United Fruit: A Company Gone Bananas-Part II
So let me take a break from the story, if you don’t mind, and ask you to put yourself in Mr. Zemurray’s shoes for a minute? Use your imagination and pretend that you just relocated to the other side of planet earth with plans to launch a premier agricultural business. You’re well funded, have the perfect stretch of land, all of the necessary connections, and every indication that the host country is about to gift you the key component that will allow you to turn an enormous profit. Then, out of nowhere, you discover that some bank is about to steal the key to that component.
At the very least, it would be a tremendous drag. If you had a bit of a nasty streak, you might try to disparage the bank so that the government would back out of the deal and come to terms with you instead. And if that didn’t work, and you had very few scruples, then you might try to negotiate the old fashioned way: via bribe. But if your cash offering was declined, and you had no conscience at all — well then — you might give small-scale violence a try. A kidnapping and a few broken shins later, and the locals might decide that signing up with you gave them their best shot at long-run prosperity. Let’s face it, similar methods have worked fabulously for the Mafia. Look how much money they’ve made putting some people on the company payroll and others in company pits.
In Mr. Zemurray’s case though, the mafia’s methods were too inefficient. Too much back and forth. So when he saw his much sought after contract slipping through his fingers he did what, as I said earlier, you would have never guessed…
He overthrew the government.
That’s right, he sought out a disgruntled former President (there were plenty of those back then,) laid out before him a stockpile of weapons and guerilleros-for-hire and told him that he could live in the Presidential Palace again if he simply killed everyone between him and the Presidential Palace. But the army came with one tiny catch: once the new President established himself at the head of government, Sam got to move his bananas around Honduras unmolested by the Treasury Department.
At the very least, it would be a tremendous drag. If you had a bit of a nasty streak, you might try to disparage the bank so that the government would back out of the deal and come to terms with you instead. And if that didn’t work, and you had very few scruples, then you might try to negotiate the old fashioned way: via bribe. But if your cash offering was declined, and you had no conscience at all — well then — you might give small-scale violence a try. A kidnapping and a few broken shins later, and the locals might decide that signing up with you gave them their best shot at long-run prosperity. Let’s face it, similar methods have worked fabulously for the Mafia. Look how much money they’ve made putting some people on the company payroll and others in company pits.
In Mr. Zemurray’s case though, the mafia’s methods were too inefficient. Too much back and forth. So when he saw his much sought after contract slipping through his fingers he did what, as I said earlier, you would have never guessed…
He overthrew the government.
That’s right, he sought out a disgruntled former President (there were plenty of those back then,) laid out before him a stockpile of weapons and guerilleros-for-hire and told him that he could live in the Presidential Palace again if he simply killed everyone between him and the Presidential Palace. But the army came with one tiny catch: once the new President established himself at the head of government, Sam got to move his bananas around Honduras unmolested by the Treasury Department.
Manuel Bonilla
A deal was struck, and it worked like a charm. By February 1, 1912 General Manuel Bonilla was once again smoking puros in La Casa Presidencial and Sam The Banana Man was the de facto King of Honduras. And as King, Sam made it his mission over the next 18 years to scoop up every square inch of arable land that his bank account could afford. Eventually he grew to such a size that United Fruit could no longer ignore him — so they incorporated him. In 1930, Sam transferred title of his operations to the Boston based company and the company transferred $31.5 million dollars worth of stock to Sam, making him the largest shareholder in the new venture. As per the agreement Sam was sent into retirement where he spent his time over the next two years watching management and the Great Depression wreck havoc on the value of his stock. By 1932 revenues at United were a mere 13% of what they had been during the conglomerate’s peak year in 1920. With his fortunes quickly fading, Sam did what he always did when he found his fortunes fading.
He overthrew the government.
In 1933, he fought his way into a board meeting and forced the board to name him President of the entire company, which generated a favorable public reaction. In two weeks time the company’s stock price had doubled and United Fruit was back on track to clocking growth rates worthy of its extremely profitable history.
