Globalized Fruit, Local Entrepreneurs. Douglas Southgate
Castillo responded in short order with a thorough report, one based on wide-ranging observations in the field and reaching the conclusion that western Ecuador was “ideal” for banana production. Guayaquil’s deficiencies for modern shipping were acknowledged. For one thing, the Río Guayas was barely seven meters deep in front of the port city. For another, a sandbar between the river’s mouth and Guayaquil blocked the passage at low tide of vessels displacing more than 4,000 tons. In contrast, Castillo sang the praises of Puerto Bolívar, farther south and in the vicinity of Machala. A natural harbor able to accommodate ships of any size, Puerto Bolívar also had road and rail linkages to inland areas well suited to agriculture.10
Castillo emphasized land quality—in particular, the depth and fertility of soils in the southern costa as well as their porosity, which facilitates the thorough drainage that banana plants require. Precipitation in the area was reported to be in line with the hydrologic requirements of fruit production for most of the year; at other times, water for irrigation was readily available from rivers and streams originating in the Andes, not too far from the coast. Finally, banana plants in Ecuador, which were used to shade cacao trees in addition to supplying food, exhibited no signs of wind damage, which was a normal feature of Central American and Caribbean plantations.11
Thanking Castillo for his “very excellent report,” Cutter dispatched one of United Fruit’s ablest experts, Charles W. Sinners, to inspect land, irrigation possibilities, navigable rivers, and coastal harbors. Sinners was also instructed to determine needs for railroad construction and to gauge real estate prices. Discretion was required since revealing the true purpose of this work would have caused the owners of farmland, which had lost value because of plant diseases and low cacao prices, to demand more for their properties. So as long as he was able, Sinners let people think he was mainly interested in untapped deposits of petroleum, which along with all other subsurface resources would belong to the state and not to individuals with surface land rights. This subterfuge was maintained for a while because he traveled with Castillo, who was mainly known as a mining engineer and geologist.
The report Sinners submitted in 1922 was enthusiastic and United Fruit’s headquarters in Boston cabled him to remain in Guayaquil, to await orders about how to proceed. After those orders arrived, Sinners journeyed to Quito in August for a meeting with Tamayo.12 During that meeting, Sinners was shown a draft of a law authorizing creation of banana concessions. Steve Striffler speculates that the law, enacted later in 1922, was perhaps “generated” by United Fruit, although he offers no evidence to support his suspicions.13 In fact, the law was unexceptional in many respects. For example, access was guaranteed to harbors suitable for oceangoing ships. Also, private investors were authorized to construct railroads and other infrastructure. In addition, the law included a two-year exemption from export duties, which was not overly generous given the monetary outlay needed to ramp up operations.
The duties to be applied after the exemption expired were not out of line with export taxes during the 1920s in Central America, although Striffler’s characterization of those duties as “very low” is not off base. He also states that “virtually unlimited quantities of land” were made available in Ecuador.14 What Striffler does not mention, though, is that all the areas offered by Tamayo were undeveloped and none were within reach of Guayaquil, Puerto Bolívar, or any other seaport. Such areas appealed little to United Fruit, which had its sights set on properties in accessible settings that had been cleared during the cacao boom. That Tamayo’s offer to the company did not extend to these properties, more than four-fifths of which were in the hands of Ecuadorians,15 revealed that national authorities actively pursuing foreign investment would only go so far, even as the country’s leading export sector was reeling. Since there would be no official intervention in real estate markets on United Fruit’s behalf, the banana sector would never develop in Ecuador as it had earlier in Central America—in enclaves obtained for little or no money by foreign companies.
Denied in Ecuador the opportunities it had seized in countries such as Guatemala and Honduras, United Fruit maintained a presence in the South American nation by signing an agreement with the government in July 1923 to continue preparing for the production and export of tropical fruit.16 This work went forward at a leisurely pace.
Prolonged Crisis
Had United Fruit moved quickly in Ecuador soon after the investigations and discussions of 1922, Tamayo might have been lauded as one of the country’s greatest leaders: the head-of-state who spearheaded an expeditious and rewarding transition from the cacao era to the banana boom.
By no means was a transition along these lines beyond the realm of possibilities. U.S. imports of bananas, which were much higher after World War I than they had been at the turn of the twentieth century, continued to go up during the 1920s. At the same time, United Fruit and other producers were having difficulties in Central America, as already noted. Ecuador’s currency was losing value; worth forty-four cents in 1920, the sucre was equivalent to twenty-three cents five years later.17 However, this devaluation improved the country’s competitiveness in international markets, to the benefit of the fruit industry and other sectors with tradable output. In addition, the need to purchase land, rather than receiving real estate free from the government, was not an insurmountable obstacle given that United Fruit would end up buying old cacao farms in the southern costa in 1934—a decade after Tamayo had left office and, more to the point, at a time when the U.S. market for bananas was weak due to the Great Depression.
The chances for what might have been Tamayo’s crowning accomplishment, not to mention a watershed moment in the economic history of Ecuador, were not improved by the waning influence of the venturesome businessmen who had founded United Fruit. Neither Lorenzo Baker (born in 1840) nor Minor Keith (born in 1848) was as active in the company as he once had been, and Andrew Preston (born in 1846) passed away in September 1924. The following month, the same executive who had corresponded with Castillo and had sent Sinners to Ecuador became president of United Fruit, in spite of minimal time spent in the tropics. For the next several years, the firm was run out of its Boston headquarters by Cutter and other men whose understanding of the production end of the business was second-hand for the most part. Their lack of direct experience helps to explain why earnings stagnated and then declined after peaking at 44.6 million dollars in 1920,18 and why opportunities in Ecuador were passed up when they first presented themselves.
Political tensions, which rendered Ecuador unattractive to investors and worsened as the national economy deteriorated, also undermined Tamayo’s initiative. Tax receipts, which consisted primarily of tariffs on trade, diminished as cacao exports declined. Regardless, public expenditures were not cut significantly.19 To cover the difference between spending and tax revenues, the government borrowed more from the BCA, which in turn issued more currency. This monetary expansion had the normal result, which was to accelerate inflation. Rising prices, especially for food, helped spark civil unrest, including a general strike in Guayaquil that the military suppressed in November 1922 with more than 300 lives lost.20
Tamayo was able to complete his four-year term. Forgoing the pension that he was entitled to, he returned to Guayaquil, where he was respected enough to win local office in 1940. Tamayo was honored two years later as the port city’s outstanding citizen, thanks to his steadfast public service and his refusal to accept a salary. However, his successor as president, Gonzalo Córdova, fared poorly, holding onto office for less than a year. In July 1925, military officers with strong backing in Quito forced their way to power.21 They blamed Ecuador’s economic difficulties on the BCA, which soon went out of business because the government reneged on its debts and confiscated all banks’ metallic reserves.22 After a brief detention, the BCA’s director fled to Chile. Other business leaders and a number of political figures also left Ecuador for a few years during this tumultuous period.
The closure of the BCA left Ecuador with no agency for administering the supply of money, which crippled the financial sector. In 1926, Edwin Kemmerer, an economics professor at Princeton University who previously had advised other Latin American governments on banking and monetary matters,23 was brought to Quito together with a supporting group of experts. Based on the recommendations