugarcane and other lesser products. In Costa Rica and Nicaragua, there were migrant agricultural workers who did not participate in the great commercial cycles but who worked permanently for a salary. In Nicaragua, the tenant farmers were seasonal workers,· in Guatemala, they were called cuadrilleros. They were numerous and it is calculated that more than 75 percent of export products were harvested by migrant labor. We shall call this campesino a peón migrante (migrant peon), or simply peon. Peons were simply salaried workers during the time they abandoned their original settlement in order to work in areas of export agriculture. This geographical mobility originated during Spanish colonization and was reinforced during the liberal republic's consolidation,· it continues as the most important migratory phenomenon. It is calculated that more

91

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than a million people were affected by this process, although regional investigations do not exist to enable a more precise estimate. In Guatemala, between 150,000 and 200,000 campesinos left their settlements for the sugar, cotton, and coffee harvest,58 although more recent investigations raise this figure to 400,000.59 In Nicaragua, the combined mobilization reached almost 100,000 in the coffee, sugar, rice, sesame, and sugar harvests.60 Though equally important in Costa Rica and El Salvador, the movement took the opposite direction. In both countries, campesinos, either landless or land owning, urban underemployed or unemployed, participated in the fruit harvest. In El Salvador, more than 75,000 urban or semiurban people were mobilized for the great cotton and coffee plantations. 61 The agricultural export economy required a supply of free campesino labor. But neither their transitory incorporation nor the nature of the salary regimen enabled the peasant to be identified as an authentic agricultural worker. As the minifundio was a socioeconomic subproduct of the latifundio structure, the peasant regimen was a frustrated manifestation of a modern labor contract. Without a doubt, the seasonal migrations were provoked by the need for money. At times, three months' absence compensated for the lack of nine months of family production.62 The basic structural reason for the seasonal migrations was the lack of land, however. The thousands of campesinos and the spongelike minifundio zones were only mechanisms that, historically, the landowning class fashioned to assure a labor force. Furthermore, the opportunity and formality of the recruitment process, by the labor recruiter,63 was possible only by accentuating campesino misery. These conditions, which produced a job surplus, could advance, in relative terms and without any profound reform, a variety of demands: better salaries, assured transportation, and hygienic dwellings.64 The sharecropper's or peasant's need to supplement his income or salary was an immediate consequence of the development level of agrarian capitalism's productive forces, which lacked sufficient force to strengthen market forces and to break up the debilitated and suffering campesino economy. The market's power propelled the small landowner's or landless campesino's proletarianization without carrying this process to its ultimate conclusion. Instead, market power fused the marginal salary with the cornfield (milpa),65 or vice versa, trapping the Central American agrarian sector in stagnation. Where an openly capitalist and integrated market imposed relations, the end of the seasonal sugar harvest converted the agricultural worker into a simple unemployed person. In Central America, this worker returned to the campesino economy and was transformed anew into an individual producer.

The Difficult Transition: World Depression and Postwar Growth These individuals suffered. They became the modern salaried worker. From another point of view, this social circulation, maintained inexplicably during more than a century, secured obvious economic and political advantages for the economic structure nourished by the landowner. It assured a constant labor force of the permanently underemployed; a cheap labor force to meet the pressure of supply and for the seignorial structure in which demand was wrapped in the local market; and, finally, an obedient labor force, because the rotation of the campesino economy inhibited the appearance of a class conscience and castrated all possibility of participation in the modern forms of collective action (union organization for the defense of rights and political organization). The tenant farmer emerged within the precarious form of land tenancy, the colonato, during the consolidation of export agriculture and became the most typical yet generic social stratum of the rural world. As previously discussed, the hacienda emerged during Central America's incorporation into the international market and supported itself by means of social antecedents rooted in the now-buried colonial practices of the Spanish encomienda. The tenant farmer or ranchero was the campesino who lived on the hacienda permanently. There, in exchange for work, the campesino received a salary and a small plot of land. This situation presented extremely confused and opposing interpretations. It dealt with campesinos who totally lacked land, farm animals (cattle), and, as a consequence, "sold their work force" in conditions sui generis: a unilaterally fixed salary that depended on the employer's needs and the current size of the migrating labor force. Did the practice of granting a small plot conform to an inheritance of semiservility or did it correspond to a strategy of assuring a work force? Or both? The colonato adopted pluralist forms, which accentuated either the small subsistence plot or the predominance of the salary as the basic income that slowly converted the campesino into an agricultural worker. Such was the situation in the Costa Rican Highlands, in the agricultural plantations of the humid Pacific zone of Nicaragua, and in the coffee haciendas in El Salvador and Guatemala. But for the indigenous tenant farmer of Alta Verapaz, Quiché, and Quetzaltenango, or of some northern zones in El Salvador, or in Nicaragua's Matagalpa, where the traditional hacienda predominated, the relationship of production was precapitalist. The tenant farmer worked for symbolic remuneration, indicating a servile role on the bit of land cultivated during marginal times. The subsistence tracts, which shackled the campesinos to the hacienda, situated them as a personal producer and obliged them to a subsistence that denaturalized or masked their salaried condition. Tenant farmer families increasingly supported themselves on the families' salary, rather than with subsistence crops.66 The tendency

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toward change in the rural world converted the tenant farmers into agricultural workers, because (1) their fundamental activity was realized in the productive work sphere,· (2) this activity produced valuable goods essential for international trade; and (3) as a consequence, they produced a surplus.67 It is debatable whether the strong attachment to the hacienda, which constituted, without a doubt, an accentuated seignorial practice, was maintained unalterably, as in the past, and whether the supply of tenant farmer labor was, thus, permanent. Referring to the most extreme and less typical forms, Antonio García considers the tenant farmer, or "the assenting peon," to be a salaried worker. The marginal salaried, who did not receive payment in currency but were irregularly paid, were "traditionally tied to certain patronizing 'in-kind' donations, which did not entail real linkage with the monetary economy" and did not encompass free contractual relations.68 The picture of social stratification in the countryside is not complete without reference to agricultural workers and the less-important medium-sized property owners (see table 11). Agricultural workers were found on the large foreign-owned banana plantations. They originated in the nationally owned sugar and cotton plantations, which developed from 1955 on in almost all of Central America. Agricultural workers did not participate in any of the mentioned precapitalist forms, and their situation in the productive process obeyed a certain complex social division of work. The administrative and productive structure of the great modern plantation determined a segmentation of tasks. In dealing with relatively large human concentrations and the nature of the productive structure, the possibilities of organization of and pressure on the agricultural worker were greater and even premature in relation to the other social groups. Furthermore, the agricultural worker at times formed part of a greater industrial structure. Compare the extensive and modern agro-industrial UFCO installations and the Tela Railroad Company of Honduras, or the Guatemalan and Costa Rican UFCO, where agricultural workers, industrial workers, port workers, and railroad workers were under the control of the same management and subjected to similar living and working conditions. Before the transformations of the foreign banana enclave began to be felt, in Central America nearly one hundred thousand agricultural workers labored for banana companies, accounting for 80 percent of the labor force.69 The salaries of the agricultural worker were five times greater than the general level of salaries in the countryside. Partial statistics indicate that the per capita income of the rural worker was no greater than $150 per year. Variation in the scale was great, however. In Guatemala in 1967, a hacienda worker earned $77 a year,70 and in El Salvador in 1965, an active male worker in the

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Table 11. General Categories of Tenancy in Central America (absolute number) Country Central America Costa Rica El Salvador Guatemala Honduras Nicaragua % of total

Renter

Other Precarious Form

Owner

290,438 11,619 73,262 59,192 111,345 35,020

217,233 3,168 63,716 95,588 27,025 27,736

412,595 49,334 89,918 193,907 39,991 39,445

31.5

23.6

44.8

Source: CIDA/CAIS estimate based on agricultural census, table 21, p. 107. countryside made an average daily salary of $0.67, while women earned $0.48.71 In Honduras, the per capita income of the rural population in 1964 was $92 per person.72 In spite of the modifications brought about by agricultural modernization starting in 1945, the rural sector in its entirety continually fell behind and became the greatest obstacle to economic growth and political stability in the region. One should perhaps not speak of stagnation as an appropriate category to clarify the trends of change present in the heart of the rural world, currents that aggravated problems revealed by the natural "spontaneity" of traditional society. In effect, starting in 1955, the natural expropriating tendency of agrarian capitalism was accentuated (sharpened even more by the high rates of demographic expansion) to the point that by 1990 the majority of the rural population was dependent.73 The number of landless campesinos increased some 20 percent and multiplied the economy's "captives." The pulverizing tendencies of minifundist property did not parallel those of the great estates, thereby fulfilling the ironclad law of traditional society: the concentration of agrarian property.74 In the second place, the phenomenon inappropriately called "neofeudal" appeared and encouraged relative technological modernization. The discontinuity between economic rationalization (the use of fertilizers, quality seeds, tractors, and new agricultural practices) and social rationalization (seignorial ideology and social domination through precarious tenancy) sharpened with diverse political, economic, and even ecological events. In effect, Guatemala's 1954 counterrevolution and the climate of violence that accompanied its profound political crisis reinforced colonial and semiservile relations and impeded campesino orga-

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nization and the defense of labor rights. The armed conflict between Honduras and El Salvador critically aggravated the campesinos7 condition in El Salvador. Volcanic ash contamination in Costa Rica affected thousands of producers and almost constituted, as in years past, a national disaster. Rural Central American society was not feudal nor did its vision correspond to that of an isolated, immobile, and openly decaying world. Neither have the tendencies of change altered its colonial inheritance, full of seignorial impregnations, with low and deficient productivity, nor bettered the lot of millions of campesinos. The political—not technical—solution transforms the campesinos into the key to the development of Central America. The perpetuation of their current status is established as the most important cause of their underdevelopment.

5. The New Option: Central American Economic Integration

The common market was Central America's outstanding development project in the 1960s. Economic integration was perceived as pivotal for achieving greater levels of economic growth and social change. Nevertheless, the economic forces that stimulated this project and the historical framework within which this venture was undertaken minimized the potential of the "great alternative" for Central America's development. A Century of Unionist Efforts Beginning in 1951, the Central American governments contemplated anew the possibility of expanding economic ties among the five countries. Their meager links with the international market and an inadequate local market motivated them to reconsider a possible union. At least three attempts to establish the old Federal Republic had been made during the nineteenth century, but past failures frustrated any reconsideration. The absence of common economic interests, the presence of regional rivalries reinforced by virtual physical isolation, and the lack of an efficient administration dedicated to a union had prevented an association. There were various political attempts to reconstruct the Central American homeland, the first in 1838, when Guatemala proclaimed itself an independent state and the liberal oligarchy responded with military intervention. 1 A half century later, El Salvador, Honduras, and Nicaragua formed the Greater Republic of Central America through the Agreement of Amapala, signed June 20,1895. Salvadoran José Rosa Pacas was elected president and a constituent assembly formed. A violent change in the Salvadoran government dissolved the Greater Republic in November 1898. The Washington Accords (1907) established treaties of peace, friendship, and extradition, and the Central American Court of Justice, with its headquarters in Cartago, Costa Rica. The last unionist

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effort took place on the one hundredth anniversary of independence from Spain. In January 1921, a constituent national assembly met in Tegucigalpa with delegates from Guatemala, El Salvador, and Honduras, proclaimed the new Federal Republic (known as the Tripartite Republic), but dissolved after dictating a constitution and approving a national emblem and flag. On October 14,1951, the five Central American countries, motivated by postwar unionist sentiment, established the Organization of Central American States (ODECA). ODECA sought to resolve common problems and to promote economic, social, and cultural development through cooperation and solidarity.2 Repeated diplomatic failures to reconstitute the old legal and political union probably distressed Central American leaders as much as their flawed national economies tormented them. The Central American economy persistently tended toward chronic stagnation. Beginning in the 1930s, the economy's inability to stimulate development became more evident. The slow economic growth was due in part or fundamentally to the fact that economic growth was linked to the pressures and evolution of the foreign market. In addition, the slow formation of a broad domestic market encouraged the constitution of an additional horizontal market to stimulate industrial investment, to diversify the economy, and to invigorate society. Unionist efforts then were conceived for mere economic convenience and not for political or juridical considerations.3 After the long period of economic stagnation (early 1930s-late 1940s), a relative recovery followed but only reestablished rates of growth similar to those in the later 1920s. Central America's population, though, had increased from 4 million in the 1920s to 7.8 million in 1950. The 1950s are remembered for a similar decline in foreign trade as a consequence of the drop in prices and the beginning of the international system of coffee quotas and sluggish industrial growth. In these circumstances, the productive structure was only functionally reestablished, not profoundly transformed. Possible measures to ensure greater employment, to increase income and standards of living, to modernize agriculture oriented to the domestic market, and to accelerate import substitution had been postponed. In short, the reduction in the rhythm of growth evidenced the limits of possible social change. The Historical Conditions of Economic Integration In the 1950s and the 1960s, a crucial opening in Central America was created by development but gave way to the appearance and relative consolidation of the urban middle class, an increase in urban population,

The New Option: Central American Economic Integration a surge in the industrial and service sectors, growth in governmental functions accompanied by a partial modernization of governmental structures, and most important, by changes in the constellation of power. The oligarchy's narrow and colonial-style vision maintained from the 1930s to the mid-1940s was substantially altered. One hypothesis that attempted to comprehend the changes in Central America proposed that the common market and, more generally, the policies of integration had responded to the visions of social groups that emerged in the 1950s. Within this group, those representing trade and finances and those expressing trade and industrial interests shared a greater part of the leadership and political direction of the state with the traditional agro-export bourgeoisie. Within this semistable arrangement, many important middle-class sectors were incorporated, as they had renounced their former radical objectives. Modern economic and programmatic policies did not square with the cultural and political tradition of the agro-export oligarchy. Lacking motivation for development, this traditional coalition limited itself to the search for better prices or quotas for its agricultural products. The dynamic of dependency limited the reformist vision of these groups and, in the latter years, the agro-export oligarchy could not even sustain its search for new markets. The coffee sector, for example, could not develop coherent policies to act as a regional bloc and to establish favorable quotas in the international market. The common market's goal of development was to involve new social groups economically and politically. Though checked by adverse political conditions, these social groups incorporated themselves into the market. How to appraise the past's tragic events and the consequences of continuing within the same single agro-export structure and how to convert favorable foreign conditions into a permanent, domestic economic policy provoked intense debate within each Central American society. Without analyzing the causes of socioeconomic underdevelopment and dependency, those in favor of development in order to stimulate economic integration perceived the common market as the only real alternative. After a decade, the results dampened enthusiasm for integration. One must analyze the United States's ambiguous pressure during the rush to economic integration. As in its politics, the hegemonic power protected its economic and strategic considerations. At times, though, economics and security do not coincide. During many years, the U.S. government, or at least its Latin America-related agencies, exercised cautious silence or a diplomatic boycott of the plans for integration initially proposed by the Economic Commission on Latin America (ECLA).4 In 1958, even the United States had expressed the acceptable

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conditions necessary to support Latin American economic and commercial projects. In essence, such conditions presupposed the complete equality of all participating nations and complete ignorance of the specific conditions of Latin American underdevelopment. The United States acted as if all countries were developed and denied the reality that barriers to economic development were imposed by the industrialized countries of the world. Such an ideology required new levels of productivity to generate regional markets and not a detour from traditional trade practices,· that the regional markets should adhere to GATT's (General Agreement on Tariffs and Trade) principles relative to the creation of free trade zones or customs mergers and submit themselves to the approval of this organization; that the regional trade agreements should increase competition, productivity, and investment by utilizing foreign private capital; and, finally, that convertible currency should be utilized for international payments. 5 It should be pointed out that the goal of a Central American union, the vision of many liberals past and present, coincided with a nationalist and patriotic movement. Union's romantic virtues remained dormant after a century of frustration. But at the end of the 1940s, unionist proposals purged their sentimental ethos and responded to a pressing search for national affirmation, political sovereignty, and economic independence fed by the postwar climate. Yet that economic nationalism did not match the nationalism of the proposals and results harvested in the 1960s. New relations of international domination operated, clearly neoimperial, and the historical agents of domestic integration did not propose independent development but rather partial economic growth at whatever cost. U.S. policy toward the Central American Common Market varied significantly in the final years of the 1950s, after the CACM achieved the political homogenization of the five governments and before the isthmus's economy deteriorated abnormally. Later, simple tolerance was substituted for direct interest and U.S. capital began to flow, not in the form of donations or public loans, but as direct investment. ECLA deserves the greatest credit as the organization that inspired and defined the new economic plans. In 1951, ECLA approved Resolution 9-IV of the Central American governments, which constituted the foundation of the integration program.6 Before 1957, only diplomats and technical consultants conducted preliminary studies. Bilateral trade treaties led to the signing of the first multinational trade agreement in 1958. In June 1958, the Multilateral Treaty of Free Trade and Integration was signed. This treaty freed regional products from protectionist tariffs and set a period of ten years to constitute a free trade zone. This juridical

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and institutional process culminated with the signing of the General Treaty of Economic Integration,7 which established free trade as a general rule and created the Economic Council, the top decision-making body,· the Executive Council, a technical advisory board; and the Permanent Secretariat of Economic Integration (SIECA), in charge of coordinating treaties, summits, and other business.8 Due to the domestic changes in the Central American political structure, regional leaders took advantage of ECLA's recommendations and studies. Coincidentally, Central America's domestic changes occurred during a transformation of U.S. regional policy, a probable result of the reorganization of the metropolitan economy and not necessarily the consequence of an alteration of the international division of labor. The international capitalist system reinforced itself after the temporary chaos caused by the Second World War. With new levels of economic differentiation and technical development, monopolist capital enabled less-developed economies to participate through enhanced and sophisticated industrial production. Thus, an overdue industry began in many regions like Central America, signaling a new stage of economic growth under foreign control. International monopolies supported locally inspired integration beginning near the end of the 1940s. But economic integration attempted to thrive by means of import substitution and, within it, production of popular consumer goods. This substitution policy was inadequate. The dynamic behind the industrial sector reflected favorable (and, therefore, transitory) foreign trade circumstances. In the 1930s and the 1940s, countries like Argentina, Mexico, and Brazil could apply an import-substitution policy successfully because the world market crisis gave them temporary refuge. In the 1960s, the conditions of international trade were qualitatively distinct from those of the 1930s: "forced substitution" of imports occurred simultaneously with the reordering of international trade and important economic transformations in most developed countries. Financial capital in developed countries, now markedly monopolistic, expanded beyond national borders. As a consequence of capitalist accumulation, financial capital favored integration by superseding the national markets of peripheral countries and modifying the conditions of participation in the world market. Control of or influence on the national market was executed by industrial investment and by technological and financial mastery. Thus, the old mono-export economic structure was weakened. It was no accident that International Railways of Central America disappeared and the United Fruit Company camouflaged itself in order to prosper. In the 1960s, the foreign trade crisis that affected the capitalist

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periphery did not equal a debilitating economic system. Rather, it reflected a strengthening of the metropolitan economic system. Or better said, the common market's attempt to encourage "domestic development" [desarrollo hacia adentro) coincided with capitalism's industrial-financial expansion in general and with the U.S. market expansion in particular. Did the strengthening of the national market, theoretically presented as a guarantee of the success of industrialization—produce expansion, investment, and profit for international capital? Did "foreign" penetration into the local market guarantee the local market's constitution and development? The events of the 1960s seem to indicate an affirmative answer and demonstrate the difficult and adverse conditions that recently industrialized countries must overcome. The establishment of an economic union in Central America linked the peripheral society with the central economies by way of technological requirements, capital, and business experience. In addition, the raw materials or intermediate goods required to industrialize were furnished by the most-developed capitalist economies. These are some of the historical reasons that have made Central America's economic integration viable. Yet the possibilities of development of the common market have diminished more quickly than its rapid growth in the early 1960s and threaten to stagnate the Central American market for a long time. Social Protagonists in the Project of Integration Since integration formed part of an irreversible historical moment, it is necessary to examine how class relations altered and adjusted to the new economic policy and how classes took advantage of the new socialeconomic space. Who benefited from economic integration? What were the key social forces and under what national and international conditions were the benefits and burdens of development distributed? Any hypothesis to explain the emergence and the accommodation of social forces in the postwar period should take into account the changes produced in the power structures. Such transformations were reflected in the strengthening or the mere creation of a national market, economic diversification, and the domestic foundations of industrialization. In addition, a new type of political commitment enabled participation in the power structure and facilitated access to new financial sectors, to promoters of the modern export agriculture, and, more or less, to some middle-class urban groups in the process of professionalization and bureaucratization.9 Attempts to redirect the economic system gradually commenced in

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the early 1960s in the national market. Success could be accomplished only through a new political arrangement, which would facilitate the state's reorganization and which would empower diverse social forces to take advantage of this historical opportunity. Did these changes evince an erosion of the traditional base of social and political power? Was the hegemony of the landowning oligarchy crumbling? Political groups created the possibility of economic integration. These coalitions—a business-industrial elite and a public service elite, both nationals and foreigners—emerged as a result of intense trade activity born of the suppression of regional barriers. The oligarchical coalition also expanded, though it remained relatively less decisive compared with the new groups linked to the emerging urban production. In this eventual "alliance," the new middle class gained power, though it soon became dependent on the public and private bureaucratic apparatus. The threatened status quo sought to protect the old agrarian structure at the expense of the large mass of campesinos, while the radical critics of the system and military leaders who favored development demanded the transformation of the old agrarian structure. But if the inherited agrarian structure was conceived as an initial phase of industrialization, then the old coffee aristocracy was guaranteed by the agrarian structure's permanence. This important and latent contradiction, domestically evolved, in the movement for integration assured an important source of social conflict, which would undermine both the political stability of this class alliance and the potential success of the attempted transformation. Integration facilitated the concentration and the rigidity of the political system and contradicted not only the presupposed ideologies of the whole developmental project but also the results that initially were conceived as natural fruits of economic diversification. This is another limitation of the hypothesis, which anticipated a new political arrangement preceding or immediately caused by development. Industrialfinancial interests took advantage of the breach in the power structure but retained the oligarchical style and formality. It seemed as if the foundation of the urban industrial economy was incompatible with the broad exercise of constitutional democracy and popular participation. Ten years of integration resulted in a rigid political system and an even greater concentration of economic power and a close association with or total identification between the economic and political elite. Nicaragua's experience and, to a lesser extent, El Salvador's and Guatemala's, indicated that a power monopoly and a concentration of wealth had been consolidated on a precarious political and financial foundation. Due to the structure of power in Central America during the 1960s,

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national groups reaped rewards in proportion to their social importance. The political structure favored one social sector "almost naturally": the property owners in general, and, more specifically, the foreign business leaders along with a native industrial-trade-financial elite. Urban salaried workers, campesinos, and other popular groups were denied any compensation. The politically dominant, in true oligarchical style, made those social groups who were in greater need of protection and who probably were the only ones who could invigorate the actual process of development pay the price of growth. Salaried urban workers never received indirect benefits, such as an enlarged social security program or efficient implementation of labor legislation and social protection. In the nineteenth century, the possibility of participating in international trade was determined in part by the preexistence of productive factors valued by the European market. Due to the nature of its own market, Central America could not grow without absorbing both technical and organizational international resources. The agro-export oligarchy no longer exercised exclusive control over the transformation of the dependent society's social structure. New social groups, such as the state, the local industrial and financial bourgeoisie, and children of the landowning oligarchy, became the social base that foreign capital required for its operations in Central America. Dependency thus redefined highlights the limits of modernization. How could denationalized groups that served as intermediaries for capital and for the metropolitan bourgeoisie undertake the national goal of development? Social relations were modified in the peripheral society by the new international economic, political, and cultural currents that altered the social bases of power and the whole system of domination. With the pseudo-industrializing policy promoted by the common market, the domestic bourgeoisie continued to undermine its questioned hegemony. The "coincidence of interests" formed between the national bourgeoisie and the hegemonic power altered the nature of the underdeveloped society's participation in the world market as well as its own political and social structures. The project of integration conceived as a free trade zone of consumer products and as a process of industrialization consolidated the local bourgeoisie as a class allied to and penetrated by foreign capital. Foreign capital's political support, traditionally tied to the landowning oligarchy, did not change but expanded through its economic association with the local bourgeoisie. A new historical circumstance of dependency had been consolidated. This political relationship frequently surfaced in Central America more than did the economic ties since the foundation of power that sustained the new