Ironically, the company that had intended to absorb Sam Zemurray by making him wealthy and obedient was now placed on a short leash with Sam acting the part of master this time. As far as the accountants were concerned, the company couldn’t have had a better master. Each phenomenal year was followed by another phenomenal year, and so passed two decades of expansion.
He overthrew the government.
In 1933, he fought his way into a board meeting and forced the board to name him President of the entire company, which generated a favorable public reaction. In two weeks time the company’s stock price had doubled and United Fruit was back on track to clocking growth rates worthy of its extremely profitable history.
Ironically, the company that had intended to absorb Sam Zemurray by making him wealthy and obedient was now placed on a short leash with Sam acting the part of master this time. As far as the accountants were concerned, the company couldn’t have had a better master. Each phenomenal year was followed by another phenomenal year, and so passed two decades of expansion.
In 1952, the company had assets that were 133.8% greater than what they had been in 1942. United Fruit wasn’t a mere company, it was a super entity that held all other local governments in check by the strength of its balance sheet. It was a trading partner with the United States and no other “President” from Guatemala to Panama and all throughout the Caribbean could pretend to wield more power in their respective spheres than United Fruit’s President did throughout the entire region.
But was United Fruit really as profitable as its financial statements indicated? Did all the cash it was shoveling into its accounts, and all the land it was accumulating, mean what Wall Street analysts thought it meant? Or, in 1952, was the company already insolvent? To answer that question one need only look to United Fruit’s treatment of another in a long line of seemingly irrelevant Central American Presidents: Jose Arbenz of Guatemala.
But was United Fruit really as profitable as its financial statements indicated? Did all the cash it was shoveling into its accounts, and all the land it was accumulating, mean what Wall Street analysts thought it meant? Or, in 1952, was the company already insolvent? To answer that question one need only look to United Fruit’s treatment of another in a long line of seemingly irrelevant Central American Presidents: Jose Arbenz of Guatemala.
Jose Arbenz
In October of 1951 the company sent its contract negotiator, Walter Turnbull, to secure the re-extension of its labor agreement with the Guatemalan government. On top of maintaining the status quo with regards to the company’s labor contract, Mr. Turnbull demanded that the Guatemalan government protect United Fruit against any exchange-rate-related losses. Additionally, he sought a commitment from the President that the government would not raise the current, minuscule tax rate.
For decades United Fruit had grown accustomed to dictating similar terms to puppet presidents who in many cases owed their lofty position to the company. The truth is that Mr. Turnbull wasn’t sent there to negotiate. He was sent to dictate the terms of the new agreement, and was merely extending the courtesy of informing Guatemala’s President that his country was now on the hook for any losses caused by adverse fluctuations in the value of the Quetzal. Based on decades of experience, Mr. Turnbull would certainly have assumed that his counterpart would reply “Yes sir, Mr. Turnbull sir. We’ll try really hard to stabilize the exchange rate for you Mr. Turnbull sir.”
So, as the final instructions were leaving his lips, Mr. Turnbull’s thoughts had probably already moved on to contemplate more important matters, like the menu at his favorite restaurant or the drinks he’d slog at some beloved Guatemala City nightclub. But instead of an eager handshake and a “Gracias por la visita,” Mr. Turnbull was issued a series of heretofore unheard of conditions:
Had Jacobo Arbenz not been elected President, maybe they could have pushed the bill’s due date back a few years. But a few more years is all they could have hoped for. If not Mr. Arbenz, then some other political leader within that same decade would have demanded payment on an invoice marked EXTERNALITIES. Although United Fruit may have viewed itself as a force for good in Central America, and could have pointed to massive industrial developments, public works and tens of thousands of steady
paychecks that stretched on for decades as evidence of their benevolent influence, you have to wonder… why did Guatemalans give it the nickname The Octopus?
Even United Fruit’s most ardent defenders from back in the day ought to have wondered where that name came from. Because let’s face it, no one uses octopus as a term of endearment. No entity, public or private, wants to be known as El Pulpo.