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stage of development eroded or because the relationship served to consolidate some advantage or economic concession. One plausible hypothesis, therefore, contends that development conceived within the politics of the common market not only responded to domestic stimuli (i.e., Central American leaders who sought to consolidate their power and rework the system to their benefit) but also established new terms of linkage between the peripheral societies and the central economies. The export of capital to the periphery stimulated the formation of an industrial sector, and that sector obviously responded to foreign investors7 interests and less to the strategic necessities of the developing society, especially when foreign capital invested in export agriculture and its related public services.10 Within this historical situation, the capital within the Salvadoran business community represented Central America's financial nucleus and energized the project of integration. El Salvador always had the most dynamic export economy in relative terms and an acute and unequal distribution of income. Beginning in 1948, a consistent policy of economic development, which attracted industrial investment, was initiated by the Salvadoran government.11 Coffee's and cotton's large profits, which had been deposited in foreign stocks, began to be invested in manufacturing and began to strengthen domestic savings. Between 1950 and 1957, productive capacity expanded and the rate of capital formation averaged 20 percent, the greatest in Latin America at this time. 12 Abel Cuenca analyzed local investors' handling of the bond issues in 1950 and 1960. Unlike the 1950 experience, the bonds issued by the Executive Commission of the Port of Acajutla (valued at $4.1 million) in 1960 were acquired by local capitalists in less than two weeks. Local acquisition of bonds probably dealt not with a "fusion" of agrarian capital and industrial capital but with a transfer of interests toward a productive area subjected less to foreign trade's vicissitudes and favored more by the opening of the Central American market. Cuenca indicates that this fusion "was the most important political-economic event of recent years and the government of Colonel José María Lemus spurred its undertaking. This fusion was the structural basis of the current political stability." 13 Cheap manual labor, a consequence of a growing labor pool, did not explain the dynamism of Salvadoran business now that the increasing work force was becoming a regional phenomenon. But without a doubt, the localist vision disappeared more rapidly in El Salvador and Guatemala than in the rest of Central America. Honduras and Nicaragua, on the other hand, which had always been deprived of an export agriculture, were impeded by the lack of capable

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domestic economic groups that could consolidate a domestic infrastructure. Honduras's economic leadership was always alienated from the foreign investor, and the agricultural enclave impeded the physical integration of the territory and isolated the most important regions. Only since the 1960s in Nicaragua has an exceedingly small and modernized agricultural business group flourished but without the experience necessary to achieve adequate industrial development. Furthermore, a confusion in the political and economic domains among state administrators prejudiced both. It seems that Guatemalan producers gained the most immediately from the common market, while the Salvadorans and the Costa Ricans were to gain in the long run, especially the Costa Ricans, who were blessed with more equitable income distribution and greater purchasing power, a trained labor force, better systems of communication and commercialization, and, thus, greater political stability than the rest of Central America.14 Two other details explain the role of the Central American industrialbusiness groups. One is the multifaceted association with U.S. capital necessary for modernization. The other refers to the appearance of numerous Central American "intermediary organizations" related to the propertied class.15 These groups emerged not only to protect certain private sector interests but also to contribute institutionally to the state apparatus by controlling, elaborating, and coordinating integration policies. The emergence of public or decentralized institutions contributed for more than fifteen years to the organization and participation of the private sector as comanagers of some public affairs. These intermediary groups took charge of many policy decisions affecting coffee, cotton, and sugar normally reserved to government officials. Furthermore, these business organizations participated as influential consultants with the supervising agencies of the common market. National policies concerning coffee, cotton, and sugar production were elaborated by many of these groups. Though not a vertical integration of private interests, this state "corporatist" tendency represented an unquestioned amount of influence. For all practical purposes, public jobs were distributed when foreign trade was coordinated and influenced by business associations. Such interests asserted an undisputed hegemony within and beyond the state. 16 One of the more debatable theories concerned the eventual economic consolidation of class interests over local interests. If nationalism were to have a class dynamic, one could suppose that the Central Americanization of trade and industrial interests would crystallize into a Central American bourgeoisie in which class interests would be more defined

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than national interests. To this day, private interests—trade, industrial, and financial—are masked by national demands. For example, in the meetings of the leading organizations of the common market, both particular and national interests automatically emerged. Private interests represented the national interest. Conflicts between propertied groups of the five participating countries were "horizontal," that is, national confrontations. The virtual retreat of Honduras from the common market (by not signing the General Treaty of Economic Integration) demonstrated a total identification between national interests and the class interests of the industrial bourgeoisie.17 Central American social scientists assumed a different outcome. 18 Unleashed competition advanced by integration would lead to the consolidation of a multiple interdependence with greater economic space and a redistribution of social power not along national interests but through regional interest groups. The free movement of capital and Central American investment demanded by the Federation of Industrial Chambers of Commerce of Central America (FECAICA) was one of the factors that endorsed this prediction. In light of the serious obstacles that emerged in 1968 and lasted through the 1970s, this prediction lost credibility. Yet the measures taken by the Guatemalan, Costa Rican, and Nicaraguan governments and the consent of the Salvadoran government reinforced the confident affirmation that the common market was an irreversible fact. The movement toward integration, at least, did not exclude but implied "antagonist cooperation" locally and regionally. The areas of conflict were bound relatively unequally through the economic systems of the five countries. The relationships between the social groups were visibly altered in the mid-1960s with the expansion of free trade. Many awaited the intense conflicts produced by the unleashing of market forces when customs policies were merged. For this reason, in 1966 many discussed and projected balanced regional economic growth to reduce the tendency toward concentrated industrial development in a couple of areas at the cost of the regional economy. Yet the market obeyed the laws of the capitalist system. International forces acted decisively and set the conditions for the real possibilities of integration and interdependence. U.S. capitalists never really concerned themselves with the romantic idea of balanced development, but respected the objective laws of the economy of scale within an increasingly monopolistic market. By virtue of a certain economic reactivation—whose duration and depth were questionable—the middle class channeled its support through two mechanisms: consumption and participation in state administration. Consumption corresponded to middle-class expectations, given

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that group's increasing mobility. Initially in the 1960s, consumption habits among urban middle groups diffused tensions, relatively increased the standard of living, and served as an effective vehicle of integration. Yet consumers did not drastically change their habits and did not rush to purchase nationally manufactured goods. The Central American elite, after years of colonial practice and mentality, continued to demand foreign products, in general, those manufactured in the United States.19 Not only the upper and middle classes were subjects of the so-called demonstration effect in distribution and consumption. The irrational imbalance produced by these consumption habits affected the popular sectors through industrialization and a surge in mass communication. These imposed expectations would not buttress Central America's push for economic development. Social mobility through the public sector in an expanding economy represented the second channel through which the middle class supported integration in Central America. Stimulated by the common market's need for new institutions, the middle class prospered as a result of the state's professionalization and bureaucratization. Experts from the middle class became indispensable to the adoption and achievement of a modern political economy. Structural factors enabled these middle-class groups to emerge, yet their acquired social status was not created but reinforced by economic integration. As in the rest of Latin America, the political influence of these groups was undeniable. Although party politics was deficient and unstable, these sectors participated with and represented other interests. The social importance of the "coparticipation" of the middle groups was minimized by the historical circumstance of their premature involvement. Not one of the political movements of the middle class, except in Costa Rica, survived, including in Guatemala, with its 1944-1954 experience. Everything appeared to push them toward a situation of bourgeois economic and psychosocial dependency. Though the middle class was not decidedly "apolitical," it slowly became quite "conformist." The enlargement and strengthening of the public sector at the cost of or as a consequence of weak private initiative enabled the middle class to become a decisive factor in political stability in a critical historical period and may explain the state's difficulties in managing economic development. The popular sectors were marginalized from development plans. They never benefited from development. The idea that industrialization was the most viable option for allowing peripheral countries to absorb an excess labor force produced by growth or by rural dislocation appears not to have held up under the test of history. Though industrial

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employment grew in absolute terms from 1955 to 1970, it actually diminished relative to the overall increase in urban unemployed. Yet employment opportunities, salary levels, or income redistribution did not top the list of priorities of those in charge of integration. That the salaried classes and, in general, popular groups pay the price of growth appears to be a principle of dominant groups. The very essence of class relations evidenced the nature of the "constituted order."20 Thus, social development, a basic goal in the formation of the common market, was undermined. Leaders of the common market strategically excluded popular participation, and labor unions were virtually prohibited, except in Costa Rica.21 If one were to make predictions, one might suppose that satisfying workers and recognizing them as an interest group would energize the effort for true local and regional integration. All attention paid to labor demands would indirectly obligate the business sector to worry about improving productivity and renewing manufacturing installations while expecting an increase in purchasing power. Nevertheless, all this supposes an alteration of the unstable balance of power that exceeds the precarious model of development today pursued by property-owning groups. Various attempts at formally incorporating labor representation into the leading integration organizations have been made, but none have achieved a satisfactory level of integration.22 Economic Growth at the Crossroads Not all sectors of Central American society have benefited from modernization. Development was subject to cyclical oscillations from 1955 to 1970. Nevertheless, the movement toward integration was persistent because it created new situations in the supranational framework and connected the small, nascent, and modern segments of the economic system. Yet, as long as no Central American country could achieve a greater growth rate, the integration of the region was further impeded. In many ways, integration depended on a well-run political economy increasingly dependent on international factors. Even before the 1968 crisis, integration was reduced to a free trade zone and a stable customs merger.23 Various measures, such as the suppression of inter-Central American tariffs, the adoption of trade tariffs on foreign trade, fiscal stimuli, and other protectionist measures, were adopted relatively easily. While some countries' new fiscal measures in 1967 tested the program, the absurd war between Honduras and El Salvador in 1968 paralyzed the process. What were the strengths and weaknesses of the integration experience in this decade of industrial development? The harshest criticism is

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reserved not for development and integration but for the hopes of an economic union thought possible without radical transformation of domestic power structures. There could never be supranational integration with national stagnation. In the long run, local economies were the cornerstone of an economic community and therefore required certain social, political, and economic transformations. The leading groups believed it possible to avoid this historical necessity by developing the common market. The absence of reforms in the creation of the common market developed only a "market of beggars." The hopes to achieve first a certain level of development and then consequential domestic adjustments proved more successful at bringing about domestic changes. The growth rates in the Central American economies were subject to relatively favorable conditions between the end of the postwar period and the mid-1950s. The economies then survived an adverse period in the latter 1950s and revived in the 1960s. The principal foundation of the economic surge was the annual increase in the value of regional trade, which grew from some $8.6 million in 1950 (4 percent of Central American exchange) to $258.3 million in 1968 (representing some 27.3 percent of total regional trade).24 Nevertheless, by the mid-1960s, Central America exported the same products in the same relative proportions as it had exported when it definitively integrated into the world market. In effect, 98.2 percent of total exports in 1900 and 94.8 percent in 1965 were raw materials and agrarian products shipped to the same purchasers. While the basic structural weakness of the Central American economy had not been overcome, in spite of the new trade arrangement in the 1960s, the domestic trade structure had changed. From 1950 to 1953, agricultural products represented 80 percent of domestic trade and in 1965 manufacturing products represented 70 percent of domestic trade's total value. Dependence on traditional export items restrained this extraordinary circumstance. In effect, the relative reduction of traditional export items in Central America produced direct and immediate effects on the growth of the gross domestic product (GDP), which fell from a regional average of 6.6 percent (1950-1951) to 4.3 percent (19671968). The facts indicate that the process of integration has not significantly diminished the structural bonds of dependency that bind Central America to the central economies by way of the region's traditional exports. From another point of view, the process of integration has been affected by the deterioration of exports to the rest of the world and perhaps paralyzed by U.S. protectionist trade policies. In the first eight years of the 1960s, GDP grew at a rate of 6 percent while manufacturing increased by 9 percent.25 Nevertheless, the growth rates varied markedly among the five Central American countries. Nicaragua offered the most irregular economic growth in the region and,

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beginning in 1961, recovered vigorously, with a growth rate of 8.1 percent.26 Honduras had a very weak private sector and industrial production exclusively for domestic consumption. Between 1950 and 1964, its GDP growth rate was 8.8 percent, or an annual 0.7 percent per capita. Guatemala and El Salvador experienced sustained growth (6 percent average between 1960 and 1967), but Costa Rica achieved the greatest results in economic and social development. Its GDP per capita was 33 percent greater than the regional average, and from 1966 to 1968, the GDP grew 8 percent annually. Such results were influenced by traditional exports and by the type of industrial investment in the 1960s. The increasing participation of foreign capital was also important in national manufacturing production. Insufficient data show that direct foreign investment between 1950 and 1967 reached some $614.8 million. As table 12 shows, a large part of this investment was U.S. capital and was distributed unevenly among the five Central American countries Guatemala received the greatest portion of U.S. investment, followed by Honduras and Costa Rica, respectively. Industrial policy, shielded by the state, comprised three classic objectives well known in ECLA circles: (1) employ a rapidly increasing labor force; (2) increase national per capita income and the population's Table 12. Direct U.S. Investment in Central America: Official Grants and Long-Term Loans (millions of dollars) Direct

Country

Costa Rica El Salvador Guatemala Honduras Nicaragua Central America

Investments

19451960

19511955

19561960

19601965a

20.9 0.2 12.0 24.9 5.5 65.5

7.4 -0.1 -0.2 41.4 9.0 55.7

15.9 0.6 71.8 -12.0 10.3 86.6

45.3 35.2 49.0 24.7 27.0 181.2

Official Long- Term Total Grants Loans through through through 1962 1965 b 1962 120.0 70.0 156.0 146.0 35.0 527.0

41.7 13.2 116.9 24.1 29.3 225.6

20.6 16.0 41.8 23.0 23.7 125.1

Source: UNECLA, El financiamiento externo de América Latina, table 111. See statistical appendix for detailed information. This table arranged by author. Please note that third column repeats the year 1960. a M. Monteforte Toledo, "La integración centroamericana," in Problemas del desarrollo. Instituto de Investigaciones Economicas, no. 5 (Mexico City): 52. b Ibid. Please note that the total through 1965 corresponds to a historic total and not to the sum of the previous columns.

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standard of living; and (3) diminish the foreign threat posed by the world market and improve the balance of payments. 27 Plans for industrialization responded exclusively to the size of the geographical market and its corresponding population but refrained from improving the market's underdeveloped structure. The constitution of an ad hoc market was to be remedied horizontally by combining five small markets. Such a process was useful at first and stimulated regional trade and removed idle industry. Today, the great problem is the absence of a broad consumer market. Consumption of manufactured products is limited to the urban areas and to regions recently modernized. But altogether, the Central American region scarcely comprises a market of three million people. The rate of demographic growth in Central America is one of the world's greatest: 3.5 percent in 1966; between 1950 and 1963, only one in ten people had access to employment in manufacturing.28 In Costa Rica, even though its industrial sector has grown twice as fast as its population, one thousand jobs were created by 1962, yet some 1,800 people had no access to work.29 In Guatemala, the population capable of working grew at a rate equal to its population growth (3.1 percent), but employment grew only 2 percent annually, indicating a relative decrease in the number of people employed. Between 1950 and 1962, nearly 645,000 people (aged 15-64) entered the labor force and only 94,000 were employed in manufacturing and public service.30 In Honduras, urban unemployment grew to 6.1 percent in 1964, although the numbers for the countryside were greater. But the most critical cases of unemployment or underemployment were in El Salvador, where more than 40 percent of the working-age population was unemployed or underemployed. In general, the number of people in manufacturing increased slightly for the whole region; the relative numbers range from 10.8 percent of the total employed population (in 1950) to 11.4 percent (in 1965). The unemployment rate for the region in the same time period increased from 1.4 percent to 5.1 percent. It is equally difficult to find trustworthy data on personal income and, even more, information broken down by social categories. Low purchasing power is generally hidden behind statistical data that present only national averages and not the brutal asymmetry in income distribution. For Nicaragua, complete data are unknown for specific groups. A projection in El Salvador suggests that the rural population's annual per capita income was scarcely $118 in 1965, while the population employed in industry earned approximately $345.31 In this same country, 8 percent of the rural population garnered 50 percent of the total income. 32 Data from 1965 show that only 10 percent of the economically active population (corresponding to the middle class) earned more than $2,000

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annually and 3 percent earned more than $3,000.33 In Honduras in 1965, national income per capita was $194, the lowest in the region,34 while income per capita in agriculture was $103 per year (excluding the banana sector, which enjoyed a high income).35 According to the Guatemalan Institute of Social Security and the Institute of Nutrition of Central America (INCAP), 75 percent of the population's income (including that of the indigenous people) was $70 annually, less than $0.20 a day per person, while the national average in 1965 was $286.36 Costa Rica not only had the highest income in the region ($352 per capita) but also possessed a more equitable distribution of wealth. The top 1 percent of the population absorbed 25 percent of GDP, while 25 percent obtained some 50 percent. The shocking conclusion is that the bottom 74 percent of the population in 1965 retained the remaining 25 percent of GDP. The way in which the integration project was conceived and developed did not diminish the traditional socioeconomic matrix of raw materials and single agro-export production. When traditional exports lost ground, the common market was unable to pick up the slack and thus aggravated the system's vulnerability to foreign capital. Agricultural exports from each of the five countries (coffee, cotton, bananas) were not complementary, and industrialization increasingly depended on foreign-produced machinery and foreign investment. A literal "substitution of old imports" for new ones pressured the balance of payments without diminishing the prices of the now "nationalized" manufactured products. The decreasing sales of agricultural products were not offset by substantially increased sales of nationally manufactured products, and the foreign trade gap, hurt by a weakening of the national currency, grew from $190 million in 1965 to $284 million in 1967.37 The classic solution of financing the deficit with loans and foreign investment spiraled: the foreign debt climbed from $120 million (in 1950) to $430 million (in 1966). The trade deficit remained unchecked and worsened the balance of payments in the long run by servicing foreign private capital (benefits, interest, and mortgages) so that between 1950 and 1963, it translated into a disbursement of $354.2 million. 38 The burden of public foreign debt was minimal in Honduras and El Salvador, acute in Nicaragua and Guatemala, and critical in Costa Rica, as table 13 demonstrates. The terms of trade, a means of comparing diverse economies, increasingly deteriorated after 1957. According to calculations based on the buying power of the 1953 dollar, Central America lost $1.4 billion from 1953 to 1970.39 The chronic deficit in the balance of payments and the foreign trade gap were not the effects of the formation of the common market but of the industrial policy encouraged by the common market. Foreign investment did not always favor social welfare or the local economy. Pseudo-industrialization favored the growth of the traditional

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Table 13. Burden of Foreign Debt in Central America (% of GDP) Year

Costa Rica

El Salvador

1967 1968

9.7 10.1

2.6 2.8

Guatemala 9.6 7.4

Nicaragua

Honduras

6.0 6.9

2.0 1.7

Source: International Bank for Reconstruction and Development (BIRF). export sector more than it secured earnings from foreign capital. Foreign capital enjoyed many privileges within manufacturing and in new production (of fertilizers, petroleum, tires, cameras, insecticides, light bulbs, and paper), which denationalized traditional sectors, as occurred with textiles, pharmaceuticals, and hotels and restaurants tied to a small tourist trade. But if foreign businesses simply imported semifinished components for imported products, or if they were to produce overpriced goods, pay salaries at the current level to the national work force, and export interest earned on its capital and technology, the underdeveloped country gained nothing. 40 As Furtado says, if the simple process of import substitution does not imply an increase in the manufacturing sector and a parallel decline in the coefficient of industrial imports, then peripheral countries will repeat the negative historical experience of some South American countries.41 Finally, perhaps the greatest problem in the analysis of the common market is tied to the social and political conditions of popular consumption of nationally manufactured goods. Such consumption has corresponded only to the highest income levels, ignoring for the moment the obvious elite propensity for foreign luxury goods. Yet production surpassed consumption for many years in every aspect and industry still became idle—the greatest contradiction in the development plans! One advising counsel calculated that manufacturing inactivity in 1963 equaled $150 million (gross product).42 Demographic expansion was greater than the increase in consumer demand during the formation of the domestic market and as new social groups were being incorporated into this market. It is possible to deduce in the historical experience of integration and in the attitudes of its most important leaders a philosophy that assumed a "natural" process of gradual and unnoticeable economic change. Many presumed that by liberating the market Central America would eventually transform in much the same way that feudal Europe was modernized. Yet underdeveloped capitalism in the periphery required deliberate and persistent planning and promotion to expand. This philosophy assumed that once an economic sector was transformed (or a part of the

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global structure), the rest would spontaneously propagate gradually, continually, and systematically. Similar thoughts concerning development undergird the theoretical suppositions of "social evolution," now long abandoned, and ignore the essentially discontinuous, contradictory, and conflictual character of social change. It is an optimistic but naive vision of development. State, Integration, and Dependency When one attempts to examine critically Central America's achievements in the 1960s, one must understand the internal complexities in light of the global changes that affected the system within a particular historical context. The state was indispensable for many social actors. Only through state activity were many groups and interests successful in promoting growth. Nevertheless, the political system tried to represent all social forces and therefore generated contradictions within the process of development. On the one hand, this representation was questioned when the social basis of power was weakened and thus the legitimacy of the political order was questioned. This crisis expressed itself in Central America in the use of physical violence as a last expression of class domination, exclusion from the political game, and the paralysis of democratization. But, sooner or later, development without parallel democratization hindered Central America's realization. On the other hand, the state intervened in nontraditional sectors, yet the public sector was not prepared to assume a decisive role in the development process and press for concrete reforms at the national level. The state was even more reticent to participate at the regional level, with its powerful autonomous groups. The problem can be seen from another perspective. Bourgeois groups insisted on becoming architects and beneficiaries of economic expansion. They wanted the market's inexorable laws to strengthen their endeavors, but always guaranteed by state protection. Yet the laws that governed the common market blurred the liberal forms of the state and transformed it into a planning center and executor of basic tasks. Nevertheless, some forces opposed this transformation. With the initial liberation of inter-Central American trade, those in favor of a free market forged a policy of free enterprise protected by the state, that is, "free" enterprise—not free competition—under state guardianship and through monopolistic forms of production and distribution. These imposed restraints thus weakened the state's crucial role. The public sector, which managed the economy, represented the property owners. The crisis was both political and organic: the fiscal situation progres-

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sively deteriorated, as demonstrated by the state's decreasing participation in total Central American investment and by domestic and foreign indebtedness that tripled, from $114.4 million in 1955 to $430 million in 1966.43 Though the state grew quantitatively, its qualitative potential was relativized and minimized by the crisis of the political system. Oligarchical and bourgeois interests reinforced the bonds of dependency established in the latter decades of the nineteenth century. Some authors have observed a displacement of the political decisionmaking nucleus away from the foreign elite to the system's peripheral components during the process of integration.44 An increase in the number of participatory sectors supposedly accentuated this displacement. Etzioni calls this a process of "internalization" of control, a hypothesis he probably elaborated for developed areas.45 In Central America, the situation was different. The world capitalist system determined a dependent economic, social, and political domestic structure in the periphery. Economic integration and its accompanying industrialization and modernization redefined the terms of this dependency without qualitatively altering it and, of course, without completely erasing the older structures. In the consolidation of the nation-state, the strategy of integration produced contradictions. The customs merger and industrial integration, for example, established points of interdependence between the five national systems. Interdependence produced limits that coerced local politicians into looking for international collaboration,· this collaboration necessarily restricted the constitutive "sovereignty" of the nation-state. Nevertheless, this interdependence would facilitate access to political autonomy at the regional level. It was frequently postulated that if traditional means of participation in the world market were abandoned—which would mean a radical transformation in the single agro-export profile—and if the domestic market were successfully strengthened—which would presuppose an agrarian reorganization and a radical income redistribution—the nation-state in Central America would be consolidated. At this historical crossroads, the most viable option for autonomy that the peripheral area could aspire to within the capitalist system would be to abandon the limited framework of the nation in order to recover the political and historical dimensions of the old Federal Republic of Central America. Nevertheless, current historical forces and tendencies are not leading to a qualitatively superior Central American sovereignty. Today there still is no interdependence, nor is it desired. Furthermore, economic growth or integral development of a society does not, in theory, weaken the bonds of dependency. These, tied to domestic social relations, may or may not form national bases for economic expansion, strengthen the

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state as an autonomous center of political decisions, and alter the old ties to the world market. But the process of economic integration was not preceded by the political changes necessary for the state to consolidate and to regulate and direct business, nor did it facilitate the consolidation of productive national groups.46 Only "modern" (read trade and industrial) sectors were integrated. Integration never reached the agrarian structures nor did it accompany a distributive policy that enabled popular participation in consumption and in politics. The participation of the state is essential in industrial and agricultural development. The role of the state is critical where the magnitude of investments to be injected and the social obstacles to be removed exceed both the capacity of private savings and modernization's potential. Nevertheless, a socially strong state capable of undertaking a profound structural reform requires a prior alliance of classes at the national and regional levels, an impossible feat under the current circumstances. Planning and development must incorporate both economic and political facets. With the current integration process now challenged, the problem of development and national autonomy surfaces again. The economic community reproduced from the beginning the phases that led to the growing association between the industrial center and the emerging subordinated system on the periphery. The sequence, except for some national peculiarities and historical circumstances, almost equaled that of Argentina's or Brazil's development. Within the world market and given the U.S. economic hegemony, economic integration in Central America repeats the process that many dependent Latin American societies have unsuccessfully confronted. Based on this experience, one can surmise that industrialization on the periphery reinforces dependency. Though industrialization obviously implies a certain economic diversification, it does not encourage self-sustained growth nor does it generate modernization. As a consequence, the agricultural sector continues to be the Achilles' heel of the system. And meanwhile, at a new level of integration, Central American society clings to the ties that determine its agro-export profile, reinforced now by "industrialization." Interdependence as it now stands signifies both industrial investment and its consequent repatriation of profits to the metropolis. Finally, the results of change should be reflected in the political structure. Social change should evince a profound transformation of social relations that eventually consolidates political power. Therefore, solutions to the historical process of change in Central America must be fundamental. Does political instability, then, require a search for a new base of power, wherein exclusion and popular consensus can be reconciled? How can one establish a new balance within the state so that it

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becomes socially strong and capable of supervising and enforcing appropriate development policies? The current answer appears to be to establish strong and nonrepresentative powers, given the type of social relations that make up the dependent society. Yet the process of change will become even more difficult and questionable. It is possible today, in relative terms, to find a certain economic growth in Central America. But it is economic growth that yields neither social development nor democratization nor autonomy.

6. In the Eye of the Storm, 1979-1991

By the 1980s, disenchantment with development, a widening gap in income distribution, diminishing buying power, a spiraling foreign debt, and the catastrophic impoverishment of the majority of Central America's population hurled Central Americans toward social crisis and fratricidal war. Insurgent guerrilla movements permeated El Salvador and Guatemala in the mid-1980s, and a mercenary army contributed to an imperial suffocation of revolutionary Nicaragua. In addition, Honduras was occupied by three non-national armies, while the Costa Rican economy deteriorated as a result of the Central American conflict. Yet a wave of democratic elections and promises of peace appeared to muffle the guns of revolution. By the end of the decade, Central Americans began to adjust to the unsettled calm, as if in the eye of a storm, while they faced anew the momentous task of rebuilding a society ravaged by a decade of war and economic adversity. By the beginning of the 1980s, the region differed qualitatively from the Central America of the 1940s and the 1950s. Changes within the social structure, heretofore imperceptible, had become evident. While the regional GDP grew slightly, from $7 million in 1950 to $7.520 million in 1980 (see Appendix, table A-21), Central America's population increased from eight million to more than twenty-one million in the same period. The average personal income barely doubled, while personal income in developed countries multiplied eight times. Though it is difficult to measure social diversification in this period, one is left with a strong impression that the coffee republic's "dual" society had been replaced by a heterogeneous one with modern classes. In 1950, more than half of the population lived in the countryside and was engaged in agricultural production. By 1980, only in El Salvador and Guatemala did the rural campesino population approach 50 percent. How does one explain the surge in Central America's urban population from 15 to 45 percent between 1950 and 1980, especially in Costa Rica and Nicaragua? While the number of salaried positions increased,

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the number of those who earned a monetary salary rose both absolutely and relatively, yet the economically active and salaried population in agriculture seemed stationary. The population had experienced a certain "rejuvenation," a relative increase in young people between the ages of fifteen and twenty-four, mostly in the city. In all of Central America, the number of agricultural workers in the countryside diminished, while industrial production increased from 14.6 to 24.1 percent. The modernization of Central America is best explained by pointing to externally financed enclaves inserted in the local market. The financial and public sector enhanced structural heterogeneity. Physical integration (through a network of roads, electricity, telephones, radio, television, and other means of communication) advanced cultural integration even more. From an international point of view, Central America today is more integrated in the urban zones than in the rural. But economic growth and social change were unequal, and the 1980s crisis intensified the differences. For example, access to basic services such as education, health, housing, employment, property, and cultural symbols produced sharp polarization. Although Central America experienced some social changes, they were scant. The free market restricted fundamental change, while the state was incapable of counteracting the market and fomenting change, especially in Guatemala, El Salvador, and Honduras. Modernization was confined and exclusive. Social and cultural underdevelopment were concealed by statistical rhetoric or by the urban image of a small group of modern buildings constructed to impress tourists. The traditional structure vigorously sustained itself, especially in the countryside, as was reflected in the perpetual underdevelopment of rural campesinos. Modern underdevelopment thus produced contradictions and delayed social change. In the 1970s, economic problems began to escalate: the increase in petroleum prices beginning in 1973, the initial disorder in the international financing market in 1974, and the ups and downs of prices of export products. All hurt growth and expectations. The first great international crisis, in 1973, was a warning unheeded. Nevertheless, the rate of real annual growth averaged 5.6 percent while the foreign economic threat increased because of the rise in imports, from 16.2 to 27.3 percent. Before the crisis ran its full course in the 1980s, the majority of the population was already suffering the consequences of a decaying society. Toward the end of the 1970s, 20 percent of the social groups with the highest income received more than 50 percent of the wealth (with substantial differences between countries). The social gap widened and the number of Central Americans living in extreme poverty increased even before the crisis.1 In five years, that number jumped from 63 percent of the total population to 72 percent, with results like those in table 14.

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121

Table 14. Central American Distribution of Income and Levels of Income per Inhabitant through 1980 (1970 dollars) Social Strata

Costa Rica % Avg. Income

Poorest 20% 4.0 176.7 30% below medium 17.0 500.8 30% above medium 30.0 883.0 Richest 20% 49.0 1165.2

El Salvador % Avg. Income

Guatemala % Avg. Income

Honduras % Avg. Income

Nicaragua % Avg. Income

2.0

46.5

5.3

111.0

4.3

80.7

3.0

61.9

10.0

155.1

14.5

202.7

12.7

140.0

13.0

178.2

22.0

341.2

26.1

364.3

23.7

254.6

26.0

350.2

54.1 1133.6

59.3

796.3

58.0 1199.1

66.0 1535.5

Source: CEPAL, based on each country's official statistics.

The combined effects of the political and economic crisis (divestment, capital flight, lack of business confidence, population displacement) continued to increase the rhythm and breadth of poverty in the whole region. Approximately eighteen million people suffered some privation of the basic necessities and twelve million of these lived in extreme poverty. Poverty was defined not only by the lack of material goods, which impeded physical survival, but also by political impotence and intellectual abandonment. Since the poor, especially certain rural groups, were completely incapable of leaving the depths of poverty, one must speak of impotence. A minority in Central America, perhaps onefifth, manages the cultural, economic, and political affairs of the region.2 In the 1970s, poverty was greatest among the rural middle sector and proportionately acute in Guatemala, El Salvador, and Nicaragua. A true rupture occurred in the historical tendencies of the region's economic growth. The rates of negative growth after 1980 spread throughout the region. After thirty years of erratic growth, for example, per capita income collapsed, with incalculable social consequences. By the end of 1985, per capita income in Costa Rica and Guatemala matched 1972 levels, while Honduras's per capita income equaled that of 1970 and El Salvador's and Nicaragua's corresponded to 1960 and 1965 levels, respectively. External causes unleashed the crisis, but its effects were intensified by both the underdevelopment of the existing social structures and, above all, the profound political instability. No society is stable if a population's living standard deteriorates without any immediate and reasonable sign of hope. The violence, armed conflicts, and the crisis were built on this foundation. The availability of foreign capital in the form of loans (especially to

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the national governments) was particularly important in this period. While fiscal deficits were avoided by means of these loans, Central American governments and private organizations confronted other economic and natural dilemmas. Because of the lack of private foreign investment, the Central American governments relied on foreign public monies. Private and public entities also confronted regional droughts and natural disasters: the earthquake that destroyed Managua in 1972; Hurricane Joan, which smashed Nicaragua's Atlantic Coast; Hurricane Fifi, which tore out the northern Honduran coast; and the Guatemalan and Salvadoran earthquakes of 1976 and 1978. All of these natural disasters occurred within a brief period and precipitated social disasters by aggravating the suffering of the poorer sectors. The international crisis became even more evident with the colossal increase in petroleum prices in 1979. The jump in oil prices triggered a loss of momentum in Central America's growth, which had never measured less than 5 percent (based on an annual regional average). Payments for petroleum imports increased from 2.7 percent of 1970's total import expenditures to 21.2 percent in 1982, and 25.4 percent in 1987, thereby accelerating inflation while producing a true catastrophe in the commercial trade balance. The capacity to repay international loans, which accumulated throughout the 1970s, had diminished definitively by the beginning of the 1980s. Export trade, increases in interest rates, an unfavorable trade balance, and, in general, an economic recession impeded the payment of the foreign debt. Thus, diverse factors converged to create the greatest obstacle to Central America's development, stability, and economic growth. The region's foreign debt (with pending payments) increased from $895 million in 1970 to $8.5 billion in 1980 to $18.5 billion in 1987.3 Regional trade continued to grow in spite of the problems caused by the economic crisis of the 1970s. In 1980, interregional trade reached $1.1 billion, but by the beginning of 1981, it had begun to fall. The weakening of interregional exchange was only an indication of crisis sparked by diverse causes. In the 1990s, the obstacles and results of an almost completely free trade zone have been well analyzed. If the process of integration were to be limited to free trade only, industrial development would be squandered. Tariffs on foreign goods played an important role in this development and made a difference by the early 1970s; a new tariff resolved nothing. This model had other limitations, the greatest being that industrial growth always depended on the success of agricultural exports. Problems in the foreign sector translated into difficulties with importation. We must remember that raw materials, intermediary goods, and foreign capital were decisive in import substitution. The Central American

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countries imported in order to produce regional consumer goods until 1982. Ten years earlier, the Permanent Secretariat of Economic Integration (SIECA) had proposed a budget to create an economic community that could confront problems that threatened the regional collaboration project. The proposal of the Comité de Alto Nivel, in 1972, was an ambitious project, well intentioned but practically impossible. Evaluating the integration program brings to the forefront the results of industrialization, the formation of new businesses, the accumulation of the skills of workers, administrators, and managers. The integration program altered the economic structure, favored employment, modernized productive and consumer habits, and, above all, established an economic, political, and cultural bond heretofore unknown. It is estimated that before 1976, industrial investment rose to $5.45 billion, of which more than 35 percent (partially or totally) belonged to foreign businesses.4 By the end of the 1980s, interregional exchange had fallen to under $500 million as a result of political and economic difficulties. The lack of national and foreign investment, the notable weakness of traditional export commerce, the shortage of foreign exchange due to capital flight, and the lack of confidence or interest reduced industrial production and trade possibilities. In the 1990s, new proposals for economic cooperation have been formulated to take advantage of the good and bad experiences of regional integration. The survival of the institutional body that was created, the interest expressed by the governments through intermittent meetings of ministers and others, the declarations of the presidents (Esquipulas II, August 1987; the Declaration of the Costa del Sol, February 1989; and Antigua, Guatemala, 1990), and the positive balance left for business leaders and politicians constituted the foundation for a new stage of interregional collaboration in the search for new means of economic integration. Beginning in 1988, the prointegration climate began to change with events, above all, with European donations. That voluntary regional cooperation was necessary for national viability proved to be contradictory, yet Nicaragua's and Costa Rica's admission to GATT and the signing of bilateral trade agreements with the International Monetary Fund, AID and the Interamerican Development Bank shattered any possibility of renewal. One has the impression that, at times, there was a process of regional disintegration caused by the inability to cooperate and the war's impact on local communities. Although some interest in reestablishing regional cooperation is sustained, President Bush's proposal in favor of a free trade zone (July 1990) and Mexico's free trade zone, begun in the Mexican-Central American Presidential Summit (February

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1991), have altered politicians' and business leaders' enthusiasm. The possibility of incorporating into greater and more powerful blocs constitutes an alternative that cannot be ignored. The Central American economy entered into recession, most pronounced in Nicaragua and less critical in Costa Rica, in the 1980s. No attempted economic policy has been successful, and only Costa Rica achieved some economic growth from 1985 to 1986. Structural adjustment and stabilization, virtually designed and imposed by the International Monetary Fund, was inaugurated in Guatemala beginning in 1981. All the Central American countries, with unequal levels of failure, have attempted to apply this whole package of prescriptions. The end result has been the control of great macroeconomic instability, such as managing the balance of payments, reducing inflation, and curbing fiscal deficits. The goal of adjustment and stabilization has not been achieved, not even at the price of stagnation, in spite of the reduction of imports by more than 50 percent in the 1980s and the considerable reduction of social welfare expenditures. The economic and political crisis has been the concern of the international community. The report and recommendations of the Bipartisan Kissinger Commission testify to the United States's evident concern for the region. In 1984, the report formed part of the trade policy of the Reagan administration, through the Caribbean Basin Initiative, whose most important contribution was the duty-free incentive for a certain number of original Central American and Caribbean products. The impact on the promotion of new exports has been relatively minor. The fall of the Somoza dictatorship in July 1979 constituted a transcendental, historical rupture in the framework of the Central American crisis for various reasons. In the first place, Somoza's fall represented not only the end of a long family and military dictatorship but also the collapse of a form of bourgeois power, of a weak nation-state constructed on social and economic bases extensively personalized and dependent on non-national, traditional, and violent policies. In the second place, the political and military victory over Somoza sprang from a broad multiclass, nationalist coalition with a program geared toward transforming society culturally and morally and regenerating politically an underdeveloped country. Third, it represented the failure of a conspicuous expression of U.S. foreign policy that transcended military aid and protection. The Somoza dictatorship's resources of power were basically North American. Finally, it constituted a revolutionary answer to the crisis similar to that in El Salvador and Guatemala, where massive insurrectionary movements attempted to capture power. Although each country has reacted differently, all were affected by the Sandinista (Frente Sandinista de Liberación Nacional [FSLN]) victory, by

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the United States's immediate reaction, and by the dominant regional groups' quick readjustments. At this time, the crisis began to be more regional, affecting, as it did, Honduras and Costa Rica in different ways.5 The international dimension also assumed new importance. Beginning in 1979, with the region dampened by a stagnant economy and with many searching for foreign or local causes to the crisis, it became difficult to differentiate the political and the financial effects. In spite of such difficulties, it is possible to point out unique and decisive events. In Guatemala and El Salvador, the insurrection gained popular support. By 1980, the guerrilla groups in Guatemala amounted to more than 8,000 men and women and were supported by a noncombatant civilian base of some 250,000 in the indigenous, overpopulated areas of the central and northwest Highlands. The indigenous mobilization constituted the most significant event of the crisis because it represented both ethnic and national demands and it embodied the greatest indigenous revolt since the Conquest. In El Salvador, during the same time period, the Farabundo Martí Front for National Liberation (FMLN), made up of five guerrilla organizations, counted on more than 4,000 armed men and women. They were more organized and disciplined than their Guatemalan counterparts, they probably operated with a qualitatively different support base of noncombatant civilians, and they confronted an incompetent and corrupt army. Without the United States's immediate and total assistance, the Salvadoran armed forces would have been technically incapable of resisting the popular insurrection. The results of the civil war have varied. In both cases, the internal war was the result of the "oligarchical form of doing politics," the result of the deep social divisions that violently bound the classes in conflict. The counterinsurgent operatives, in a "crusading spirit" against the heretics, undertook their mission. The Guatemalan army's offensive (1981-1982) did not annihilate the guerrillas but forced their retreat while physically destroying 440 indigenous villages, murdering 75,000 campesinos, and displacing some 100,000 to 500,000 people. The "Victory '82" operation was ethnocide that destroyed the material and social bases of the indigenous culture. In El Salvador, the FMLN launched a final offensive in January 1981, and though it failed, the FMLN consolidated its base in important areas of the country, converting the military confrontation into a war between the Salvadoran population and a mercenary army supported by the United States. These contradictory military results spurred the creation of the socalled façade democracies in El Salvador and Guatemala. Periodic elections since 1960 have enabled the consolidation of a counterinsurgent state. The crisis was precipitated first in El Salvador and, later, in

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History and Society in Central America

Guatemala. In both cases, the crisis began within the army itself and led to the army's inability to maintain an alliance with business leaders, politicians, and other lackeys. The coups against General Romero in El Salvador (October 15, 1979) and against General Lucas in Guatemala (March 23, 1982) initiated successive and illegal changes that moved in the direction of turning power over to political parties. The possibility of an electoral process in the whole region materialized. To the surprise of all, the elections were somewhat democratic. Between the first and last civilian-military junta (October 1979 through December 1980), the Christian Democrats gained political power in El Salvador until the imposition of banker Alvaro Magaña as provisional president. Within this period, the consolidation of U.S. influence and power became the most decisive variable. When the U.S. Senate urged the "legalization" of power, elections for a Constituent Assembly were held (March 1982) and, surprisingly, a coalition of extreme Right parties won, headed by Maj. Roberto D'Aubuisson. The Christian Democrats emerged as the most important party in this period. Successive coups d'état in Guatemala (March 1982, and August 1983) also led to elections under the direction of Gen. Humberto Mejía Víctores (June 1984). The results were similar: the strong presence of right-wing parties and the Christian Democrats as the most important majority. In May 1984 and December 1986, Christian Democratic leaders Napoleón Duarte and Vinicio Cerezo were chosen in elections that saw no fraud or abstentionism. For the first time in fifty-five years in El Salvador and twenty years in Guatemala, civilian opposition candidates won in a competition between political parties that, although not totally plural, marked the beginning of a new era in Central America. The wave of democratization during the Central American crisis also affected Honduras. Military governments increasingly lost control: Osvaldo López Arellano (1971-1975), Juan Alberto Melgar Castro (19751978), and Policarpo Paz García (1978-1980) headed a military triumvirate. The political deterioration of the Honduran colonels differed from the Salvadoran and Guatemalan military's loss. López Arellano and two ministers were accused of flagrant bribery after his government, in a nationalist fervor, imposed taxes on production and exportation of bananas for the first time in the history of Honduras. From the pinnacle of governmental power, the colonels instituted cautious reforms but were also accused of involvement in contraband, drug, and emerald traffic. The internal problems of the Honduran army facilitated the convocation of constituent elections in April 1980. These elections initiated a process of constructing electoral democracies and opened the road for

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111

the return of the liberals to civil power and the reinforcement of U.S. influence. The Carter administration, utilizing a new language, contributed to free elections in 1981, with the victory of Roberto Suárez Córdoba in presidential elections. The strategy of national security reinforced by an obsessive vision of recently elected Ronald Reagan transformed Honduras not only into a "sanctuary" for Nicaraguan mercenary bands, but also into an offensive establishment of military bases for the aggressive deployment of combined military maneuvers beginning in 1982 and continuing until 1990. Honduran society was altered by becoming the location of three nonnational armies and was converted into the aggressive military axis of U.S. foreign policy. During the Suazo administration, a serious confrontation between the executive, Parliament, and the judiciary took place and was resolved by the mediation of the army, the unions, and the U.S. embassy. A struggle within the traditional parties, which was resolved by the intervention of the same forces, produced a strange interruption of Honduras's two-party system. In the presidential election on November 24, 1985, with three candidates from the Liberal party and two from the National party, the candidate who garnered the most votes, Rafael Leonardo Callejas, was denied victory, and Azcona Hoyos, who received 200,000 fewer votes, triumphed. All votes for Liberal party candidates were combined to give its leader the victory. In the history of this country, these types of crises have served as justification for the intervention of a strengthened army. In Costa Rica, institutional stability was unchanged. After Daniel Oduber's administration (1974-1978), the conservative opposition, directed by Rodrigo Carazo (1978-1982), won the elections. Carazo continued liberal economic policies, but, contrary to expectations, refused to negotiate with the International Monetary Fund and allowed the antiSomoza opposition to use Costa Rican territory. The following elections enabled the return of the National Liberation party (Luis Alberto Monge, 1982-1986), but the economic crisis reached its worst point, and U.S. policy attempted to convert Costa Rica into a strategic component of its anti-Sandinista offensive. The Monge government's policies were contradictory because of Costa Rica's economic indefensibility, U.S. pressure, and the generalized movement toward right-wing politics in Central America. In January 1984, Monge proclaimed permanent disarmament and active neutrality, but in August of that same year he fired important officials from the progressive wing of the Social Democratic party in order to aid the anti-Sandinistas in Costa Rica. In 1986, in spite of its troubled economic and social policies, the National Liberation party was victorious as Oscar Arias was chosen over

128

History and Society in Central America

conservatives organized into the heretofore unknown Social Christian Unity party (PUSC). The leftist forces in Costa Rica entered into a profound crisis and lost their scarce electoral support. The most important political accomplishment of the Arias government was moving Costa Rica to effective neutrality and initiating a peace process. Arias called a meeting of the Central American presidents, with the exception of Nicaragua's Daniel Ortega, in February 1987. Successive efforts for and against the peace process culminated in Esquipulas II, where all five Central American presidents signed a document in Guatemala (August 1987) that established the basis for a regional peace process. This proposal received the support of the Contadora group, a coalition of four Latin American countries (Mexico, Panama, Colombia, and Venezuela); the Grupo de Apoyo (Brazil, Argentina, Peru, and Uruguay); the European Parliament; and four of the five permanent members of the Security Council of the United Nations. The peace plan ran into the obstinate opposition of the Reagan administration, which continued to support the mercenary groups known as the Contras. Therefore, U.S. conduct appeared to be the greatest obstacle to the eventual pacification of the region. Finally, Nicaragua creatively experimented, positively and negatively, with a total reorganization of society linked to the compelling support of the mobilized masses guided by the FSLN. The collapse of the Somoza government was total. The Sandinistas immediately created the Government of National Reconstruction, a national, multiclassist alliance that attempted to support itself through the goals of a mixed economy, nonalignment, and political pluralism. The unexpected fall of Somoza gave way to contradictory possibilities within which the victorious forces mobilized to reconstruct a country razed by the 1972 earthquake and further injured by anti-Somoza struggles (1974-1979) or to reestablish a society in crisis and simultaneously challenged by the most severe consequences of capitalism. The multiclassist political forces, deeply divided, wound up being directed by the FSLN and, through the constitution of the Government of National Reconstruction and the adoption of the Fundamental Statute (22-VHI-79), sought to build a new institution wherein all were represented. Every aspect of Nicaragua, in spite of good intentions, was locked into a conflictual dynamic with U.S. foreign policy. The first diplomatic offensives centered around the blocking of international credits, a trade boycott, the mining of Nicaragua's seaports, and the creation of irregular military forces engaged in low-intensity warfare. The ferocious U.S. opposition was successful. It converted the ambitious Sandinista project of societal reorganization into another simple reconstitution following

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the tempo of the 1970s. In their last two years (beginning in 1988), the Sandinistas sought only a policy of national survival and, through the February 1990, elections, were spared further humiliation. It is important to consider the FSLN's attempt to construct a political democracy supported by popular organization and mobilization. In this respect, the FSLN succeeded, since the support of the masses did not diminish. State projects were accomplished with popular backing. With the creation of the Council of State, Sandinismo moved into the direction of a participatory-cooperative democracy. Within the Council of State, the FSLN counted on twenty-nine votes of the fifty-one and faced an erratic and divided opposition with mercenary tendencies.6 After 1984, the democratic character of the government varied without losing the support and collaboration of the masses. With the election of the Constituent Assembly and the president, the political democracy became even more representative. Moreover, the Sandinistas7 democratic and historic project swayed between the necessity of concentrating power—a common demand of all threatened revolutions—and the necessity of democratizing power in order to consolidate social strength. The Sandinistas attempted two economic policies: one based on the emergence of the state as owner of an important quota of national production; another founded on the goal of meeting the basic needs of the poorer population. The nationalized properties of the Grupo Somoza and of business leaders who fled for diverse reasons were converted into the Area de Propiedad del Pueblo (Property of the People), which accounted for nearly 43 percent of GDP in 1985.7 The "mixed economy" supposed a difficult relation between the private sector and the state, a coexistence that led to a permanent boycott by business leaders and erratic governmental policy. Nicaragua's experience testifies to the inability to transform a bourgeoisie, a dominant class, into a simple productive but powerless group. The bourgeoisie cannot be reduced to a business function because it struggles for total control of political resources. Decapitalization became the weapon the bourgeoisie utilized to weaken the country. The divestment logic resulted from the group's political subordination. It is difficult to describe events since 1980. Agrarian reform has been important and, in general, agrarian policy has been socially successful but not productive. Social justice has not produced the economic surplus essential for the invigoration of an economy progressively in crisis by 1982 and unmanageable by 1988, when a series of unpopular economic adjustments were instituted. Social change has regressed, the market has become informal, contraband and inflation, uncontrollable. Since 1989, the Nicaraguan economy has totally collapsed. Under these conditions, the February 1990 elections took place and the opposition