So, what’s the truth? What was United Fruit? Benefactor or beast?
Fortunately for those seeking to discern the truth by reading history’s entrails, the true nature of any human or organization always rises to the surface during conflict. And our story, from this point on, is full of conflict.
When President Arbenz submitted his list of demands to Mr. Turnbull, he unwittingly discharged the first retaliatory shot in a war that would last for roughly four decades, grow to proportions that neither he nor the fruit company’s executives could have possibly imagined, and culminate in the deaths of roughly 200,000 people. Although that claim, to some, may seem unbelievable, it’s true. If anything, it’s an understatement.
Three months after the two sides came to terms, the President returned to the same trenches he had dug during the contract negotiations and launched Decree 900. Decree 900 was a type of land reform that authorized the government to purchase 208,842 acres of United Fruit’s parcels located in Escuintla and redistribute them to the locals for private farming. The law wasn’t solely directed at United Fruit though, it applied to all farms over 223 acres that were not being cultivated. In other words, if you were sitting on miles and miles of unplowed farmland the government could buy your land and turn it over to a someone who actually wanted to grow something. In fact, the President himself held 1,200 acres of unfallowed land, so the government bought it — and gave it to a farmer.
As you can imagine, United Fruit went bananas. An understandable response. After all, 208,842 is a big number, and even bigger when the unit of measurement is an acre. But we should probably put that number into perspective, since 208,842 actually represents only a tiny fraction of the total acreage owned by United Fruit in Guatemala, and the fraction gets even smaller when you take into consideration the total acreage owned by the company throughout the entire region. Not only was it a relatively small amount of earth but the truth is that United Fruit only grew bananas on 15% of the land to which it held title. That means that 85% of their vast holdings were just sitting there, basking in the tropical rains and breezes, never breaking a sweat. The untilled land was kept that way as an insurance policy of sorts. In case disease broke out and ruined a crop, they could relocated the ensuing year’s trees to an unaffected section of the country.
And I’ll remind the reader that the government didn’t just appropriate the land, they paid for it. In United Fruit’s case, $627,572 to be exact. Where did they get that number, you might ask? From United Fruit’s own tax return. For purposes of determining the land’s tax liability, United Fruit valued it at $627,572. But when it came time to be bought out, they revalued that same stretch of earth and set the price tag at $15,854,849. When the Guatemalan government balked at paying anything more than United’s own taxable estimate of the land’s value, the company turned the issue over to its collections department: the Department of State of The United States of America. Believe it or not, when United Fruit sent a foreign government to collections, they didn’t use their own employees to recover the funds. They delegated the issue to the United States Government and gave their collection agency instructions to accept payment in cash, no bonds please.
For decades United Fruit had grown accustomed to dictating similar terms to puppet presidents who in many cases owed their lofty position to the company. The truth is that Mr. Turnbull wasn’t sent there to negotiate. He was sent to dictate the terms of the new agreement, and was merely extending the courtesy of informing Guatemala’s President that his country was now on the hook for any losses caused by adverse fluctuations in the value of the Quetzal. Based on decades of experience, Mr. Turnbull would certainly have assumed that his counterpart would reply “Yes sir, Mr. Turnbull sir. We’ll try really hard to stabilize the exchange rate for you Mr. Turnbull sir.”
So, as the final instructions were leaving his lips, Mr. Turnbull’s thoughts had probably already moved on to contemplate more important matters, like the menu at his favorite restaurant or the drinks he’d slog at some beloved Guatemala City nightclub. But instead of an eager handshake and a “Gracias por la visita,” Mr. Turnbull was issued a series of heretofore unheard of conditions:
- The contract’s extension would require United Fruit to commit to respect Guatemala’s laws and the constitution.
- United Fruit would now have to submit to government arbitration in the event of any unresolved dispute between labor and management.
- The docks at Puerto Barrios had to be repaired.
- Railroad rates needed to be reduced (they were some of the highest in the world.)