130

History and Society in Central America

won through an irregular and weak alliance (the National Opposition Union—UNO). Sandinismo was an extraordinary and varied experience known for its creativity. It was a project of the coexistence of classes in conflict, political pluralism without conciliation, democracy in the midst of a civil war, an active and permanent popular support base, all in the context of ferocious U.S. aggression. The fall of Somoza was a U.S. defeat. The United States immediately reacted by blocking Nicaraguan credits in the Interamerican Development Bank, suspending bilateral assistance, prohibiting trade, and, after 1985, instituting a total embargo. No Latin American country can disregard the U.S. presence, much less support a war of attrition that seeks not military but political objectives. The low-intensity conflict was a political defeat for Sandinismo and diverted it from constructive goals. The totality of Nicaragua revolved around a war imposed on a society that had not yet recuperated from damage caused by the struggle against Somoza. The Nicaraguan predicament had profound repercussions in all of Central America and internationally as well. New foreign actors began to play a decisive role in the country's affairs, within a framework of powerful U.S. hegemony. The governments of Mexico, Venezuela, Colombia, and Panama, on the island of Contadora (January 1983), launched a Latin America mediation initiative to which Argentina, Brazil, Uruguay, and Bolivia were later added. The peace, security, and democracy proposed by the Contadora group were part of a search for immediate solutions to regional conflicts. As a matter of fact, there never was any possibility of international war, but there were dangerous developments in the civil wars in El Salvador and Nicaragua. As a result of Contadora and the beginning of a new climate, recently elected Guatemalan president Cerezo called for a summit in the city of Esquipulas in November 1986. Later, the initiative of Costa Rica's President Arias led to the signing of a document (7-VIII-87), ''Procedure to Establish a Lasting and Stable Peace in Central America," in the Esquipulas II Agreement. Since then, other presidential meetings have occurred in Costa del Sol (February 11-12,1989), San Pedro Sula (October 1989), and Alajuela(May 1990). In the interim, the weakening of Sandinismo favored talks between the FSLN and the Contras, who agreed to the demobilization of these mercenary forces in April 1990, after UNO won the elections and Violeta Chamorro assumed the presidency. The civil war in El Salvador took a different path when the FMLN and its indisputable popular support demonstrated its military strength by seizing part of San Salvador in 1990. Given this offensive and the

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131

disposition to negotiate, talks between governmental representatives and guerrilla leaders advanced sufficiently for the New York Accords to be signed on New Year's Eve 1991. In the 1980s in Central America, some eighteen elections took place for Constituent Assembly, the presidency, and municipal government. What conclusions can be drawn from this phenomenon? First, national governments, not society's demands, convoked the elections. Even more, illegitimate military governments in Honduras, Guatemala, and El Salvador convoked the elections. As a result, there are new political constitutions in these countries and in Nicaragua. The electoral processes were competitive for the first time, opened as they were to a certain political pluralism wherein modern technology controlled the proceedings. Therefore, governments formed under civilian control restored the legislative capacity of parliaments and permitted political and union organization. The armies have returned to their barracks while retaining an important share of power. They have left behind, in the hands of politicians, the distressing task of managing a chaotic economy and its social consequences. In the last electoral round, the Central American people elected conservative governments supported by new parties like the Nationalist Republican Alliance (ARENA) in El Salvador, PUSC in Costa Rica, UNO in Nicaragua, and the Partido Acción Solidaria in Guatemala, with minimally defined ideological and programmatic platforms strikingly tied to wealth. The exception is Honduras. The economic crisis has not yielded to the neo-liberal policies that sought to stabilize production through stagnation. Foreign investment never materialized and the payment of interest on the foreign debt— some $18.45 billion in 1990—decapitalized societies already burdened by foreign trade problems. The impoverishment of the population, especially among the campesinos, is terrible and seems relentless. The electoral democracy confronts its greatest obstacles in these difficulties and in the fear that has filtered into daily life. The entirety of these political and economic phenomena constitutes a frightening example of the enormous difficulties these small countries must face in order to win national independence and to overcome underdevelopment.

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Appendix

Year

Costa Ricaa

Guatemalab

Hondurasc

134

Table A-l. Central American Coffee Production (per 1,000 pounds) Nicaraguad

El Salvadore

Total

48,061 41,447 53,352 47,636 47,400 41,227 46,212

151,679 132,498 142,640 155,647 113,759 115,523 132,013

5,953 4,189 4,409 4,850 1,984 3,086 3,704

26,896 28,881 26,456 27,999 27,999 33,731 29,013

136,687 136,908 148,151 142,640 128,530 147,710 140,788

369,276 343,923 375,008 378,772 319,672 341,277 351,330

1938-1939 1937-1938 1936-1937 1935-1936 1934-1935 Average 1934-1939

44,534 53,132 58,423 46,959 53,352 51,280

118,609 125,664 147,710 121,255 94,358 121,519

4,189 5,512 3,307 2,425 4,189 3,924

38,361 31,526 34,833 28,881 40,786 34,877

148,814 140,655 158,292 126,325 130,073 140,832

354,507 356,489 402,565 325,845 322,758 352,432

1933-1934 1932-1933 1931-1932 1930-1931 1929-1930 Average 1929-1934

42,108 61,289 40,786 50,706 51,809 49,340

79,367 110,011 119,050 89,949 97,224 99,120

4,189 3,527 2,425 3,086 3,527 3,351

32,408 30,203 17,858 34,833 33,731 29,807

127,869 141,096 105,822 165,347 143,301 136,687

285,941 346,126 285,941 343,921 329,592 318,304

1928-1929 1927-1928 1926-1927

43,431 41,447 35,715

90,610 136,246 135,144

5,291 3,307 2,646

29,010 38,581 22,708

134,042 149,474 66,139

302,384 369,055 262,352

History and Society in Central America

1944-1945 1943-1944 1942-1943 1941-1942 1940-1941 1939-1940 Average 1939-1944

Year

Costa

Ricaa

Guatemalab

Hondurasc

Nicaraguad

El

Salvadore

Total

40,124 33,951 38,934 30,865

97,445 83,555 108,600 106,263

1,984 1,764 2,998 822

39,022 23,810 30,626 18,078

101,413 95,020 109,218 66,580

279,988 238,100 290,376 222,668

1908-1909 1907-1908 1906-1907 1905-1906 1904-1905 Average 1904-1909

25,133 37,479 26,456 39,022 27,558 31,130

89,949 56,879 100,752 72,753 79,587 79,984

2,646 2,425 2,646 2,984 2,646 2,669

17,196 15,873 17,858 21,164 17,196 17,857

59,525 59,525 64,816 68,784 68,784 64,287

194,449 172,181 212,528 204,707 195,771 195,727

1903-1904 1902-1903 1901-1902 1900-1901 1899-1900 Average 1899--1904

37,038 33,069 33,069 39,683 35,715 35,715

62,611 75,398 59,525 76,060 66,139 67,947

2,646 3,307 2,646 1,984 2,646 2,646

15,873 18,519 19,842 18,519 19,842 18,519

66,139 48,281 33,069 39,683 48,943 47,223

184,307 178,574 148,151 175,929 173,285 172,050

1898-1899 1897-1898 1896-1897 1895-1896 1894-1895 Average 1894-1899

39,683 39,022 27,778 23,810 25,133 31,085

52,911 62,832 63,493 85,981 59,525 64,048

2,646 2,646 2,646 3,307 2,646 2,778

6,614 9,921 10,582 9,259 8,819 9,039

13,228 19,842 23,810 13,228 15,873 17,196

115,082 134,263 128,309 135,585 111,996 125,046

135

1925-1926 1924-1925 Average 1924--1929 Average 1909--1914

Appendix

Table A-l—continued

Year

136

Table A-1—continued Costa

Ricaa

Guatemalab

Hondurasc

Nicaraguad

El

Salvadore

Total

29,763 31,747 22,487 23,810 26,456

59,525 56,879 52,911 39,683 39,683

4,630 5,953 3,307 3,968 3,968

16,535 17,858 9,921 9,480 9,259

35,054 33,069 30,424 33,069 15,873

145,507 145,506 119,050 110,010 95,239

Average 1889-1894

26,853

49,736

4,365

12,611

29,498

123,063

1888-1889 1887-1888 1886-1887 1885-1886 1884-1885

27,999 21,164 32,408 21,164 19,842

39,683 33,069 39,683 36,597 47,620

5,291 3,968 3,968 3,968 3,307

10,362 7,937 8,378 9,921 9,700

14,551 13,228 7,937 29,763 20,062

97,886 79,366 92,374 101,413 100,531

Average 1884-1889

24,515

39,330

4,100

9,260

17,108

94,314

Source: The World's Coffee, no. 9, International Institute of Agriculture, Rome FAO Bureau, Villa Borghese, 1947, pp. 98-99, 116; New York Pan-American Coffee Bureau estimated the data from the early years proportionally. a Commercial export season ending September 30. b Production for October-September season. c Exports during fiscal year ending July 31. d Exports during calendar year. e Production for November-October season

History and Society in Central America

1893-1894 1892-1893 1891-1892 1890-1891 1889-1890

Appendix

137

Table A-2. Central American Coffee Exports (1,000 pounds) Year

Costa Rica Guatemala

Hondurasa

Nicaragua El Salvador

1945 1944 1943 1942 1941 1940 1939 Average 1939-1943

48,061 41,447 53,352 45,636 47,400 41,227 44,534

118,389 102,515 108,468 109,570 92,154 91,492 96,342

5,953 4,189 4,409 4,850 1,984 3,086 4,189

27,999

27,999 33,731 38,361

127,027 139,112 124,341 117,066 92,154 124,569 123,018

46,430

99,605

3,704

30,909

116,228

1938 1937 1936 1935 1934 Average 1934-1938

55,116 58,423 46,959 53,352 42,108

108,247 103,838 111,995 89,949 106,925

2,646 5,512 3,307 2,425 4,189

31,526 34,833 28,881 40,786 32,408

118,609 149,033 108,909 110,452 110,011

51,192

104,191

3,616

33,687

119,403

1933 1932 1931 1930 1929 Average 1929-1933

61,289 40,786 50,706 51,809 43,431

78,485 100,531 80,028 125,664 97,445

4,189 3,527 2,425 3,086 3,527

30,203 17,858 34,833 33,731 29,101

123,900 87,524 120,373 129,191 103,177

49,604

96,431

3,351

29,145

112,833

1928 1927 1926 1925 1924 Average 1924-1928

41,447 35,715 40,124 33,951 40,124

97,886 116,404 114,200 98,547 90,169

5,291 3,307 2,646 1,984 1,764

38,581 22,708 39,022 23,810 39,683

117,066 79,808 111,554 70,769 107,586

38,272

103,441

2,998

32,761

97,357

1923 1922 1921 1920 1919 Average 1919-1923 Average 1914-1918 Average 1909-1913

24,471 41,006 29,322 30,865 30,865

101,193 95,240 95,240 95,460 91,051

1,984

661 220

1,102 1,543

30,203 19,621 29,983 15,432 33,731

105,822 95,020 62,391 82,894 72,973

31,305

95,637

1,102

25,794

83,820

31,085

84,658

1,102

22,928

75,178

28,440

86,642

1,102

18,960

64,596

Source: The World's Coffee. Exports in the fiscal year ending July 31.

a

27,117 28,881 26,456

History and Society in Central America

138

Table A- 3. Central American Coffee Production as Percentage of World's Production Year

1944-1945 1943-1944 1942-1943 1941-1942 1940-1941 1939-1940 Average 1939-1940 through 1943-1944 Average 1934-1935 through 1938-1939 Average 1929-1930 through 1933-1934 Average 1924-1925 through 1928-1929 Average 1909-1910 through 1913-1914

Costa Rica

% of World Production Guatemala Honduras Nicaragua

El Salvador

1.2 1.0 1.3 1.1 1.1 0.9

3.8 3.3 3.4 3.9 2.7 2.7

0.1 0.1 0.1 0.1 0.05 0.1

0.7 0.7 0.6 0.7 0.7 0.8

3.4 3.4 3.5 3.6 3.1 3.4

1.1

3.2

0.1

0.7

3.4

1.0

2.4

0.1

0.6

2.7

1.0

1.9

0.1

0.6

2.6

1.0

2.7

0.1

0.8

2.8

1.1

3.9

0.03

0.7

2.4

Numerical Index (1924-1925 through 1928-1929 = 100)

1944-1945 1943-1944 1942-1943 1941-1942 1940-1941 1939-1940 Average 1939-1940 through 1943-1944 Average 1934-1935 through 1938-1939 Average 1929-1930 through 1933-1934 Average 1924-1925 through 1928-1929 Average 1909-1910 through 1913-1914

123.2 106.2 136.7 116.9 121.5 105.6

139.6 121.9 131.2 143.2 104.7 106.3

192.9 135.7 142.9 157.1 64.3 100.0

87.8 94.2 86.3 91.4 91.4 110.1

125.3 125.5 135.8 130.7 117.8 135.4

117.5

121.5

121.4

95.0

129.1

131.6

111.8

128.6

113.7

129.1

126.6

91.3

107.1

97.1

125.3

100.0

100.0

100.0

100.0

100.0

79.1

97.8

28.6

59.0

61.0

Source: The World's Coffee, p. 117.

Appendix

139

Table A-4. Central American Coffee Exports as Percentage of World's Production

Costa Rica

Year 1945 1944 1943 1942 1941 1940 1939 Average Average Average Average Average Average Average

1939-1943 1934-1938 1929-1933 1924-1928 1919-1923 1914-1918 1909-1913

% of World Production Guatemala Honduras Nicaragua

1.3 1.2 1.8 1.9 1.7 1.3 1.2

3.3 3.0 3.7 4.6 3.3 2.9 2.6

0.2 0.1 0.1 0.2 0.1 0.1 0.1

0.8 0.9 0.9 1.2 1.0 1.1 1.0

3.5 4.1 4.2 4.9 3.3 4.0 3.2

1.6 1.4 1.5 1.2 1.2 1.3 1.2

3.4 2.9 2.9 3.3 3.5 3.6 3.6

0.1 0.1 0.1 0.1 0.0 0.0 0.0

1.0 1.0 0.9 1.1 0.9 1.0 0.8

3.9 3.3 3.3 3.1 3.1 3.2 2.7

192.9 135.7 142.9 157.1 64.3 100.0 135.7

82.6 87.9 80.5 85.2 85.2 102.7 116.8

130.5 142.8 127.6 120.1 94.6 127.8 126.2

120.0 114.3 107.1 100.0 35.7 35.7 35.7

94.1 102.7 88.6 100.0 78.5 69.8 577

119.3 20.3 186.1 100.0 86.5 77.1 66.3

Numerical Index (Average 1924-1928 = 100) 114.5 125.3 1945 1944 108.0 99.1 1943 104.9 139.1 1942 106.0 119.0 1941 123.6 89.1 88.5 1940 107.5 93.2 116.1 1939 Average Average Average Average Average Average Average

1939-1943 1934-1938 1929-1933 1924-1928 1919-1923 1914-1918 1909-1913

El Salvador

121.1 133.3 129.3 100.0 81.6 81.0 74.1

Source: The World's Coffee, p. 402.

96.3 100.0 93.2 100.0 92.5 81.9 83.8

140

History and Society in Central America

Table A-5. Costa Rica's Coffee Exports to Principal Buyers (%) Year

Europe

1944 1943 1942 1941 1940

3.3 3.3 3.9 4.3 52.0

Average 1940-1944

United States

Other Countries

Total

75.7 74.8 70.4 75.2 43.4

21.0 21.9 25.7 20.5 4.6

100.0 100.0 100.0 100.0 100.0

13.4

67.9

18.7

100.0

1939 1938 1937 1936 1935

75.1 71.8 76.6 83.5 80.6

21.4 25.7 21.9 15.6 18.2

3.5 2.5 1.5 0.9 1.2

100.0 100.0 100.0 100.0 100.0

Average 1935-1939

77.5

20.6

1.9

100.0

1934 1933 1932 1931 1930

92.2 74.8 83.8 88.7 85.7

7.3 24.8 16.2 11.3 12.9

0.5 0.4 0.0 0.0 1.4

100.0 100.0 100.0 100.0 100.0

Average 1930-1934

85.0

14.5

0.5

100.0

Source: The World's Coffee, p. 417.

141

Appendix Table A-6. El Salvador's Coffee Exports to Principal Buyers (%) Year

Europe

1944 1943 1942 1941 1940

3.8 0.2 1.9 3.7 16.5

Other Countries

Total

79.8 96.4 85.9 71.9 82.6

16.4 3.4 12.2 18.4 0.9

100.0 100.0 100.0 100.0 100.0

5.2

84.5

10.3

100.0

1939 1938 1937 1936 1935

33.2 35.2 33.4 40.5 50.7

66.1 64.0 62.6 55.5 48.7

0.7 0.8 4.0 4.0 0.6

100.0 100.0 100.0 100.0 100.0

Average 1935-1939

38.6

59.4

2.0

100.0

1934 1933 1932 1931 1930

70.7 75.1 85.6 85.2 83.1

25.7 22.2 13.9 13.5 14.9

3.6 2.7 0.5 1.3 2.0

100.0 100.0 100.0 100.0 100.0

Average 1930-934

79.9

18.0

2.0

100.0

Average 1940-1944

United States

Source: The World's Coffee, p. 419.

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Table A-7. Guatemala's Coffee Exports to Principal Buyers (%) Year

Europe

1944 1943 1942 1941 1940

1.9 0.0 2.0 2.4 12.3

Other Countries

Total

84.5 98.4 96.2 85.6 86.3

13.6 1.6 1.8 12.0 1.4

100.0 100.0 100.0 100.0 100.0

3.7

90.4

6.1

100.0

1939 1938 1937 1936 1935

42.2 39.1 47.2 50.4 59.8

55.5 60.1 50.2 48.6 39.4

2.3 0.8 2.6 1.0 0.8

100.0 100.0 100.0 100.0 100.0

Average 1935-1939

47.7

50.8

1.5

100.0

1934 1933 1932 1931 1930

73.8 78.4 71.3 75.7 67.1

26.0 21.3 28.4 24.0 32.7

0.2 0.3 0.3 0.3 0.2

100.0 100.0 100.0 100.0 100.0

Average 1930-1934

73.3

26.5

0.2

100.0

Average 1940-1944

United States

Source: The World's Coffee, p. 419.

143

Appendix Table A-8. Honduras's Coffee Exports to Principal Buyers (%) Year

urope

United States

Other Countries

Total

1944 1943 1942 1941 1940

0.0 0.0 0.0 0.0 0.0

96.3 100.0 100.0 92.3 70.0

3.7 0.0 0.0 7.7 30.0

100.0 100.0 100.0 100.0 100.0

Average 1940-1944

0.0

91.7

8.3

100.0

1939 1938 1937 1936 1935

70.0 50.0 64.0 80.0 81.8

15.0 33.3 32.0 20.0 18.2

15.0 16.7 4.0 0.0 0.0

100.0 100.0 100.0 100.0 100.0

Average 1935-1939

69.2

23.7

7.1

100.0

1934 1933 1932 1931 1930

78.9 68.4 75.0 72.7 57.1

15.8 31.6 25.0 27.3 35.7

5.3 0.0 0.0 0.0 7.2

100.0 100.0 100.0 100.0 100.0

Average 1930-1934

70.4

27.1

2.5

100.0

Source: The World's Coffee, p. 420.

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History and Society in Central America

Table A-9. Nicaragua's Coffee Exports to Principal Buyers (%) Year

Europe

United States

Other Countries

Total

1944 1943 1942 1941 1940

0.0 0.0 0.0 0.0 3.9

98.5 100.0 100.0 100.0 96.1

1.5 0.0 0.0 0.0 0.0

100.0 100.0 100.0 100.0 100.0

Average 1940-1944

0.8

98.9

0.3

100.0

1939 1938 1937 1936 1935

34.1 46.0 57.1 71.8 67.6

65.9 54.0 42.2 27.5 31.9

0.0 0.0 0.7 0.7 0.5

100.0 100.0 100.0 100.0 100.0

Average 1935-1939

55.3

44.3

0.4

100.0

1934 1933 1932 1931 1930

86.4 88.3 93.8 82.3 86.9

13.6 11.7 6.2 17.1 11.8

0.0 0.0 0.0 0.6 1.3

100.0 100.0 100.0 100.0 100.0

Average 1930-1934

87.5

12.1

0.4

100.0

Source: The World's Coffee, p. 421.

Appendix

145

Table A-10. Central America's Average Coffee Production, per Inhabitant (pounds per capita)

Country Costa Rica El Salvador Guatemala Nicaragua

Average 1924-1928

Average 1929-1933

Average 1934-1938

75 67 52 43

94 91 45 40

87 86 50 39

Source: The data for Costa Rica and Nicaragua are from the International Statistical Compendium for 1924-1938, International Institute of Agriculture. The data for El Salvador and Guatemala are from The World's Coffee, p. 107.

Table A-ll. Direct U.S. Investment in Latin America, by Country, 1929-1950 (millions of dollars) Country

1929

2936

1940

2943

2950

Costa Rica El Salvador Guatemala Honduras Nicaragua Total

22 30 70 72 12 206

13 17 50 36 5 121

24 11 68 38 8 149

30 15 87 37 4 173

60 17 106 62 9 254

Source: The U.S. Department of Commerce, American Direct Investments in Foreign Countries (1940), Balance of Payments, Statistical Supplement (1958), and U.S. Balance of Payments, Statistical Supplements (rev. ed., 1963). Note: The data do not correspond to the 1929 data that appear in table 13 of Cleona Lewis, America's Stake in International Investments, appendix D, pp. 575-607, because the U.S. Department of Commerce later revised the information that the author used.

146

Table A-12. Direct U.S. Investment in Latin America in 1950 (millions of dollars) Sector Agriculture

Costa Rica El Salvador Guatemala Honduras Nicaragua

Petroleum 3.8 2.3 3.6

Manufacturing

Public Services

0.4

10.8 16.8 72.2 8.8 0.9

Total Costa Rica El Salvador Guatemala Honduras Nicaragua

1929

1936

1943

1950

1952

22.2 29.5 70.0 71.5 13.0

13.3 17.2 50.4 36.4 4.5

30.4 14.9 86.9 37.0 4.0

60.0 18.5 105.9 61.9 9.0

61.0 — 108.0 81.0 —

Commerce 0.7 0.5 3.3

0.6

Financial Services & Insurances

Misc.

History and Society in Central America

Country

Mining & Smelting

Appendix

147

Source: U.S. Department of Commerce. The data for 1920,1936,1943, and 1950 have been taken from Foreign Investments of the United States. Those from 1952 are taken from Survey of Current Business (January 1954). Notes: The Department of Commerce computed these data on the basis of responses to questionnaires sent to all known pertinent investors. The responses to the 1950 survey were obligatory under the law of the United States and agreed to in the 1945 Bretton Woods Participation Act. The term "direct foreign investments" is understood to mean the following: (1) the value of U.S. participation in foreign businesses when that participation represents at least 25 percent of the stock, with the right to vote and is the property of people and affiliated groups that continually reside in the United States; (2) U.S. participation in foreign businesses whose capital in stock, with right to vote, must be publicly controlled by a proportion equal or superior to 50 percent of its totality, but that needs to be divided among stockholders in such a way that no individual or associate controls more than 25 percent; (3) real estate property must not be for personal use or for a single-owner business; (4) the net value of property of North American foreign subsidiaries. A subsidiary is understood to be all foreign business that a North American company administers by its own right and not business conducted through a foreign administrator. North American capital invested in this class of controlled foreign business entails the countable value of all stock that is in the United States, be it the principal business or other entities or persons. This also includes the participation of stockholders in surplus and extraordinary reserves, the net balance of the accounts of its direct or indirect foreign business, and its obligations payable to itself or to other people of the United States. This restriction does not include the subsidiaries and foreign-owned businesses constituted in the United States that are properties of non-U.S. citizens, nor are foreign companies whose stock may be held by many U.S. citizens but whose administration and control are not of the United States.

History and Society in Central America

148

Table A-13. Movement of Private Capital from Latin America and Net Errors and Omissions in Balance of Payments (millions of dollars) Country Costa Rica El Salvador Guatemala Honduras Nicaragua Total

1946-1950 +9.8 -24.4 -22.8 +4.2 +3.4 -29.8

1951-1955

1956-1960

1961

1962

Total

+10.6 -44.1 -16.2 -12.6 -7.4 -69.7

+20.6 -28.7 -22.5 +8.4 -9.8 -32.0

-2.2 -14.1 -4.4 -1.6 -7.5 -29.8

+5.6 -5.2 — +1.8 + 1.5 3.7

+44.4 -116.5 -65.9 +0.2 -19.8 -157.6

Source: El financiamiento externo de América Latina, table 78, p. 86. Notes: The symbol (-) indicates capital flight from Latin America; the (+) symbol indicates return. The sign (-) that appears in front of the corresponding annotations of net errors and omissions indicates excess of credit of registered debts in the total balance of payments, which points to a nonregistered capital flight from Latin America. The (+) symbol indicates an excess of registered credits, which suggests a nonregistered affluence of capital in Latin America.

1951-1955

Costa Rica El Salvador Guatemala Honduras Nicaragua Central America

1956-1960

1951-1960

Public Sector

Private Sector

Total

Public Sector

Private Sector

Total

Public Sector

Private Sector

Total

6.4 11.9 11.7 3.5 9.9 43.4

14.1 0.3 0.9 41.4 12.4 69.1

20.5 12.2 12.6 44.9 22.3 112.5

36.1 11.8 96.8 26.4 12.1 183.2

16.9 0.7 88.4 -12.0 21.7 115.7

53.0 12.5 185.2 14.4 33.8 298.9

42.5 23.7 108.5 29.9 22.0 226.6

31.0 1.0 89.3 29.4 34.1 184.8

73.5 24.7 197.8 59.3 56.1 411.4

31.2 97.5 92.8 7.8 44.9 38.0

68.8 2.5 7.2 92.2 55.1 62.0

100.0 100.0 100.0 100.0 100.0 100.0

68.1 94.4 52.3 183.3 35.8 61.5

31.9 5.6 47.7 -83.3 64.2 38.5

100.0 100.0 100.0 100.0 100.0 100.0

57.8 95.9 54.8 50.4 39.1 54.5

42.2 4.1 42.2 49.6 60.9 45.5

100.0 100.0 100.0 100.0 100.0 100.0

Appendix

Table A-14. Net Entry of Noncompensatory and Long- Term Foreign Capital in Private and Public Sectors, by Country, 1951- 1960 (millions of dollars)

In Percentages Costa Rica El Salvador Guatemala Honduras Nicaragua Central America

Source: UNECLA, El financiamiento externo de América Latina.

149

History and Society in Central America

150

Table A-15. Net Entry of Noncompensatory, Long-Term Foreign Capital in Principal Forms, by Country, 1946-1960 (millions of dollars)

Country Costa Rica El Salvador Guatemala Honduras Nicaragua Total

Country Costa Rica El Salvador Guatemala Honduras Nicaragua Total

Country Costa Rica El Salvador Guatemala Honduras Nicaragua Total

Country Costa Rica El Salvador Guatemala Honduras Nicaragua Total

Official Donations 1.4 0.6 7.2 0.1 4.0 13.3

1946-1950 Long-Term Loans -1.4 -3.2 -0.5 -1.6 0.7 -6.0

Direct Investment 20.9 0.2 12.0 24.9 5.5 63.5

Total 20.9 -2.4 18.7 23.4 10.2 70.8

Official Donations

1951-1955 Long-Term Loans

6.9 3.0 11.1 4.0 4.0 29.0

6.2 9.3 3.5 -0.5 9.3 27.8

Official Donations

1956-1960 Long-Term Loans

Direct Investment

Total

25.5 5.5 75.1 12.1 14.2 132.4

11.6 6.4 38.3 14.3 9.3 79.9

15.9 0.6 71.8 -12.0 10.3 86.6

53.0 12.5 185.2 14.4 33.8 298.9

Official Donations

1951-1960 Long-Term Loans

Direct Investment

Total

32.4 8.5 86.2 16.1 18.2 161.4

17.8 15.7 41.8 13.8 18.6 107.7

23.3 0.9 69.8 29.4 19.3 142.7

73.5 25.1 197.8 59.3 56.1 411.8

Direct Investment 7.4 -0.1 -2.0 41.4 9.0 55.7

Total 20.5 12.2 12.6 44.9 22.3 112.5

Appendix

Country Costa Rica El Salvador Guatemala Honduras Nicaragua TOTAL

Country Costa Rica El Salvador Guatemala Honduras Nicaragua Total

Country Costa Rica El Salvador Guatemala Honduras Nicaragua Total

151 Official Donations

1960 Long-Term Loans

3.3 0.9 14.5 3.2 2.7 24.6

0.7 0.2 5.1 3.6 -0.5 9.1

Official Donations

1961 Long-Term Loans

5.2 1.6 15.0 5.0 3.5 30.3

1.2 1.4 2.1 3.8 -0.8

7.7

Official Donations

1962 Long-Term Loans

1.7 2.5 8.5 2.9 3.6 20.2

3.0 2.1 -1.6 7.0 6.6 17.1

Direct Investment 2.4 — 15.2 -7.6 1.7 11.7 Direct Investment 7.7 3.1 7.6 -7.5 6.0 16.9 Direct Investment 12.7 7.2 11.9 -4.4 3.1 30.5

Source: UNECLA, El financiamiento externo de América Latina.

Total 6.4 1.1 34.8 -0.8 3.9 45.4

Total 14.1 6.1 24.7 1.3 8.7 54.9

Total 18.4 11.8 18.8 5.5 13.3 67.8

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152

Table A-16. Index of Health Conditions, 1960 Country Costa Rica El Salvador Guatemala Honduras Nicaragua

No. of Doctors/ No. of Hospital Beds/ % of State Expenditures 1,000 Inhabitants 1,000 Inhabitants on Public Health 3.9 1.8 2.1 2.1 3.5

2.5

5.1 2.0 2.8 2.0 1.8

8.6 13.2

Source: UNECLA, "El desarrollo económico de América Latina en la postguerra," table 14.502, p. 125.

Table A-17. Indicators of the Existence of Basic Social Capital

Country Costa Rica El Salvador Guatemala Nicaragua Honduras

Improved Highways and Railroad (kilometers/ 10,000 hectares) 1954-1955

Electrical Capacity (wa tts/inhabitan t) 1958

Agricultural Tractors per 10,000 Hectares of Arable Land 1950

61 68 80 16 35

106 34 16 34 15

13 9 6 52 3

Source: International Bank for Reconstruction and Development (BIRF), "Cifras comparativas sobre los países latinoamericanos," Antecedentes cuantitativos referentes al desarrollo de América Latina, table 21.211, p. 148. Notes: Highways include unpaved roads that are leveled and drained. Kilometers of railroad does not include small-gauge rail. All classes of tractors are included.

Appendix

153

Table A-18. Number and Percentage of Union Workers in Economically Active Population, 1960

Country Costa Rica El Salvador Guatemala Honduras Nicaragua

No. of Union Workers

Economically Active Population

Union Workers as % of Economically Active Population

23,000 36,012 16,000 18,150 16,000

398,000 807,000 1,306,500 869,400 460,800

5.7 4.4 1.2 2.0 3.4

Source: Confederación Económica Argentina (CEA), "América en Cifras, 1961," and Instituto de Organización y Administración Racional de Empresa (INSORA), "Finanzas y afiliación sindicales," in Antecedentes cuantitativos referentes al desarrollo de América Latina, table 14.401, p. 105.

Table A-19. Percentage of Population Insured through Social Security Services

Country Costa Rica El Salvador Guatemala Honduras Nicaragua

% of Economically Active Population Insured through Social Security 23 4 21 — 6

%of Total Population Insured through Social Security 8 1 7 — 2

Source: "Seguridad social y desarrollo económico," Washington, D.C.: Pan American Union, 1960, and Boletín Económico de América Latina, vol. 5, Santiago, Chile (November 1960), statistical supplement, in Antecedentes cuantitativos referentes al desarrollo de America Latina, table 14.451, p. 119. Notes: % of total population is derived from the percentage of the total economically active population; the percentages are global estimates due to the differences in the available years.

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History and Society in Central America

Table A-20. Urban and Rural Population as Percentage of Total Population %Percentage of Total Population Country and Area Costa Rica Urban Rural El Salvador Urban Rural Guatemala Urban Rural Honduras Urban Rural Nicaragua Urban Rural

1940

1945

1950

1955

1960

1965

22.4 77.6

25.7 74.3

29.0 71.0

32.3 67.7

37.8 62.2

40.8 59.2

24.7 75.3

26.2 73.8

27.7 73.3

29.2 70.8

32.6 67.4

36.4 63.4

20.6 79.4

20.8 79.2

24.0 76.0

27.8 72.2

31.0 69.0

34.0 66.0

15.3 84.7

15.9 84.1

17.3 82.7

19.5 80.5

22.5 77.5

26.1 73.9

26.1 73.9

27.1 72.9

28.1 71.9

30.8 69.2

33.9 66.1

37.0 63.0

Source: Antecedentes cuantitativos referentes al desarrollo de América Latina, table 14.107, p. 23.

Table A-21. Rates of Population Growth Country Costa Rica El Salvador Guatemala Honduras Nicaragua

Population Growth Rate 1925-1935 1935-1945 1945-1955 1.9 1.6 2.7 1.9 1.3

2.3 1.3 2.0 1.9 1.8

3.2 1.9 2.9 2.8 3.0

1955-1965 3.9 3.1 2.9 3.4 3.5

Source: UNECLA, Boletín Económico para la América Latina, vol. 7, no. 1 (October 1962): table 5, p. 9.

Notes

1. Anarchy 1. Social stratification in 1820, the dawn of independence, included six hundred thousand Indians, three hundred thousand mestizos, and forty thousand creoles and Spaniards. Almost half the indigenous population lived in Guatemala. 2. "From 1798 to 1802, the following merchandise was exported to Cádiz through the Gulf of Honduras in registered ships: 22,241 sacks of indigo (214 pounds each); 1,347 jugs of balm; 1,386 arrobas (a variable liquid measure of roughly 25 pounds) of sarsaparilla; 391 crates of dried maize leaf; 1,139 dozen mechas de papelicho (wicks); 18 loads of mahogany; 532,158 minted four-silver pesos; 1,636 silver pesos." Valentín Solórzano Fernández, "Evolución económica de Guatemala," p. 213 3. Celso Furtado, Formación económica del Brasil, pp. 21-22. 4. José Colonel Urtecho, Reflexiones sobre la historia de Nicaragua: de Gaínza a Somoza, p. 52. 5. Rodrigo Facio Brenes, La federación de Centroamérica, sus antecedentes, su vida y su disolución, p. 100, 111. 6. This treaty, signed in 1850 by the chancellors of both powers, established that not the United States or Great Britain or "any other nation could assume or exercise dominion over the Miskito Coast or any part of Central America." Nevertheless, although English rule continued in this zone for decades, it soon began to decline. The new Hay-Pauncefote Treaty, though, initiated a series of treaties that led to the eventual concession of canal rights extracted by the United States from Nicaragua in 1911. 7. Solórzano, "Evolución económica de Guatemala." 8. The history of the "English debt" ended in the first decade of the current postwar period. In 1869, Guatemala indebted itself for more than 500,000 pounds, and both debts remained in arrears under the Liberal government in 1867. Successive consolidations and delays elevated the amount to 1.6 million toward the end of the century. See United Nations, Las inversiones extranjeras en América Latina. All the information on Central America's foreign debt was taken from this work. 9. This rescue rose to 5.3 million pounds sterling by means of biannual payments for thirty years. In 1953, only 600,000 pounds were needed to pay off

156

Notes to Pages 6-9

the loan, a deal the bondholders refused to accept (ibid., p. 118). 10. Arthur N. Young, "La reforma financiera en Honduras." 11. In 1909, the liberal government refinanced, through bonds totaling 1.2 million pounds, to rescue the 1886 bonds and to reimburse North American credit negotiated in 1904 as well as other governmental expenses. This North American credit would be the beginning of later credits that served as a pretext for later military occupation by the creditor country. See Luis Cuadra Cea, Aspectos históricos de la moneda en Nicaragua; and United Nations, Las inversiones extranjeras en América Latina. 12. The government issued bonds (1871) for a value of one million pounds, and in 1872, another group for 2.4 million. These debts could not be covered. Successive agreements in 1911 adjusted the debt to 2 million (United Nations, Las inversiones extranjeras en América Latina, pp. 84-85). 13. In 1908, a new loan was negotiated for one million pounds, which was to be used to consolidate earlier loans and to finance public works. 14. Facio Brenes, La federación de Centroamérica, p. 110. 15. Ibid., p. 111. 16. Rómulo Ε. Durón, Bosquejo histórico de Honduras. 17. Isolation and poverty were extreme until two decades after independence. In 1836, there were scarcely 78,365 inhabitants; 13 percent were Indians dispersed in the jungle. The rest were Spanish and mestizo descendants [Revista de Costa Rica en el Siglo XIX, p. 29). 18. According to Alejandro Marure, the Central American population during the constitution of the First Federal Congress was 1,217,491. According to other calculations based on the numer of delegates to the Congress, where each delegate represented 30,000 citizens, the distribution would be the following: Guatemala: 17 delegates for 510,000 inhabitants; El Salvador: 9 delegates for 270,000 inhabitants; Honduras: 6 delegates for 180,000 inhabitants; Nicaragua: 5 delegates for 150,000 inhabitants; Costa Rica: 2 delegates for 60,000 inhabitants; Central America: 39 delegates for 1,170,000 inhabitants. See Alejandro Marure, Bosquejo histórico de las revoluciones de Centroamérica, vol. 2:83-84, 189. 19. The Congressional Record oí San Salvador, November 22,1822, indicates that this province's population reached 170,000 inhabitants (William R. Manning, Correspondencia diplomática de los Estados Unidos concerniente a la independencia de las naciones latinoamericanas, vol. Π: 1033, quoted by R. Barón Castro, p. 442). 20. According to Ramón de Anguiano's calculations (who cites no source), the Honduran population in the middle of the last century was composed of 9,360 Spanish (4.6 percent); 79,121 mestizos (38.9 percent); 4,500 blacks (2.2 percent), who were brought to the Trujillos zone for the exploitation of wood; 35,392 Indians (17 percent); and 75,000 Indians who were inhabitants of the jungle (36.9 percent) (Arturo Euceda Gómez, Esbozos de historia económica de Honduras: los orígenes de la economía hondureña, p. 80). 21. Ibid., p. 9. 22. Cochineal is obtained from the crushed bodies of an insect that lives and develops in prickly pear cactus, which grows in dry areas and needs almost no care. Indigo, on the other hand, required careful cultivation and semi-industrial

Notes to Pages 10-15

157

production in the workshop before being exported. 23. " T h e utilization of the indigenous population for working the mines and indigo dyeworks was prohibited. The courts ordered that only black slaves could be used for such work. In 1735, the municipal government permitted the utilization of the Indians when confronted with the scarcity of black labor and possible loss of the indigo crop. Such repeated petitions were granted by the king in 1738. Though prohibited by law, the encomenderos and secondary authorities transferred, by painful caravans, Indians from the cooler regions to the [hot and humid] coasts to subject them cruelly to the workshops and presses" (Solórzano, Evolución económica de Guatemala, p. 138). 24. The generic phrase "the campesino's subsistence economy" simply means in this case "not monetarily based." 25. One manzana equals 1.72 acres, or 0.698 hectares. 26. Solórzano, Evolución económica de Guatemala. 27. In 1879, 1,860,000 pounds were produced for a value of 1,186,894 pesos, or 34 percent of the total production (Félix Choussy, Fases de la evolución de la industria del café en El Salvador: economía agrícola salvadoreña, p. 377). 28. "Far from reliving the feudal cycle, America entered the capitalist cycle rapidly and contributed to this cycle by giving it a colossal vigor" (Sergio Bagú, Economía de la sociedad colonial: ensayo de historia comparada de América Latina, p. 143). 2. The Liberal Republic 1. The development of this part and, in general, the inspiration for this book correspond to the work of F. H. Cardoso and E. Faletto, Dependencia y desarrollo en América Latina. (Ensayo de interpretación sociológica). 2. For the five-year period 1884-1889, Central America's average participation in world production equaled 13.9 percent; between 1900 and 1904, it dropped to 12.6 percent; from 1910 to 1914, production share fell to 8.1 percent; and between 1930 and 1934, to 5.3 percent. 3. Only in 1876 were more than forty-two thousand hectares of land distributed on Guatemala's southern coast. This zone became an important nucleus of the coffee oligarchy, and eventually the country's most important sugar and cotton operations were located there. See Solórzano, Evolución económica de Guatemala. 4. All landowners had to tithe and send one-tenth of their harvest to sustain churches and convents. One portion of this tithe was sent to Rome, by virtue of a treaty negotiated by the "Thirty-Year" Conservative government. 5. The Guatemalan orilleros corresponded to this form. In El Salvador they disappeared because of the Extinction of the Ejido Law, and in Costa Rica they almost never existed. 6. Juan Antonio Alvarado, Tratado de caficultura práctica, vol. 2. 7. The transoceanic railroad that travels from the Pacific port of San José to the Atlantic Puerto Barrios was constructed between 1878 and 1890 with 75 percent national resources. In 1883, the first national textile industry emerged in Cantei, with an investment of six hundred thousand pesos and six hundred workers. In 1874, the first national bank was created with money produced by

158

Notes to Pages 15-20

the sale of clerical properties. See Solórzano, Evolución económica de Guatemala. 8. David J. Guzmán, Apuntamientos sobre la topografía física de El Salvador. 9. Romeo Fortín Magaña, La Constitución de 1886 y su proceso histórico, pp. 11-12. 10. In this year, exports earned 4,122,888 silver pesos (El Salvador, Ministerio de Trabajo y Previsión Social, Esbozo de la situación económico-social en las materias más relacionadas con la seguridad social en la República de El Salvador, p. 20; and Choussy, Industria del café en El Salvador, p. 378). 11. Guzmán, La topografía física de El Salvador, p. 268. 12. Ibid., p. 269. 13. Rodrigo Facio Brenes, Estudio sobre la economía costarricense. p. 23. 14. Land was distributed equally with no classist orientation. They awarded land with preference to poor people and to those with scarce resources and to those with a small stretch of land (Eugenio Rodríguez Vega, Apuntes para una sociología costarricense, p. 98). 15. "With the export of coffee," declares Facio, "the second stage of our economic evolution was initiated." And he quotes Thomas F. Meagher, saying that, in the 1960s, the country was composed "of two-thirds small landholders, with their donkeys, oxen, chickens, and coffee or sugar plants" (Facio, La economía costarricense). 16. Among the ranks of the Generation of '89 were presidents Próspero Fernández, Ascensión Esquivei, Cleto González Víquez, Ricardo Jiménez, and others. 17. Paul Vinelli et al., Estudio sobre la economía de Honduras. 18. The Miskito Indians inhabited Nicaragua's Atlantic region, which was rich in minerals and wood. The English government formed a protectorate there and established "diplomatic relations" with the ghost state. 19. The Tomás Martínez government was above all progressive; it was followed by Fernando Guzmán, 1867-1871; Vicente Cuadra, 1871-1875; Pedro Joaquín Chamorro, 1875-1879; Joaquín Zavala, 1879-1883; Adán Cárdenas, 1883-1887; and Evaristo Carazo, 1887-1889. 20. Carlos Manuel Castillo, Growth and Integration in Central America, p. 20. 21. The liberal government of Santos Zelaya modernized, in relative terms, the institutional structure (civil code, commerce, the first national bank), paid the outstanding 2.8 million-peso debt to the English, and created the National Army, which disappeared with foreign intervention, and so on. He organized land distribution and facilitated the creation of the coffee economy. He reorganized the public treasury and began the construction of the first railroads, telephones, mail system, telegraph, and electrical lighting. 22. The effort to integrate the country has not been successful to this date. Soto's liberal government constructed a section of railway to the Atlantic Coast's Puerto Cortés, and some mail routes and telegraphs. He endowed the country with a modern legal corpus and reorganized the monetary system, adopting the silver standard in 1880. The suppression of the ecclesiastic tithe and exemption, and some expropriations of conventual goods, nevertheless, did not

Notes to Pages 20-27

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produce profound economic benefits. 23. Luis Mariños Otero, Honduras. 24. José Arturo Euceda Gómez, "Una contribución al conocimiento de la estructura social de Honduras," p. 30. Euceda Gómez cites Mariños Otero for the basis of this quote. 25. Castillo, Growth and Integration, chap. 2. 26. One example was the Law of the Guatemalan Commands, decree 177, signed on April 13,1877. It authorized the forced recruitment of Indians to work on the coastal coffee haciendas. The local authorities had to provide the hacendados' work force and punish those campesinos who resisted working, who fled the haciendas, or who did not pay their "debts" with work. 27. See chap. 4 here. 28. U. Hla Myint, Economía de los países en desarrollo, p. 56. 29. See the work of André Gunder Frank, especially "Feudalism or Capitalism in Latin America," pp. 45 ff. For information on the Chilean situation, see M. Góngora, El origen de los inquilinos de Chile central. For Mexico, see François Chevalier, Land and Society in Colonial Mexico. 30. Antonio García, Reforma agraria y economía empresarial en América Latina, p. 91. 31. This double line of "specialized" production continues to function and explains this sector's growing agrarian crisis and its inability to satisfy the demand for basic staples. 32. Sidney W. Mintz, "La plantación y la reforma agraria," p. 62. 33. It is possible that another set of relations might have produced similar results, such as the slow transformation of a precarious tenant (arrendatario) into the hacienda peasant, that is to say, a greater dependency of the tenant on the hacienda through the accumulation of responsibilities on the hacienda. Or as Góngora says, "the great hacienda operated by unloading its maintenance demands on tenants" (Los inquilinos de Chile central, p. 115). At this particular moment, though, we cannot trace the emergence of another form of land tenancy that appeared in Central America. 34. Edelberto Torres Rivas, Las clases sociales en Guatemala, p. 52. 35. Whoever was responsible for this mutation (and they are well known) in Central America, (a) the small producer did not achieve total or partial emancipation from the feudal obligations that oppressed him, and (b) the small producer never could access the means of production and, thus, remained dependent on a subsistence salary. 36. Creole merchants frustrated another attempt, by the Swiss National Bank's Marquis of Eilly, who asked Guatemala's Conservative government to establish an issuing and crediting bank. Allegations of local lenders offer a vivid reflection of this period's mentality (Solórzano, Evolución económica de Guatemala, p. 331). 37. Rodríquez Vega, Una sociología costarricense, p. 98. 38. Costa Rica, Dirección General de Estadísticas y Censos, Resúmenes estadísticos 1883-1893. 39. The number of German property owners in coffee production increased during this period. In the 1930s, before the total expropriation of German property due to the war, of a total of 250,066 cultivated acres, 116,207 belonged