- The company must begin paying export duties.
Had Jacobo Arbenz not been elected President, maybe they could have pushed the bill’s due date back a few years. But a few more years is all they could have hoped for. If not Mr. Arbenz, then some other political leader within that same decade would have demanded payment on an invoice marked EXTERNALITIES. Although United Fruit may have viewed itself as a force for good in Central America, and could have pointed to massive industrial developments, public works and tens of thousands of steady
paychecks that stretched on for decades as evidence of their benevolent influence, you have to wonder… why did Guatemalans give it the nickname The Octopus?
Even United Fruit’s most ardent defenders from back in the day ought to have wondered where that name came from. Because let’s face it, no one uses octopus as a term of endearment. No entity, public or private, wants to be known as El Pulpo.
So, what’s the truth? What was United Fruit? Benefactor or beast?
Fortunately for those seeking to discern the truth by reading history’s entrails, the true nature of any human or organization always rises to the surface during conflict. And our story, from this point on, is full of conflict.
When President Arbenz submitted his list of demands to Mr. Turnbull, he unwittingly discharged the first retaliatory shot in a war that would last for roughly four decades, grow to proportions that neither he nor the fruit company’s executives could have possibly imagined, and culminate in the deaths of roughly 200,000 people. Although that claim, to some, may seem unbelievable, it’s true. If anything, it’s an understatement.
Three months after the two sides came to terms, the President returned to the same trenches he had dug during the contract negotiations and launched Decree 900. Decree 900 was a type of land reform that authorized the government to purchase 208,842 acres of United Fruit’s parcels located in Escuintla and redistribute them to the locals for private farming. The law wasn’t solely directed at United Fruit though, it applied to all farms over 223 acres that were not being cultivated. In other words, if you were sitting on miles and miles of unplowed farmland the government could buy your land and turn it over to a someone who actually wanted to grow something. In fact, the President himself held 1,200 acres of unfallowed land, so the government bought it — and gave it to a farmer.
As you can imagine, United Fruit went bananas. An understandable response. After all, 208,842 is a big number, and even bigger when the unit of measurement is an acre. But we should probably put that number into perspective, since 208,842 actually represents only a tiny fraction of the total acreage owned by United Fruit in Guatemala, and the fraction gets even smaller when you take into consideration the total acreage owned by the company throughout the entire region. Not only was it a relatively small amount of earth but the truth is that United Fruit only grew bananas on 15% of the land to which it held title. That means that 85% of their vast holdings were just sitting there, basking in the tropical rains and breezes, never breaking a sweat. The untilled land was kept that way as an insurance policy of sorts. In case disease broke out and ruined a crop, they could relocated the ensuing year’s trees to an unaffected section of the country.
And I’ll remind the reader that the government didn’t just appropriate the land, they paid for it. In United Fruit’s case, $627,572 to be exact. Where did they get that number, you might ask? From United Fruit’s own tax return. For purposes of determining the land’s tax liability, United Fruit valued it at $627,572. But when it came time to be bought out, they revalued that same stretch of earth and set the price tag at $15,854,849. When the Guatemalan government balked at paying anything more than United’s own taxable estimate of the land’s value, the company turned the issue over to its collections department: the Department of State of The United States of America. Believe it or not, when United Fruit sent a foreign government to collections, they didn’t use their own employees to recover the funds. They delegated the issue to the United States Government and gave their collection agency instructions to accept payment in cash, no bonds please.
Secretary of State John Foster Dulles and President Eisenhower
As you can see, United Fruit was much more than just a banana growing concern. In many ways, it was an extension of the U.S. Government. The Secretary of State had represented United Fruit in court during the 30’s and his brother sat on the board. Many senators, congressmen and other government officials were either investors in or had worked for the company. So when President Arbenz decided to pick a fight with United Fruit, his dispute was not with a mere, really powerful plantation owner. His fight was with the U.S. Government. Every branch, including the military.
He never had a chance.
He never had a chance.