160

Notes to Pages 27-33

to foreigners, the majority of whom were Germans. Of 2,243 haciendas, 500 were German. 40. While controlling 3 percent of the haciendas in the 1930s and 12.3 percent of the cultivated coffee crops, proportionally speaking, they were owners of the larger agricultural establishments (International Institute of Agriculture, The World's Coffee: Studies of the Principal Agricultural Products on the World Market). All previous Central American data come from this work. 41. In the province of Matagalpa, Nicaragua, two-thirds of the hacendados were German, but toward the end of the 1940s, they had abandoned their crops (ibid.). 42. The construction of railroads and ports to facilitate the commercialization of agricultural products, credit facilities, and all other measures to create order were proof of this ambiguity. 43. R. Cibotti and F. Weffort, Características sociológicas del estado, p. 11. 44. Castillo indicates that the role of direct foreign investment and relations with the world market were important for the Central American economy, but came at a high price, especially for English credits, which produced bitter experiences (Castillo, Growth and Integration, p. 18). 45. The development of capitalism, in the nineteenth century, drove the search for markets and raw materials. In sixty years, more territory was occupied than was conquered in the three centuries of the old colonial movement. In 1870, more than half of the inhabitable land surface had not been trodden by foreigners, but at the beginning of the twentieth century, the process had finished (Harry E. Barnes, "La naturaleza del imperialismo contemporáneo"). 46. The coffee bushes that produce a mild coffee need permanent shade in order to guarantee slow maturation. Exposure to the tropical sun disturbs the harvest cycle and diminishes coffee's aroma. 47. At the beginning of the twentieth century, Central American banana export volume averaged ten million stems. At the end of the 1920s, it averaged thirty-eight million. 48. Vinelli et al., La economía de Honduras, p. 8. 49. The Honduran model was distinct from the Costa Rican-Guatemalan model; therefore, the historical consequences of development within these countries differed. 50. From the beginning of the century, investment in banana cultivation never acquired much importance. The Standard Fruit and Steamship Company achieved important levels of production in the 1920s, increasing Nicaraguan banana exports from 5 percent of total exports in 1913 to almost 50 percent of total exports in 1932. In 1937, banana exports were reduced to 16 percent of total exports, and in the 1940s, bananas disappeared as an export item. See Las inversiones extranjeras en América Latina. 51. In the Soto-Keith contract, signed on April 21, 1884, the Keith brothers received the authorization to utilize ninety-eight miles of railroad in exchange for fifty-three railroad miles to be constructed by them. Furthermore, the company could freely choose eight hundred thousand acres of land at any point in the Atlantic coastal region. In order to finance and utilize the railroad, the construction company began to buy from and transport bananas to local cultivators and thus established the Tropical Trading and Transporting Com-

Notes to Pages 33-37

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pany. Keith, who worked with English capital, yielded his investment to U.S. interests in 1889, the year that United Fruit Company was organized in Boston as a consequence of the fusion of the Keith and Boston Fruit Companies. 52. Costa Rica, Resúmenes Estadísticos. 53. The three systems were the Pacific Railroad (134 kilometers), from San José to Puntarenas, property of the state; the Northern Railroad (450 kilometers), from San José to Puerto Limón, British property controlled by UFCO; and the Central Railroad (515 kilometers), from Quepos to Golfito, UFCO banana zones. See Charles D. Kepner, Jr., and H. Soothil, eds., El imperio del banano; and William Krehm, Democracias y tiranías en el Caribe. 54. Kepner and Soothil, El imperio del banano, p. 122. 55. That is, three times the amount of its crops in Colombia and Guatemala, and five times the amount of its crops in Panama and Costa Rica (ibid.). 56. The ferocious competition between UFCO, Cuyamel, and Vaccaro did not benefit private producers, because these businesses bought and sold their own harvest. Neither did the country benefit, because each banana company controlled its own district, and complete transport system—railroads, docks, barges (ibid.). 57. By virtue of this contract, the fruit companies committed themselves to maintaining a steam liner between the Atlantic Puerto Barrios and New Orleans and to buying all the local production within certain guidelines. This consolidated the monopoly in the maritime transport that UFCO thereafter managed under the title "Great White Flotilla." 58. Solórzano, "Evolución económica de Guatemala." 59. On November 30,1912, the Guatemalan Central Railway Company, the final contractor of the Central Railroad, was absorbed by the financial interests of the International Railway of Central America (IRCA) along with its 200 miles of track. The Southern Railway, constructed by the state, formed part of this system. In 1925, IRCA, an UFCO subsidiary, controlled a net of 887 miles in Guatemala and El Salvador (ibid.; Kepner and Soothil, El imperio del banano.) 60. Jonathan V. Levin, The Export Economies: Their Pattern of Development in Historical Perspective. 61. For an excellent treatment of the export economy theme, see ibid. 62. Hla Myint, "Los países en desarrollo," chap. 4. 63. The Salvadoran government, in 1925, subsidized IRCA for 11,100 pesos per railroad mile constructed. The Guatemalan subsidies varied between 5,000 and 12,000 pesos for each finished mile (Kepner and Soothil, El imperio del banano, p. 170). 64. When the "Panamanian mold" destroyed the banana crop in the 1930s, the banana companies had to transfer their enormous installations to other regions. In 1935, UFCO abandoned all its Honduran Trujillo Division. "For $150,000, [UFCO] obtained permission to remove 125 kilometers of railroad laid between Puerto Castilla and Iriona and to build railroads and bridges toward the foreign market. Thousands of small towns remained without communication, and the jungle repossessed these lands. The company removed rails from Puerto Castillo to Olanchito, and from Omoa to the Guatemalan border" (ibid., p. 168). 65. "Of its total income, Guatemala received 13 percent by taxing coffee production and 4 percent for banana production. Costa Rica received 6 percent

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Notes to Pages 38-43

of its total income through an export tax on coffee, and only 0.9 percent through an export tax on banana" (ibid., p. 233). 66. Vinelli, La economía de Honduras, p. 11. 67. Although the haciendas followed this proposition in another way, Mintz establishes that they also reflected the owners' aspirations to status. One presentation of the differences between the hacienda and the plantación can be found in Mintz, "La plantación y la reforma agraria." 68. They received an average of 15 percent of the national income, calculated to be 200 million lempiras in 1950. See Vinelli, La economía de Honduras. 69. Mintz, "La plantación y la reforma agraria," p. 69. 70. The commercial plantations, says Mintz, were wrapped in politics from the beginning. "By being superior organizations in areas relatively underdeveloped, and by desiring continuous production, they wanted to assure local stability and access to the market" (ibid., p. 69). 71. See Cardoso and Faletto, Dependencia y desarrollo en América Latina, p. 42. 72. In Honduras, Cuyamel was said to have supported the Liberals, and UFCO supported the Conservatives. In 1924, a disastrous civil war between both political bands was unleashed whose root cause was the legalization of Cuyamel's "clandestine railroad" and the control of the national railroad. In other circumstances, the executive and parliament mirrored the conflict between both businesses, according to Krehm (Democracias y tiranías en el Caribe). When, in 1932, the companies achieved an alliance, political stability with one regime lasted until 1949. 73. The Trujillo Railroad Company, a subsidiary of UFCO, as a consequence of the Panamanian mold [sigatoka), transferred in 1942. In Costa Rica, agreements with UFCO were negotiated in 1930 and 1938. In light of this ultimate agreement, the banana company abandoned its Atlantic coastal plantations and developed new projects on the Pacific Coast. In Guatemala, this transfer was authorized by a 1934 concession in the region of Tiqusate to the Agricultural Company, a subsidiary of UFCO. 3. Weaknesses of the Agro-Export Society and the World Crisis of 1930 1. Frank points out, citing R. Luxemburgo and Sismondi, "While this singular commerce lasted, and the English only demanded that Latin Americans be so friendly as to buy English merchandise with English capital and consume it in its name, the prosperity of English industry seemed dazzling." English capital stimulated consumption and "the English themselves bought and paid for their own merchandise, which was then sent to Latin America, depriving themselves merely of the pleasure of consuming it" André G. Frank, "La inversión extranjera en el subdesarrollo latinoamericano desde la conquista colonial hasta la integración neoimperialista," p. 26). 2. Vernon Dale Wickizer, The World Coffee Economy, p. 139. 3. In the second decade of the present century in Guatemala, German property owners possessed 170 coffee plantations. Since they were larger and better cultivated than those of the Guatemalans (who owned 1,657 plantations), they produced more than 40 percent of the total coffee production (S. A. Mosk,

Notes to Pages 44-50

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" T h e Coffee Economy of Guatemala 1850-1918," in Economía de Guatemala, vol. 6, p. 171). 4. In 1867, cacao as an export product disappeared in Costa Rica, and the chronic scarcity of rice, beans, and corn began. "With the effect of the coffee euphoria," Facio points out, "wheat, cattle, and tobacco were no longer produced" (La economía costarricense, p. 33). 5. Ibid., p. 34. 6. The documentation I consulted, especially documents of the Agriculture Ministry, insists on looking for new sources of economic production "in the production of corn, beans, potatoes, rice, wheat, etc." 7. Celso Furtado, Desarrollo y subdesarrollo, p. 215. 8. The local authorities judged that one important aspect of their role was to combat vagrancy and idleness. "The plantation owners were attended to, as always, in reference to their complaints about the fugitive workers—says an informant in a high government post—and the workers who had received salary advances were punished and returned to their previous bosses or to the new bosses who paid their debts. The departmental and municipal authorities presented all kinds of help to the plantation owners in order to obtain workers" [Memoria de la Secretaría de Fomento del Gobierno de Guatemala, pp. 86 ff). 9. The process was distinct in other coffee-producing countries, such as Brazil, where the labor force was assured through payment with currency. "The European immigrants," says Furtado, "the salaried workers in coffee production, demanded on their entrance that salaries be paid to them in cash and that these salaries be raised sufficiently in order to attract them from their countries of origin. This fact guaranteed that the coffee economy gave birth to a relatively broad and geographically concentrated domestic market" (Furtado, Desarrollo y subdesarrollo, pp. 215-216). 10. Furtado, Formación económica del Brasil, p. 170. 11. Ibid. 12. Aníbal Quijano Obregón, Dependencia, urbanización y cambio social en latinoamérica, p. 5. 13. See chap. 2 here, "Definitive Incorporation into the World Market by Means of Coffee." 14. United Nations, ECLA, El financiamiento externo de América Latina, p. 13, table 14. 15. Las inversiones extranjeras en América Latina, p. 17. An electrical energy business, valued at four million pounds sterling, belonged to Canadian entrepreneurs in El Salvador. 16. According to the South American Journal (London, 1947), 9 million of this investment belonged to Guatemala, 4.5 million to Costa Rica, 1.5 million to El Salvador, and the rest to Honduras and Nicaragua. 17. During the first part of the 1930s, nevertheless, even Costa Rica had an inverse situation, since it sold to the United Kingdom an average of 47 percent of its total exports, and only 39 percent to the United States. But Costa Rica bought 11 percent from England and 52 percent from the United States. This situation changed rapidly in the postwar period. See Anuario Estadístico de 1932. 18. German electrical energy businesses in Guatemala and Costa Rica were

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Notes to Pages 50-52

expropriated because of the First World War and conceded to the Bond and Share Company a subsidy of the American Foreign Power, Inc., monopoly. 19. Rail, air, and sea transport comprised Grace Line and Great White Fleet Company and wire communication, Tropical Radio and All Americas Cable and Radio Company. One should remember that the banana companies in Honduras invested early in the manufacture of beer, soap, and textiles and in wood processing and cattle breeding, all of which appeared in the rest of the Central American countries in the 1950s. 20. "Had the country remained under the exclusive influence of the export group," Furtado comments about the Brazilian situation, "the predominance of liberal ideas would have impeded any industrialization policy" (Formación económica del Brasil, p. 93). 21. The most extraordinary of public expenses was the servicing of the debt by contracting foreign loans at relatively high rates. For example, in the first years of the current century, El Salvador allotted 40 percent of its fiscal income to debt repayment. See Henry Christopher Wallich and John H. Adler, Proyecciones económicas de las finanzas públicas: un estudio experimental en El Salvador, p. 72, table 17. 22. The English debt, after readjustments in 1912 and 1937, was finally canceled in 1953. See Las inversiones extranjeras en América Latina. 23. In 1912, a loan was negotiated for 35 million French francs for the partial construction of one railroad system and for the liquidation of the domestic public debt. This same year Costa Rica received another English loan for 188,720 pounds sterling destined for public works. 24. In 1928, 844,600 pounds sterling were designated to fund back interest payments on the famed English debt. 25. The eighteenth century's indebtedness totaled one million pounds in 1908, and 228,908 pounds in consolidated bonds in 1915, which could not be paid on time (Las inversiones extranjeras en América Latina, p. 105). 26. As a consequence of the discovery of gold in Australia and California, there was a general increase in international prices beginning in the 1850s and lasting for more than twenty years. 27. Added to this, the Pacific War (1879-1985) between Peru, Chile, and Bolivia caused a great quantity of silver to arrive, which was subsequently banished by the adoption of paper money (Castillo, Growth and Integration, p. 46). 28. Concerning historical research on Central American monetary problems, see J. P. Young, Central American Currency and Finance. 29. In successive years the International Bank (1877), the Colombian Bank (1878), the Occidental Bank (1881)—which was the property of landowners in the western zone of the country—the Agriculture and Mortgage Bank (1894), the Bank of Guatemala (1895), and the American Bank (1895) were founded. Some later disappeared. 30. Facio indicates that "the ultimate effective and doctrinaire step of the liberal movement" was the institution of the gold standard in 1900, removing from the Bank of Costa Rica its privilege of being the only issuer. Facio Brenes, Estudio sobre la economía costarricense, p. 52. 31. During a good part of the past century, El Salvadoran and Nicaraguan

Notes to Pages 53-58

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currency circulated legally and clandestinely, but abundantly, in Guatemala, Peru, and Chile. Later, through the banana plantations7 influence, the dollar was de facto the national currency. 32. In light of the fact that the dollar was accepted by the public in 1919, its circulation was legalized, fixing a rate of two pesos to the dollar, which signified the adoption of the gold-based currency. But the dollar was only utilized on the Atlantic Coast and in the fruit enclave and was almost nonexistent in Tegucigalpa and the interior. See Young, "Reforma financiera en Honduras," p. 49; Μ. Tosco et al., Deuda pública de Honduras; and the first report of the Central Bank," El sistema monetario de Honduras hasta 1950." 33. To convert the currency, $1.5 million were lent to U.S. bankers Brown Brothers and Company, and J. W. Seligman and Company. 34. Cuadra Cea, Aspectos históricos de la moneda en Nicaragua. 35. In 1880, the Banco Internacional was established, the Banco Particular in 1885, the Banco Occidental in 1889, and the Banco Agrícola Comercial in 1895. These banks operated as issuing banks until 1933, when the Banco Comercial organized as the Banco Central de Reserva, a private corporation that centralized the issuance of printed currency. 36. Young, Central American Currency and Finance, p. 129. Young refers here to the first years of the twentieth century. 37. An important gain for labor in the 1950s was the prohibition of the partial or total payment of salaries in the countryside with these informal "documents." Postwar labor legislation took charge of this abnormal and longstanding situation, which was common in the seignorial hacienda system. 38. In Honduras, a "parallel" banking system grew—the Atlantic Bank, founded in 1913, property of the Standard Fruit and Steamship Company, and its six subsidiaries on the Atlantic Coast (Tosco et al., Deuda pública de Honduras, p. 17). 39. Young, Central American Currency and Finance, pp. 150-151; and Solórzano, "Evolución económica de Guatemala," p. 183. 40. The support for circulating currency decreased in the first two decades of the twentieth century. In Guatemala, in 1921, the metallic reserve was less than 0.1 percent of the total. Gold value decreased, and for every 15 cents at the beginning of the century, only 1.5 cents remained in 1921 (Young, Central American Currency and Finance, p. 123). 4. The Difficult Transition: World Depression and Postwar Growth 1. The increases in coffee prices, nevertheless, produced a relative decrease in market participation in terms of volume and prices. Coffee never recovered the per capita production of its golden era. In the five-year period 1909-1913,209 million pounds of coffee were sold overseas; 1919-1923, 247 million pounds; 1924-1928, 274 million pounds,· 1929-1933, 291 million pounds. 2. Between 1924 and 1928, Central America averaged 54 percent of world banana exports,· from 1934 to 1938, the percentage dropped to 47.5, and from 1953 to 1957, it fell even more, to 36.7 percent of the total (J. Wolff, "Evolución y estructura del mercado bananero mundial," p. 9). 3. Concerning this situation, the most complex history on Latin America

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Notes to Pages 58-62

indicates that, "a little later, Sandino was assassinated. Even more important was that the National Guard would have been armed and reorganized during the struggle with the occupying force. Thanks to the military superiority of this force, its commandant, General Anastasio Somoza, maintained until his death a dominant role in Nicaraguan politics, and the United States perpetuated its hegemony through this more direct and less scandalous medium" (Tulio Halperín Donghi, Historia contemporánea de América Latina, p. 345. 4. Workers, openly committed to the political struggle, resolved the election of the landowner Quiñones in 1923. Important symptoms of social and political renewal accompanied his election. The Red League, which grouped workers and campesinos, was one of the better-defined class organizations of this period in Central America. The 1930s crisis accented this process. 5. Costa Rica, Anuario estadístico del año 1932. 6. The average price per 46-kilo sack was reduced to 120.52 colones in the 1928-1929 harvest and to 53.6 colones in the 1931-1932 harvest. Foreign commerce contracted some 45 percent between 1929-1932. 7. Wallich and Adler, Proyecciones económicas de las finanzas públicas, pp. 39-40. 8. In 1933, coffee exports dropped to seventy-eight million pounds, which, added to the price reduction, lowered income almost 60 percent for the first half of the 1930s. The Second World War impeded the recuperation that began in 1938. See The World's Coffee, p. 173. 9. I did not investigate the deterioration of the region's trade terms. I have data for El Salvador that constitute an index of similar happenings in the rest of Central America. Utilizing 1934's prices as base 100, in 1928, it was 197 points, 78 in 1932, 92 in 1938, 84 in 1940, and 138 in 1945. See Wallich and Adler, Proyecciones económicas de las finanzas públicas, pp. 39-41 and table 5. 10. R. Mondragón C , Tendencias del desarrollo económico 1925-1952, pp. 3-5. 11. Seventy-five percent of the arable land was utilized since the 1930s. The pressure on the land occasioned the massive transfer of Salvadorans to neighboring countries. Some 40 percent of the banana workers in Honduras were Salvadorans in the 1930s. 12. "It was a mixture of an uprising of Indians and an assault of hungry campesinos sprinkled here and there with the disguised sophistication of communism," says W. Krehm. "During three days the campesinos savored their triumph. The Indians fought like lions. They charged the machine guns with machetes. Before the U.S. ship Rochester anchored in Acajutla, General José Tomás Calderón was capable of assuring that help was unnecessary and he joked that he had liquidated 4,800 Bolsheviks" (Democracias y tiranías en el Caribe, p. 25). 13. State revenue dropped from 15.4 million earned between 1928 and 1929, to 8.2 million in 1933-1934, and experienced a minimal increase during the next ten years, until 1944. See table 15 in J. H. Adler, E. R. Schlesinger, and E. C. Olson, Las finanzas públicas y el desarrollo económico de Guatemala, p. 62. 14. In 1930, the Salvadoran state collected 21.4 million colones (with each colón equivalent to 0.4 dollars); two years later, it collected 14.8 million. The number climbed to 26.1 million colones in 1944 (Wallich and Adler, Proyecciones

Notes to Pages 62-69

167

económicas de las finanzas públicas, p. 47, table 8. 15. The IDC protected the interests of the large property owners by looking to reduce the costs of transport and obtain reductions in taxes, as in the nationalization of maritime insurance. The upheaval caused by the Second World War necessitated the creation of the Office of Coffee Quotas (Oficina de Cuotas de Café) in 1940, which controlled all domestic and foreign sales of coffee. 16. See Bert Hoselitz, "El desarrollo industrial de El Salvador: informe de la misión de las Naciones Unidas." 17. In the 1920s, Honduras and Nicaragua did not compete in the U.S. capital market. Costa Rica owed $8.8 million, Guatemala $2.2 million, and El Salvador, $12.6 million (nominal value) (Las inversiones extranjeras en América Latina, p. 173 and table ΧΠ). 18. Costa Rica owed 1.7 million pounds sterling; Guatemala, 1.5 million,· Honduras, 2.8 million,· Nicaragua, 0.4 million; and El Salvador, 0.9 million at face value (ibid., table ΧΠΙ). 19. In 1929, the total amount of U.S. investment was $207.2 million; it had dropped to $121.3 million by 1935, $149.2 million in 1940, and $254.1 million in 1950 (United Nations, El financiamiento externo de América Latina, pp. 3334, table 29). 20. The average exports for 1934-1938 were 311 million pounds of coffee. In the following five-year period, 1934-1939, the average diminished to 296 million pounds. In 1944,316 million pounds of coffee were exported and prices began to rise. See the Appendix. 21. J. Medina Echavarría, Consideraciones sociológicas del desarrollo económico de América Latina, pp. 88-94. 22. As a tendency, one can perceive the migration in stages, proportionally greater to the smaller urban centers. Costa Rica, which until not too long ago, was the most urbanized country, increased its urban population from 24 percent in 1950 to 34 percent in 1964. Nicaragua, on the other hand, increased its urban population only some 5 percent in ten years and the countryside absorbed all of the population born during the period. See CIES, Desarrollo económico y social de Nicaragua, p. 11. 23. Such was the situation in Guatemala between 1950 and 1954, and, briefly, in Honduras and El Salvador. In Costa Rica, a free union movement existed beginning in 1940, with notable gains and losses. 24. See next section of this chapter. 25. In two years, 1952-1954, the Arbenz government expropriated land from national and foreign property owners to benefit almost one hundred thousand campesinos. Filled with fear, the country's property owners, including the budding industrial sector, favored and supported by U.S. help, precipitated a governmental change that pushed the process backward. 26. The movement headed by Dr. Romero in El Salvador, a new liberalism that carried Dr. Villeda Morales to Honduras's presidency, and the political organizations that sustained Arévalo and Arbenz in Guatemala formed part of these popular movements. There does not exist, however, any investigation or interpretation of these events that might recapture the experience at the Central American level and that attempts to fashion itself in provisional and general terms.

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Notes to Pages 69-81

27. This alludes to the "civil war" of 1948, headed by J. Figueres, which reorganized the electoral system, nationalized the banks, and renegotiated the agreements with the fruit companies. 28. J. Medina Echavarría, Consideraciones sociológicas, p. 85. 29. CIES, Desarrollo económico y social de Nicaragua, p. 11. 30. Nicaragua's coffee production as a proportion of the world total, therefore, was never greater than 1.0 percent and decreased beginning in 1940. 31. United Nations, Análisis y proyecciones del desarrollo económico, Nicaragua, pp. 2-3. 32. Ibid., p. 2. 33. From 1945 to 1963, the annual average rate of GDP growth was 4 percent, but population growth was greater than 3 percent. Between 1945 and 1953, there was a period of expansion in productive activity, but beginning in 1953, productivity visibly contracted. See United Nations, "Análisis y proyecciones del desarrollo económico, IX," pp. 2, 14. 34. Cotton production climbed to 12,600 tons in 1950; to 285,400 tons in 1964; and cotton seed from 21,100 tons in 1950 to 469,300 in 1964 (United Nations, Evaluación de la integración económica centroamericana, statistical appendix, C/CN/.12/CCE/Rev.l/Add. 1). 35. For Costa Rica, government donations equaled 44.1 percent; for Guatemala, 43.6 percent; El Salvador, 34.4 percent; Nicaragua, 32 percent; and Honduras, 27.1 percent. This income went to the public sector, "since its markets were restricted in order to attract private funds and its capacity to reimburse was very limited" (United Nations, El financiamiento externo de América Latina, p. 133). 36. In the 1950s, these plantations comprised 16,000 hectares of bananas, 11,300 of cacao, 4,000 of abaca, and 4,000 of plants producing palm oil. 37. In 1952, UFCO possessed more than 15,000 hectares of banana plantations in Honduras, 2,800 hectares of abaca, and 2,600 of African palm. 38. García, Reforma agraria y economía empresarial, p. 93. 39. Between 1950 and 1966, the annual average growth of the farming sector was 3.8 percent, while the rest of the sectors grew at an annual rate of 5.7 percent. In this seventeen-year lapse, this sector decreased its participation in total production from 37.3 percent to 29.7 percent for all the Central American countries. 40. The coffee hacienda landowners stimulated social integration and regional colonization, but did not free themselves from the domestic structure of a seignorial foundation—the colonato, the sharecropper, and semicoerced labor during harvest—a system of submission and personal control produced by the combination of physical isolation and patriarchalism and the coexistence of two agricultural forms based on the minifundio-latifundio. 41. "There are three principal classes of farms (granjas) that by themselves or in combination characterize the distinct systems of land tenancy: (a) subfamilial units that include sufficient land for a typical campesino family to occupy productively,· (b) family units whose surface area is sufficient to provide employment for the family without having to employ a foreign work force; and (c) the multifamily unit whose surface area is sufficient and requires employment of various families (Solón Barraclough, Notas sobre tenencia de la tierra en

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América Latina, p. 64). The sizes vary from fewer than 10 manzanas in the first case to more than 200 manzanas in El Salvador, 500 in Honduras, Costa Rica, and Nicaragua, and 1,280 in Guatemala. See CIDA, Tenencia de la tierra y desarrollo socieconómico del sector agrícola, p. 54. 42. The total of 971,000 agricultural operations could represent a similar number of families, especially for calculating population data. Therefore, it is not exaggerated, but a rather conservative count (CIDA, Tenencia de la tierra y desarrollo rural en Centroamérica, no. 16, p. 44). 43. If one considers that minifundios multiplied in zones of erosion and poor topography, intensive land use exhausted the soils as there were no new or uncultivated lands. Contrast this with the virtual squandering of resources on the large properties, which had better water and topographical conditions. On the large properties, for each manzana cultivated, 1.32 manzanas were squandered (ibid., p. 49). 44. We must take into account the total area of the farms, not only the amount of cultivated land. In the case of cultivated land, it is obvious that productivity is directly proportional to size, but no one would compare the gross value of the production of a manzana of coffee to that of one manzana of corn. 45. The large holdings' production constituted scarcely 28 percent of the country's production (Guatemala, Dirección General de Censos y Estadísticas, Primer Censo Agropecuario). 46. Export crops included cotton, coffee, sugarcane, and bananas. 47. Domestic crops included corn, beans, rice, yucca, millet, onions, potatoes, and fruits. 48. R. Beals, "Social Stratification in Latin America." Some classifications are criticized by H. Flores Alvarado in La estructura social guatemalteca, esp. chaps. 7 and 8. 49. In the case of Guatemala especially, interethnic, Ladino-indigenous relations have been seen as relations of caste. See M. Tumin, Caste in a Peasant Society, pp. 250-272; and L. A. Suslow, Aspects of Social Reform in Guatemala. 50. It is calculated that, by 1967,96 percent of the arable land will be used for some type of agriculture or grazing, which would indicate the near maximum utilization of disposable land. 51. Table 11 classifies the population according to forms of tenancy. Nevertheless, it constitutes an acceptable point of departure in this analysis of rural stratification. 52. Migration—or expulsion—to the city is still very limited in Central America. Nevertheless, this phenomenon does not represent a transfer of the actively liberated population but an exodus of the actively avoided population of the rural structure (García, Reforma agraria y economía empresarial, p. 226). 53. The latifundio structure (which includes several categories of land atomization) is predominant in countries with dense indigenous populations such as Ecuador and Peru. Otherwise, the minifundio might be considered the symbol of traditional structure. The difference between the average area of the latifundio/ minifundio is 270 times in Argentina and 1.732 in Guatemala. Celso Furtado, La economía latinoamericana desde la conquista ibérica hasta la revolución cubana, p. 74. 54. García has established a substantial difference between a local market and

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Notes to Pages 91-92

a national market system. In the former, archaic forms of classification and handling of products, weights, measures, qualities, and prices exist; in the latter, the rational traits of a market economy, such as the decimal system and money counting and measuring, classification and typification of products, and supply and demand relations, exist (García, Reforma agraria y economía empresarial, p. 100,n.1). 55. It deals with an intensely slow transformation and, given the nature of rural society, the political-national structure, and the relations of domestic colonialism, these semiservile vestiges seem to endure. Their vitality could be altered only by a national political renovation and a modification of large properties. 56. The comunero characterizes the pre-Columbian campesino (CIDA, Tenencia de la tierra y desarrollo rural, p. 175). 57. In Guatemala, there were 34,964 operations like the primitive community, according to the work of CIDA (ibid., p. 107). Using 1950 census data, Monteforte notes the existence of 250,000 people living communally (Guatemala, Monografía sociológica, p. 273). 58. Barraclough, Notas sobre tenencia de la tierra, pp. 118-119. 59. Schmidt calculates that 237,000 peons migrated to the coffee farms, 150,000 to cotton farms, and 21,000 to sugarcane farms in the periods of greatest demand. See Lester Schmidt, The Role of Migratory Labor in the Economic Development of Guatemala, table 24. Flores Alvarado, using information obtained in 138 Highland communities, calculated an average of 160,689 people (34,810 of whom were women accompanied by 29,951 children) (H. Flores Alvarado, Las migraciones indígenas internas, p. 34). 60. Ν. Porras Mendieta, Tenencia de la tierra en Nicaragua, p. 78. This author points to a minimum of 63,376 migrants, and 120,344 maximum. 61. In El Salvador, there are more than half a million landless campesinos and 100,000 owners of small plots with less than one hectare. The most important migration moved in the direction of Honduras and Guatemala. See Suzana Prates, Algunas consideraciones sobre el proceso de urbanización en El Salvador, pp. 34, 41; and the third Censo nacional de población. 62. "The cases studied by CIDA indicate that, in Guatemala, in average terms, a member of each campesino family works part of the year in another place. Half of the income of the campesino families from the Highlands comes from labor outside of the home" (Barraclough, Notas sobre tenencia de la tierra, p. 119). 63. The recruiter was an agent of an agricultural entrepreneur who recruited a labor force in advance, assuring it through loans or through signing simple papers. In Guatemala, where the contracting of Indians preserves the flavor of forced work even today, advances of money may be the most common resource. In Nicaragua, it is called socorro (relief), and in El Salvador adeudo (debit). 64. If the labor laws that protect labor agreements had simply been upheld, if the recruiter had not recruited through the uses of chicanery, violence, and fraud, and if the overseers had paid just salaries, peons would have improved their salary some 80 percent. 65. Milpa is the popular term for the subsistence plots [pegujal, acuario,

Notes to Pages 93-98

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huatal, etc.) where the campesino generally produces indispensable corn for the family's nourishment. 66. In Costa Rica, colono also refers to those who are part of an agricultural colony. 67. Torres Rivas, Las clases sociales en Guatemala, p. 45. 68. In his excellent work, García adds that confusion arises in the qualification of colono due to their "plurality of roles, activities, and income: the free gift, the small presents, etc., mask or modify the servile physiognomy of the work obligations" (García, Reforma agraria y economía empresarial, p. 59). 69. In 1953, two U.S. banana companies in Honduras employed thirty-five thousand agricultural workers (numbers that decreased notably after the great general strike). The next tally showed twenty-three thousand workers for Guatemala's UFCO, and more than twenty thousand in Costa Rica. These numbers varied, diminishing in Honduras and Guatemala and increasing in Costa Rica. 70. CIDA/CAIS, Las fincas nacionales de Guatemala. 71. Relative, but contradictory, numbers on income found in the Committee of Nine, Evaluación del plan de El Salvador para el desarrollo económico y social 1965/1969, p. 73; United States, Department of Commerce, Basic Data on the Economy of El Salvador, p. 7. 72. H. Walter, La vivienda en Honduras p. 16. 73. In 1950, of all farms counted in the census, owners lived on only 52 percent; in 1960-1962, only 45 percent of owners (except in Guatemala), lived on their farms. In Nicaragua, the 60 percent of the farms in the hands of the property owners dropped to 38 percent in nine years. Today, landless workers constitute 38 percent of the work force and 55 percent of the producers fall within the "captive" economies of the latifundio system: sharecropper, precarious worker, colono, etc. 74. The number of landless campesinos in El Salvador jumped in five years, from 490,000 to 574,000. The concentration of land in haciendas of more than 100 hectares increased from approximately 570,000 to 718,000 hectares, according to the 1950 and the 1961 censuses. In Guatemala, the smaller plots of 5 manzanas increased from 56.1 percent to 74.9 percent between 1950 and 1964 (data from the respective censuses), and the medium-sized properties (media) greater than 10 but fewer than 100 caballerías seem to have increased. The 1964 census data, as a test, are deficient. 5. The New Option: Central American Economic Integration 1. General Justo Rufino Barrios, Guatemala's Liberal caudillo, commanded the most significant military intervention, supported by Presidents Zaldívar of El Salvador and Bográn of Honduras. Without Nicaragua's and Costa Rica's approval, Barrios proclaimed Central America's unification on February 28, 1885, assumed the leadership of the republic's military, and summoned the people to elections of the Constituent Assembly. Barrios's efforts precipitated a civil war in which he was killed in action. 2. Organización de Estados Centroamericanos, "Carta constitutiva."

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Notes to Pages 98-105

3. Remember that the European Common Market was conceived as a result of political decisions and considerations and achieved through political channels. In the European Economic Community, the institutional-state structure plays an important role. See J. E. Meade, H. H. Liesner, and S. J. Wells, Case Studies in European Economic Union; and Walter Hallstein, La unificación de Europa. 4. Since 1951, ECLA has published documents that analyze the difficulties related to economic growth and some theoretical solutions. See Estudio económico de América Latina, Estudio del comercio interlatinoamericano y sus perspectivas, and El mercado común latinoamericano. The documents on Central America are even more numerous; a list appears in idem, La CEPAL y el análisis del desarrollo latinoamericano. 5. M. S. Wionczek, "Estados Unidos ante la integración económica de América Latina," pp. 411-413. 6. This resolution, approved in the fourth period of ECLA's sessions, created the Committee of Central American Economic Cooperation, made up of the region's economic ministers. Although modest in its initial objectives, the committee's goal of integration was more than twenty years in the making. 7. Signed in Managua, Nicaragua, in December 1960, the treaty was signed by all Central American countries with the exception of Costa Rica, which finally signed in 1962. 8. Later, other institutions were created to complement the integration of existing bodies. The Central American Bank of Economic Integration, in Honduras, supported by the regional governments, by BID, and by some European banks,· the Central American Institute of Research and Industrial Technology; the Higher School of Public Administration,· the Monetary Coucil, and many more. 9. With this preliminary hypothesis, I attempt to point only to very general tendencies that emerge momentarily and partially in the region. 10. Direct U.S. investment toward the end of the nineteenth century (1897) reached twelve million dollars in the banana plantations. At the end of the 1940s, U.S. investment slowly moved toward fuel distribution, petroleum exploration, and other services, and in the 1960s, toward manufacturing. Private and public loans rose from 32 percent of total U.S. investment in 1955 to 65 percent in 1963. 11. Beginning in 1948, successive governments created INSAFOP, passed protectionist trade laws, and stimulated industry. The Hydroelectric Company of Río Lempa (CEL) and Lake Guija were created. The port of Acajutla was modernized and the coastal highway was constructed. In 1962, BIRF reported that El Salvador was an example of industrial growth, and thus a wave of Salvadoran exports flooded foreign markets. 12. See ECLA, "Análisis y proyecciones del desarrollo económico," pp. 4-5. 13. Cuenca believes that a true fusion of the coffee oligarchy's capital with that of the industrial bourgeoisie took place. But this was not so. The social origins of capital were not as important as was its strategic location. This was a clear process of modernization. "One can suppose that in 1960 the conduct of the landowning bourgeoisie in light of the industrialization of El Salvador has been modified. Agrarian capitalists and other businesses increasingly participate in industry and thus erase bit by bit the dividing lines between agrarian and

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industrial capitalists'' (Abel Cuenca, El Salvador, una democracia cafetalera, pp. 163-164, and esp. chap. 7). 14. See Aaron Segal, "La integración económica centroamericana"; and Castillo, Growth and Integration, p. 146. 15. The transportation sector, insurance companies, publicity firms, merchants, textile workers, bankers, hotel managers, tourist agencies, etc., have "federated" through associations or chambers. 16. The federation of the Central American Industrial Chambers was the first association admitted as a consultant to the executive branch of SIECA. In its declaration, the powerful federation asked "that FECAICA be converted into a consulting organization of SIECA." 17. The Honduran government decided in December 1970 to organize its foreign trade on the basis of bilateral agreements and to withdraw from the process for all practical purposes. The Honduran-Salvadoran rivalry damaged the process of integration beginning in 1968. 18. In the first edition of this book, I predicted the substitution of horizontal conflicts for other "vertical" problems. That is, I foresaw the confrontation between traditional landowners and industrialists or between import merchants and national producers at the Central American level, not the local level. These problems would take place in the third phase of the common market, when the important problem would be to increase the multinational effort to integrate the five economies decisively. 19. The noticeable increase in air transport facilities enabled the metropolitan centers of Mexico City and Miami to supply Central America's elite with consumer products. Imported products became a status symbol for the middle class and continue to be relatively accessible through tourism. 20. The constitution of the Central American Defense Council and its purposes provide clear evidence of the philosophy of development. See the "Declaración enunciada al suscribirse el convenio constitutivo en Guatemala," December 14,1963. According to Article 25 of this agreement, the council would be a consulting agency of ODECA. 21. "Technicians and businesspeople defended the common market's successes precisely because 'politicians' and 'union leaders' had no voice whatsoever. Politicians, they said, hinder integration and unions demands block development of the common market" (F. Villagrán Kramer, Integración económica centroamericana, p. 295). 22. The affiliated unions of ORIT have succeeded in creating a Central American Union Council whose weak representation was finally accepted as a consulting organization in the Council of Work and Social Security of ODECA. See ibid., pp. 300-320. 23. These differences were pointed out in the Letter of Havana elaborated by the Conference of United Nations on Commerce and Employment in 1958. This document preceded the GATT treaty, "in whose framework all the processes of regional economic integration unraveled" (Antonio Carrillo Flores, "La integración económica latinoamericana y los acuerdos de Punta de Este"; see also Villagrán Kramer, Integración económica, p. 35). 24. As a consequence of the "100-hour war" between Honduras and El Salvador in 1969, trade was reduced by 3.6 percent, interrupting a long period of

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Notes to Pages 110-114

economic growth sustained by intrazonal commerce and representing an annual average of 20 percent. In 1969, trade reached $249.1 million. The largest exporters were Guatemala (34.7 percent), El Salvador (28.8 percent), Costa Rica (14.5 percent), Nicaragua (12.4 percent), and Honduras (9.6 percent). 25. CEPAL, Boletín económico de América Latina (October 1967); and Estudio económico de América Latina (1965, 1966, and 1967). 26. Between 1950 and 1955, Nicaragua's economy grew 8.3 percent, but in the following five years the rate dropped to 2.3 percent, a drop linked to cotton prices. See Nicaragua, Evaluación del plan de desarrollo. Informe presentado por el Comité de los Nueve, p. 76. 27. I have developed these ideas in "Desarrollo y dependencia en Centroamérica." 28. Between 1950 and 1962, industry employed only 10 percent of the new labor force (Costa Rica, Evaluación del plan de desarrollo económico y social 1965-1969} see also reports on Guatemala, El Salvador, Honduras, Nicaragua, and Costa Rica). 29. The industrial population in Guatemala grew at an annual rate of 1.5 percent and the urban population at a rate of 5.1 percent between 1950 and 1965. One of seven people found work in the city and one in three in the countryside. 30. The rate of industrial growth was 7.2 percent between 1950 and 1966, and the work force in this sector grew 2.7 percent, while the middle-class labor force grew 4.1 percent. 31. Evaluación del plan de El Salvador, table Π-16, p. 73. 32. "Basic Data on the Economy of El Salvador," p. 7. 33. Ibid. 34. SIECA, Quinto compendio estadístico centroamericano, p. 89. 35. Honduras: evaluación del plan de desarrollo económico y social 19651969, p. 49. 36. Guatemala: evaluación del plan de desarrollo económico y social 19651969, p. 58. 37. Between 1957 and 1962, the prices of U.S. industrial products increased 4 percent annually and the price of coffee dropped 40 percent (A. Rochac, "El café ante una nueva crisis?" p. 3). 38. Centroamérica: análisis del sector externo y de su relación con el desarrollo económico, p. 19. 39. Detailed information by year and country on the deterioration of the exchange rate appears in Torres Rivas, "Desarrollo y dependencia," p. 241. In this period, Guatemala lost $609.5 million; Costa Rica, $331.4 million; El Salvador, $321.8 million,· Nicaragua, $131.1 million; and Honduras, $5 million. 40. H. Johnson, "Direct Foreign Investment: A Survey of the Issues," p. 817. 41. Furtado, La economía latinoamericana, pp. 232-233. 42. For example, wire products (nails, rivets, etc.) reached 42,000 tons in 1965; the demand was only 35,000 tons in 1969. The demand for radios and televisions doubled between 1953 and 1964 and domestic production tripled. In the intermediate branches, industrial production rose 127 percent and demand some 88 percent. The demand for nonmetallic minerals grew some 41 percent during this same time period and domestic production increased some 73 percent (Centroamérica: análisis del sector externo, p. ΙΠ:9).

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43. Public savings, in relation to total investment, dropped from 48 percent in 1960 to 31.6 percent in 1966. 44. See Ricardo Cappeletti, "Características y requisitos del proceso de integración entre un conjunto de naciones subdesarrolladas," p. 2. 45. A. Etzioni, "Political Unification," cited in ibid. 46. See Cardoso and Faletto, Dependencia y desarrollo en América Latina, chap. 5, esp. p. 162. 6. In the Eye of the Storm, 1979-1991 1. M. E. Gallardo and R. López, Centroamérica: la crisis en cifras, table 1.8, p. 158. 2. Edelberto Torres Rivas, "El sistema político y la transición a la democracia en Centroamérica," p. 27. 3. International Development Bank, Progreso económico y social en América Latina, statistical appendix. 4. A. Guerra Borges, Reestructuración del sistema centroamericano de integración, bases y propuestas, p. 7. This is the most successful integration through past experiences and the basis for future proposals. 5. ICADIS, "Los hechos que formaron la crisis." 6. Perhaps the strength of Sandinismo grew out of its confrontation with forces internally divided and very dependent on U.S. resources and orders. 7. It has been widely reported that General Somoza headed one of the three large business coalitions in Nicaragua, through investment in agro-exports, the food industry, import trade, insurance, finance, and so on.

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Index

Abaca, 78 Agrarian reform, 10, 15, 17, 20, 69, 87, 129 Agriculture: agro-export bourgeoisie, 89, 99; agro-industry, 13; and capitalism, 25, 79; church lands and agricultural production, 15; in colonial period, 2; commercial, 8; domestic-oriented, 44, 98; ejidos, 16; export-oriented, 19, 21, 80, 93, 102, 105; investments in, 90; Ministry of, 62; modern, in Nicaragua and Costa Rica, 90; modernization of, ix; and peons, 21; per capita income from, in Honduras, 113; population involved in, 83, 120; subsistence, 24; underconsumption of goods from, 74; and U.S. investment, 50 Aguilar, Eugenio, 15 Alajuela, Costa Rica, 5, 130 Alliance in Development (AID), 77,123 Amsterdam, 10 Anarchy, 3, 20, 28 Andino, Tiburcio Carias, 65 Antivagrancy laws, xii, 21, 61 Aparcero (sharecropper), 89 Arbenz, Jacobo, ix, 77, 167n.25 Area de Propiedad de Pueblo, 129 Arevalismo, 66 Argentina, 117, 128, 130 Arias, Oscar, 127, 130 Army, 8, 131

Asociación Cafetalera de El Salvador, 62 Aurelio, Marco, 20 Bananas: ix, 27; and agricultural workers, 94; compared to coffee industry, 39; and concentration of land, 82; and consolidation, 43; contractors and buyers of, 13; in Costa Rica, xviii, 33, 64; and depression, 60; and development of country's infrastructure, 36; in El Salvador, 84; and emergence of enclave, 30, 38; and exportoriented agriculture, 19, 113; foreign-controlled, 20; in Guatemala, xviii, 34, 64, 84; and hacendados, 31; in Honduras, xviii, 20, 33, 74; and intercompany strife, 58; and labor force, xii; and nation formation, 31, 39; in Nicaragua, 73; and Panamanian mold, 161n.64; and political autonomy, 31; production of, 78; relocations of plantations in Guatemala and Costa Rica, 64; and role of United States, 30; speculation in, 54; and the state, 31; strategic importance of, 31; taxes on, 37, 126; and unions, 58; and Vaccaro brothers, 34. See also United Fruit Company Banco Hipotecario, 62 Banking capital, 13, 25

184 Bank of London, 49, 53 Banks, 7, 16, 32, 49, 53, 62, 72 Barrios, Gerardo, 15 Barrios, Justo Rufino, 14 Belize, 5 BID. See Interamerican Development Bank Bimetalism, 52 Bipartisan Kissinger Commission, 124 BIRF. See International Bank for Reconstruction and Development Black slaves, 157n.23 Bolivia, 130 Bonds, 50, 63, 105 Bourgeoisie: agro-export, 99; coffee, 14, 18, 27-28, 75, 88; financial, 104; industrial, 107; rural, 16, 81, 88-89 Boycotts, 99, 129 Brazil: and coffee, 12; effect on Central American coffee, of, 43; Grupo de Apoyo, of, 128, 130; and price crisis, 13; and import substitution, 101; and 1929 collapse, 45; and 1937 price war, 60, 62; and phases of development, 117 Bush, George, 123 Cabrera, Estrada, 56 CACM. See Central American Common Market Callejas, Rafael Leonardo, 127 Campesinos: agrarian reform, 16; class and culture of, 85-87; coerced labor of, 9, 21-22, 24-25; and coffee and bananas, 82; in Costa Rica, 61; economy of, 9-10, 80, 90-96; effects of depression on, 59; and ejidos, 16; in El Salvador and Guatemala in the 1980s, 119; in Guatemala, 61; and labor, 1718, 45; and lack of political organization, 44; landlessness of, 86, 95, 171n.74; as minifundistas, 17, 26, 89; and modernization 120; movements of, 58, 61; murder of,

History and Society in Central America 125; 1932 uprising in El Salvador of, 60-61; and Sandino, 61; standard of living of, 74; and subsistence economy, 19, 21, 59, 157n.24; un- and underemployment of, 43, 60-61, 80, 83; wages of, 46 Capitalism: 11, 12, 13, 17, 21-27, 47-48, 57, 79-81, 89-90, 95, 101102, 114, 128 Captaincy-general of Guatemala, 1 Carazo, Rodrigo, 127 Caribbean Basin Initiative, 124 Carrera, Rafael, 8 Carrillo, Braulio, 17 Cartago, Costa Rica, 5, 17, 97 Carter, Jimmy, 127 Castillo, Carlos Manuel, 20, 52 Catholic church: clergy of, 4; disentailment of goods of, 2; in Guatemala, 8, 15; high clergy of, 4; lands of, expropriated, 15; in Nicaragua, 19; power of, curbed, 5; and reestablishment of primogeniture and tithes, 8, 15 Cattle: 10; beef, xix; in Nicaragua, 73; produced for national market, 10 Caudillo, 4, 8, 14, 16, 18, 19 Central American Common Market (CACM): ix, 77, 97; absence of reform, in creation of, 110; benefits of, 106; contradictions of, 116; and domestic development, 102; and goal of development, 99, 105, 109; Honduras's retreat from, 107; and industrialization policy, 104, 113; and 1968 war between El Salvador and Honduras, 109; and popular consumption, 114; and traditional exports, 113; and U.S. policy, 99 Central American Court of Justice, 97 Central American Improvement Company (CAIC), 34 Cerezo, Vinicio, 126, 130 Christian Democrats, 126

Index Civil war: and dissolution of federal covenant, xvii; following separation from peninsular rule, 3; lack of, in Costa Rica, 17; in Nicaragua, following 1924 U.S. withdrawal, 58; results of, in Guatemala and El Salvador, 125, 130 Clayton-Bulwar Treaty, 5, 48 Clergy. See Catholic church Cacao, 1, 6, 10, 17, 21, 23, 26, 44, 78 Cochineal, 1,6, 9, 10, 26, 156n.22 Coffee: xii, xviii, 5, 10-11; and bimetalism, 52-54; bourgeoisie, 14; Brazilian, 12; and British market, 18; and CACM, 99; as catalyst for modernization, 15; compared to bananas, 37-39; concentration of land for, 82-84; and consolidation of Costa Rican nation-state, 18; decreased production of, 62; depression, 5960; in El Salvador, 15; and exportled growth, 44, 80; first phase of, 43; and foreigners, xii; in Guatemala, 15; income generated by, 72; industrialization, 105, 119; and labor, 45-46, 89-96; and liberal reforms, 14-20; and modernizing entrepreneurs, 88; monopolization of land for, 80; and national economy, 56; oligarchy, xviii, 13, 20-25, 45-47, 51, 57, 70, 89, 103; prices, 43-44, 51, 59, 72; and social and political framework, 25-30; shipping of, 37; small and medium-sized properties, 17; sold to Europe, 64; sold to United States, 64; and state protection, 26; in world market, 12-14 Colombia, 3, 128, 130 Colonato, 79, 93. See also Mozo colono Colonel Urtecho, José, 3 Communal lands (ejidos), 3, 15, 21, 24,85 Company stores, xiii, 35 Conservatives, 2, 8, 15, 19, 28, 58, 127

185 Consulado de Comercio, 8 Contadora, 128, 130 Contractors, 13 Contras, 128 Corn, 1, 92 Costa Rica: Alajuela, 5; annual national product of, 72; and bananas, 13, 30, 33, 37, 64, 78; benefits of, from CACM, 106; and bimetalism, 52; and bonds, 50-51; British capital in, 49; and cacao, 23; campesinos in, 22; Cartago, 5; and Central American Court of Justice, 97; crop production in, 84; and debt, 7, 63, 72, 113; as democratic exception to the rule, 57, 65; demography of, 112, 119; as deviation from authoritarian model, xix; as distinct from Guatemala, 9, 28; and 1897 depression, 44; exports of, 59; failed attempts by, to establish bank, 26; and Figuerismo, 66; foreign settlers in, 27; and GATT, 123; GDP of, 111; investment incentives of, for bananas, xii; land concentration in, 81, 84; liberal reform in, 17-18; and 1980s recession, 124; and Pan American Highway, 64; per capita income in, 121; petroleum exploration by, 77; politics in, 127-128; and President Braulio Carrillo, 17; and railroad, 37; social stratification in, 26, 85; sharecropping in, 90; strikes in, in 1930s, 61; Tinoco brothers' coup in, 57; trade routes of, 3; unions in, 109; workers in, 62. See also United Fruit Company Costa Rican Railway Company, 33 Cotton, xix, 6, 10, 14 , 44, 63, 73-78, 78, 80-84, 92-94, 105 Coups d'état, 26, 57, 126 Creoles, 1, 8, 9, 14, 79 Crown, 2-3 Cuba, 48, 58 Cuenca, Abel, 105

186 Cuyamel Fruit Company, 34, 58 D'Aubuisson, Roberto, 126 Debt: 4-7, 43, 50-54, 62-63, 72, 77, 91, 113, 119, 122, 133 Debt peonage, xii Decapitalization, 129 Declaration of the Costa del Sol, 123 Democracy, 18, 28, 57, 66-67, 71, 103, 125, 129-131 Democratization, 70, 115, 118 Demographic growth, 83, 112, 119 Dependency: xviii, 12, 27, 36, 66; and banana enclave, 40-41; economic, 71, and export-led growth, 44-45; financial, 52; first and second moments of, 48; foreign, 20; and foreign trade imbalance, 51; in formation of nation-state, 32; and integration, 110; limiting the reformist vision, 99; of middle class, 108; and modernization, 104; national variations in, 47-51; as new historical circumstance, 104; political, 5; role of the state in, 115-118; school of thought, χ Depression: and abandonment of coffee, 60; of banana, 60; and coffee prices, 59; of 1897-1900, 44; in El Salvador, 60; and labor force, 22; in Nicaragua, 72; world, 56-66 Development: 118; agro-export, xviii; and authoritarian regimes, 71; of bananas, 13, 30, 35, 37-41; and CACM, 97-118; and campesinos, 90-96; capitalist, 27, 57; Central American, xvii; of coffee, 24; and consolidation of urban middle class, 98; and depression, 56-66; disenchantment toward, in the 1980s, 119; domestic (hacia adentro), 42, 63, 102; and English market, 26, 29; export-oriented (hacia afuera), x, xiii, 14, 18-19, 26, 42-47, 56, 76; and foreign interests, 20; and

History and Society in Central America hacienda, 24; in Honduras, 20, 74; and industrialization, 67, 78; and liberal republic, 14, 51; and monetary instability, 13; in Nicaragua, 73; and petroleum prices, 122; popular sectors marginalized by, 108; post-WWII, 66-72; role of state in, xix, 27, 71, 115-118; and rural economy, xi;; without democratization, 115 Dictatorship, 3, 16, 18, 40, 44, 58, 65, 124 Disasters: droughts, 122; earthquakes, 122; volcanic ash contamination, 96 Divestment, 64, 74, 121, 129 Duarte, Napoleon, 126 Economic Commission on Latin America (ECLA), 99-101, 111 Economic integration: as antagonistic cooperation, 107; and coalitions, 103; and dependency, 110, 116; and deterioration of exports, 110; and free trade zone, 104; historical conditions of, 98-102; and process of industrialization, 104; social protagonists of, 102; strengths and weaknesses of, 109; and traditional exports, 113 Economy: capitalist, 12; closed, 1, 26; coffee, 10, 24, 66; colonial, 2; and emergence of banana enclave, 30-41, 60; exchange, 52; export, 2, 7, 9, 13-14, 18, 20, 27, 42, 44-45, 57, 68, 76, 92, 105; foreign, 80; mining, 19; mixed, 132; monetary, 94; subsistence, 10, 21-22, 25, 59, 80, 82, 85; urban industrial, 103; world, 63 Ecuador, 78 Education, 67, 75, 120 Ejidos, xii, 3, 15-16, 21, 73, 79, 8 1 82 El Salvador: Asociación Cafetalera de El Salvador, 62; annual national product of, 72; benefits from CACM for, 106-109; bonds issued

Index by in 1950, 105; and British investment, 49; campesino migrations within, 92-93; campesino rebellion in, 60-61; and capitalism, 17; and cochineal, 10; and coffee, 15, 37, 59; and conflict with Honduras, 96, 109; and debt, 7, 51, 63-64; 72; 113; and democratization, 126; and depression, 44, 59-61; and dynamic export economy, 105; extinction of ejidos in, 15; and facade democracies, 125; and fall of General Romero, ix; and Farabundo Martí Front for National Liberation (FMLN), 125, 130; first railroads in, 16; foreigners in, 27, 43; GDP of, 111; and hacienda, 23; and indigo, 9-10; insurrection in, 119, 124-125; and labor, 105; land concentration in, 81; and latifundio-minifundio, 90; and liberal reform, 14, 16, 58; and loans, 51; and Maximiliano Hernández Martínez government, 61, 65-66; and middle class, 6869; and monetary instability, 5355; per capita income in, 121; population of, 9, 119; poverty in, 121; productivity in, 83-84; role of state in, 120; and Romerismo, 66; and tenancy, 93; unemployment in, 112; violence in, from agrarian restructuring, 9 Electricity, 21, 50, 51, 57, 120 Employment, 35, 62-63, 98, 108109, 112, 120, 129 Enclave economy, 13, 19, 30-41, 54, 106, 120 Encomenderos, 3 Encomienda, 22-23, 93 England: and appearance of pound sterling, 9; and Belize, 5; and capitalist market, 26, 47-49; capital of, in gold and silver exploitation, 18, 30, 33, 42; coffee exported to, 15, 17-18; defeat of Spanish Empire by, 1; and deterio-

187 ration of European influence, 43; exports to, 8; imperialism of, 19, 48, 79; imports from, 13; and investment in Central America, 48; payments to, 50-52, 63, 72 Entrepreneurs (empresarios), 31, 32, 59, 70, 74-77, 88-89 Esquipulas Π 123, 128, 130 Etzioni, Amitai, 116 European Parliament, 128 Eximbank, 77 Eximport Bank, 64 Expropriation of German businesses, and decline of coffee market, 50 Facio Brenes, Rodrigo, 4 Farabundo Martí Front for National Liberation (FMLN), 125, 130 Federal Republic of Central America, 1-5,97-98, 116 Federation of Industrial Chambers of Commerce of Central America (FECAICA), 107 Figuerismo, 66 Filibuster war, 19 Foreign capital, 20, 27, 104, 121 Foreign intervention, xi, 4, 5, 65 Foreign investment, 1, 6-7, 13-14, 30-31,36,46,50,77, 111-113, 123, 131 Foreign trade, 1, 6-7, 13, 22, 25, 98, 101 Free trade, 2, 7, 52-53, 56, 100, 104, 107, 109, 122-123 Frente Sandinista de Liberación Nacional (FSLN), 124, 128, 129, 130 Furtado, Celso, 46, 114 García, Antonio, 23, 79, 94 General Agreement on Tariffs and Trade (GATT), 100, 123 Gross Domestic Product (GDP), 110-113 119, 129 General Treaty of Economic Integration 101 Generation of '89, 18 Gold, 6, 9, 18

188 Gold standard, 44, 52, 55 Granada, Nicaragua, 5, 19 Grupo de Apoyo, 128 Guardia, Tomás, 18, 33 Guatemala: agrarian reform in, 69; annual national product of, 72; and Arevalismo, 66; and bananas, 13, 30-41; benefits for, from CACM, 106; and bimetalism, 5255; British investment in, 49; and cacao, 23; and cochineal, 10; compared to Costa Rica, 9, 28; compulsory labor in, 21; concentration of land in, 81; and cotton, 78; coups in, 126; and debt, 6, 63, 72, 113; democracy in, 125-126; demography of, 112, 119; and depression, 59-66; and dictatorship, 44; as distinct from Costa Rica, 9; and Esquipulas, 128, 130; and Estrada Cabrera regime, 57; failed attempts to establish bank in, 26; and failure of federation, 4; foreigners, importance in, 27, 43; GDP of, 110-111; guerrilla movements in, 119, 124-125; Indians in, 21, 54, 85, 91-93; and indigo, 9-10; industry in, 30; insurrection in, 125; investment incentives for banana in, xii; and Jacobo Arbenz regime, ix, 77, 167n.25; and Jorge Ubico dictatorship, 65-66; latifundio-minifundio in, 90; liberal reform in, 14; loans to, 64; middle-class action in, 6870, 108; migrating campesinos within, 92; and 1954 counterrevolution, 95, 108; and Oficina Central del Café, 62; per capita income in, 121; petroleum exploration by, 77) poverty in, 121; railroads in, 15, 51; and revolution of 1944-1954, xiii; role of state in, 120; small farms in, 83; and trade links with Mexico, 3; U.S. investment in, 48, 77, 111. See also United Fruit Company; specific names of individuals and

History and Society in Central America organizations Guerrilla movements, 58, 61, 119, 125 Habilitaciones (salary advances), 16, 21 Habilitador (labor recruiter), 21, 92 Hacendado, 4, 16, 18, 20, 21, 25, 27, 31, 62, 66, 87, 89 Hacienda: and bananas, 39; and campesino economy, 91, 93; and coffee, 16-17, 21, 46; and concentration of land, 82; in Costa Rica, 17; in El Salvador, 23; in Guatemala, 23; and indigo, 9; latifundio transformed into, 12; paternalism of, 24-25, 70, 94; and peonage, 10; politics of, 67; relation of, to capitalism, 23-24 Hay Pauncefote Treaty, 155n.6 Health care services, 120 Hernández Martínez, Maximiliano, 61, 65-66 Honduras: agricultural border of, 86; army of, 126; and Bahía, seized by England, 6; and bananas, xviii, 6, 13, 30-41, 74, 78; British investment in, 49; and CACM, 105-107; campesino economy of, 91; capitalism in, 17, 81; Catholic church in, 8; and conflict with El Salvador, 96, 109; and debt, 6, 113; democratization in, 126; and depression, 59-66; and dictatorships, 65; as differed from El Salvador and Guatemala, 18; ejidal lands in, 15, 81; and export economy, 9, 18-19, 74, 78; and foreign hacendados, 27; GDP of, 110-111; and gold and silver, 1, 52; investment incentives of, from banana, xii-xiii; lack of capable economic groups in, 105; and lempira, 52-53; liberal reform in, 14, 18-20; middle-class action in, 69; and mining, xviii; per capita income in, 121; population makeup of, 9; replaced by Ecuador

Index as largest banana producer, 78; retreat from CACM of, 107; rivalries of traditional factions in, 58; role of state in, 120; and Ronald Reagan, 127; Tela Railroad Company in, 94; and trade with Havana, 3; unemployment in, 112; and U.S. foreign policy, 58, 127; U.S. investment in, 48, 111; and Villedismo, 66; workers7 strike in, 58. See also United Fruit Company; specific names of individuals and organizations Housing, 120 Hurricanes, 78, 122 Immigrants, 17, 27, 30 Import substitution, 63, 98, 101, 114, 122 Independence, 1-11, 17, 21, 23-24, 40,47,80,98, 131 Indians: 54, 79; classified as campesinos, 85; coerced labor of, 9, 21, 24, 79; in Costa Rica, 17; and ejidos, 3, 15-17, 82; forced recruitment of, 159n.26; in Guatemala, 9, 21, 91-93; in Honduras, 91; and mines, 157n.23; in Nicaragua, 91; uprising of, 125, 166n.l2 Indigo, 1, 6, 9, 10, 21, 23, 26 Industrialization: ix, xviii, 56, 6772; and agricultural worker, 94; and agro-exports, 42, 117; and banana enclave, 30; and CACM, 98-115, 122-124; and democratization, 70; and dependency, 116ί 17; growth of, in 1960s, 99; and industrial investment, 30, 63, 98; 123; and industrial policy, 111; and Industrial Revolution, 12; and manufacturing, 77; and production, 120; role of state in, 115-118 Institute of Nutrition of Central America (INCAP), 113 Institute of Social Security, 113 Instituto de Defensa de Café, 62 Insurrection, relationship of, to

189 Central American crisis, 124-125 Interamerican Development Bank (IDB), 77, 123, 130 Intermediaries, 12, 21, 26, 28, 46, 54, 63, 78, 104, 106 International Bank for Reconstruction and Development (BIRF), 77 International Monetary Fund (IMF) 123, 124, 127 Itúrbide, Agustín de, 2 Jornalero (seasonal worker), 89 Kenaf, 64, 78 Labor: 89, 91; abundant, 45, 108109; agro-export requirements of, 92; and banana industry, xii, 39; capitalist effect on, 25; cheap, 27, 35, 39, 45, 105; coerced, xii, 9-11, 21-22, 24; as condition for social order, 45; in Costa Rica, 90; in El Salvador, 90, 105; family, 17; free, 22, 26; in Guatemala, 90, 95-96; legislation, 104; migrant, 22, 9294; in Nicaragua, 90; relations, 88; scarcity, 21; seasonal migrations of, 9; semi-slave, 46; tenant farmer, 10, 24, 92-94; unions, 109 Labor recruiter. See Habilitador Latifundio: 82-83, 87; Antonio García, on, 23; and minifundio, 80, 90-92; and multifamily large estates, 82; transformed into hacienda, 12, 21-23, 16 Latifundistas, 1, 12, 14, 28 Lempira, 53 Lemus, José María, 105 León, Nicaragua, 5, 19 Liberalism: 2-11, 51; and banana enclave, 30-32; and Central American union, 97-98; and liberal nation-state, 25-30; and monetary policy, 51-55; and neoliberalism 131; and reformism, 14-25 Loans, 6-7, 13, 16, 48-51, 64, 11, 90, 100, 113, 121, 122

190 López Arellano, Osvaldo, 126 Low-intensity conflict, 130 Magaña, Alvaro, 126 Masses: absence of, in independence struggle, 1; and campesino rebellion in El Salvador, 61; and 1930 crisis, 59; reaction of, to power, 29; support of, for Nicaraguan social reorganization, 128129; urban, in postwar period, 66, 68,70 Medina Echavarría, J., 67, 70 Mejía Víctores, Humberto, 126 Melgar Castro, Juan Alberto, 126 Menéndez, Francisco, 16 Mercantile economy, 35, 79, 80 Mercantilism, 2 Merchants, 4, 5, 7, 8, 10, 12, 25-30, 53, 66-67, 70, 91 Mestizos, 1, 8 Mexican Revolution, 58 Mexican-Central American Presidential Summit, 123 Mexico, 1-4, 48, 58, 101, 123, 128, 130 Middle class: 44, 54, 57, 60, 68, 102; movements, 66-72, 108; rural, 87; support by, through consumption and participation, 107; urban 98108 Migration, 10, 22, 68, 91-92 Milpa (cornfield), 92, 170n. 65 Minifundio, 9, 21 Minifundistas, 17, 21, 22-23, 26, 8096 Mining, xviii, 1, 18-19 Miskito Empire, 19 modernization: 15, 18, 25, 35, 46, 69, 71, 80-86, 89, 95, 109, 120; and dependency, 104-106, 116ί 18; first attempts at, 2 Monetary problems, 51-55 Monge, Luis Alberto, 127 Mora, Juan Rafael, 26 Mozo colono (tenant farmer); 10, 2425, 87-94 Multilateral Treaty of Free Trade

History and Society in Central America and Integration (1958), 100 Nation: 11; and banana and state formation, 31, 39; and Central American nationality, 12; and consolidation, 18; formation and trade imbalance, 52; and goal of Central American union, 100; and integration, 116; and liberal nation-state, 27; and nationalism, 3, 69, 106; and nation-state, xvii, 3, 4, 29; possibilities of formation, 47; role of capitalism in, 12 National Bank of Guatemala, 52 National Liberation party, 127 National Opposition Union (UNO), 130 Nationalist Republican Alliance (ARENA), 131 New Spain, 2 Nicaragua: agrarian reform in, 129; agricultural border of, 86; annual national product of, 72; and banana enclave, 30; Bank of, 53; and British imperialism, 6, 19; British investment in, 49; and CACM, 102-109; capitalism in, 17; cattle raising in, 73; and coffee exports, 59-60; cotton harvests in, 73; and creation of Córdoba, 53; and debt, 7, 113; and depression, 59-66; dictatorship in, 65; as different from El Salvador and Guatemala, 18, 90; domestic production in, 84; ejidos in, 15; and export economy, 9, 18-19, 59, 73, 84; and Frente Sandinista de Liberación Nacional (FSLN), 124, 128-130; and GATT, 123; and gold and silver, 1; and gold standard, 52; and Granada, 5, 19; guerrilla movement in, 61; and Hurricane Joan, 122; Indians in, 91; and indigo, 10; and lack of capable economic groups, 105; land concentration in, 81; liberal reform in, 14, 19; loans to, 6-7; mestizos in, 9; middle class in, 68;

Index migrant workers in, 91-92; and minifundios, 90; Nicaraguan revolution in, ix; and Ortega's exclusion from Arias meeting, 128; Pan American Highway, 64; per capita income, 121; political economy of, 73; population of, 9, 119; poverty in, 121; and recession, 124; silver standard, 53; Somoza regime in, 130; support for Sandino in, 61; trade, 3; and transoceanic canal, 19, 58; U.S. foreign policy toward, 120, 128130; and U.S. imperialism, 19; workers' strike in, 58 Northern Railway Company, 33 Obrajes (workshops), 9 Obrero agrícola (agricultural worker), 89 Oduber, Daniel, 127 Oficina Central de Café, 62 Oligarchy, xviii, 13, 15, 18, 20-25, 27, 37, 40-52, 57, 59, 61-70, 8889, 97-105 Organization of Central American States (ODECA), 98 Ortega, Daniel, 128 Palm oil, 64, 78 Panama, 3, 58, 128, 130 Pan American Highway, 64 Parcelario (small landowner), 23, 89, 92 Paz García, Policarpo, 126 Peasants 26, 70, 74, 87 Peonage, 10, 89 Peons, 21, 24, 54, 88, 89, 91, 94 Permanent Secretariat of Economic Integration of Central America (SIECA), 101, 123 Peru, 2, 128 Petroleum, 77, 120, 122 Political pluralism, 128-131 Popular movements, xix, 65, 66, 6869 Popular sectors, 66-68, 108 Population, 9, 19, 39, 73-74, 80-81,

191 94-95, 98, 112, 119-120, 156n.l820 Populism, 68 Pound sterling, 6, 7, 9, 29-30, 49-50, 63 Poverty, 120-121 Producers: in agricultural-mercantile process, 29; as appendage of oligarchy, 13; and banana enclave, 31, 33, 36, 38; and diminishing provincialism, 5; in Honduras, 20; and mining, 19; and modification of subsistence economy, 25; in sharecropping, 90; specialization of, and dependency, 45 Provincialism, 4 Public education, 75 Quezaltenango, 5, 93 Railroad, 5, 7, 16, 21, 31-41, 49-51, 57, 68, 94 Reagan, Ronald, 124, 127, 128 Recession, 102, 124 Refining, 77 Reform: agrarian, 20, 69, 87, 129; liberal, 8, 14-20, 26, 28, 29; liberal agrarian, 10; monetary, 52-55; social, 72, 110, 115, 126; structural, 117 Registry of Real Estate, 15 Resins, 9 Revolution, in 1980s, 119 Romerismo, 66 Romero, Carlos Humberto, 126 Romero Bosque, Pio, 58 Rosa Pacas, José, 97 Rural world, 79-96 Salary advance. See Habilitación Sandinistas. See Frente Sandinista de Liberación Nacional Sandino, Augusto César, 58, 61, 165n.3 Santos Zelaya, José, 19-20 Security Council of the United Nations, 128 Servitude, 11, 17-18, 21-25

192 Sharecroppers, 11, 23, 79, 82, 89, 9092 SIECA. See Permanent Secretariat of Economic Integration of Central America Silver, 1, 6, 9, 10, 18, 20, 52-55 Social Christian Unity party (PUSC), 128, 131 Social Democratic party, 127 Social security, 75 Social stratification, 29, 85, 87, 94 Social welfare, 75 Somoza, Anastasio, 58, 65, 124, 128 Spain, xvii, 1-5, 13, 48, 79, 98 Standard Fruit and Steamship Company, 34 State: and bananas, 33-41; and CACM, 115-118; corporatist tendency of, 106; counterinsurgent, 125; financial base of, 62; and foreign capital, 50; inability of, to protect national market, 50; and integration and dependency, 115; lands, 15, 21; and loans realized, 6; modernization of, 71-72; monetary policy of, 52-55, 61-62; organization of, 2, 9, 18, 27, 29, 103; as owner of production, 129; protection, 15, 26, 31, 84, 111; regulation, 57; unions, 67-68; weakness of, in remedying agricultural problems, 81 Strikes, 58, 61 Suárez Córdoba, Roberto, 127 Sugar, sugarcane, xix, 1, 10, 21, 23, 34, 44, 50, 63, 73, 78, 80, 84, 88, 91-94, 106 Tela Railroad Company, 34, 94 Telegraph, 5, 21 Tenancy, 10, 14, 79,81,86 Tenant farmers, 88-96 Terms of trade, 60, 113 Terrateniente (large estate owner), 87-88 Tiendas de raya (company store), 35 Trabajo forzado. See Labor

History and Society in Central America Trade: domestic, 110-111, 122; foreign, 1, 6-7, 11-14, 19, 22, 25, 29, 42-46, 50-56, 67, 71, 94, 98, 101, 105 Transoceanic canal, 19-20, 58, 73 Treaties: Clayton-Bulwer Treaty, 5, 48; General Treaty of Economic Integration, 100; Multilateral Treaty of Free Trade, 100; Treaty of Utrecht, 1 Ubico, Jorge, 65-66 Underdevelopment, 27, 96, 99-100, 120, 131 Unemployment, 41, 43, 60, 81, 112 Unions, 58, 61, 68, 93, 97, 131 United Fruit Company (UFCO), 3341, 78, 94, 101. See also individual countries United Nicaraguan Opposition (UNO), 131 United States: and banana enclave, 30, 33-37; and capital investment, xviii, 19, 27, 43, 47-51, 57; and coffee, 64; control of, over electrical energy, 50; and Costa Rica, 127; and divestment, 64; effects of hegemony of, 57; enhanced political influence of, 48; failed foreign policy of, 124131; and fall of Somoza, 130; and foreign intervention, 5, 19-20, 30, 48, 57; imports of, 13; intervention by, in Honduras, 58; investment by, 48, 78; and Nicaragua, 128; response to CACM, 99 Uprisings, 61, 166n.l2 Urbanization, 30, 68 Uruguay, 128, 130 Venezuela, 128, 130 Victory of '82, 125 Villedismo, 66 Walker, William, 5, 19 Washington Accords (1907), 97 Wood, exploitation of, 9, 20 Workers: 22-26, 94; agricultural,

Index diminishing numbers of, 120; banana, 32, 35, 38-39; benefits, 75; and company stores, xiii; effects of monetary depreciation on, 54; landless, 89-96; movements of, in 1920s, 58; urban, 30. See also Strikes,· Unions

193 World crisis. See Depression Young, John, 54 Zaldívar, Rafael, 16 Zelaya, José Santos, 19, 51, 58 Zemurray, Samuel, 34