Bananas and Business: The United Fruit Company in Colombia, 1899-2000

Published by EH.NET (August 2008)

Marcelo Bucheli, Bananas and Business: The United Fruit Company in Colombia, 1899-2000. New York: New York University Press, 2005. xi + 239 pp. $45 (cloth), ISBN: 0-8147-9934-5.

Reviewed for EH.NET by Alan Dye, Department of Economics, Barnard College.

Marcelo Bucheli?s study of the long-run rise and decline of the United Fruit Company?s banana operations in Colombia offers a persuasive view of the role of this important company, which challenges stereotyped views of the role of multinationals in Central America and the greater Caribbean. Bananas and Business is, therefore, an important new contribution to the relatively neglected field of business history in Latin America. Methodologically, it takes issue with studies that adopt a dependency approach, arguing that they are too narrow in scope. Without denying the well-known incidents of wrongdoing of the United Fruit Company, Bucheli widens the scope of analysis by adopting a business-historical approach to consider possible benefits as well as costs associated with the presence of the company in Colombia.

Strictly speaking Bananas and Business is a case study of a branch of United Fruit?s overall operations in the Central American/Caribbean region, of secondary importance as one of the company?s banana producing regions. Nonetheless, the study has considerably broader significance for the literature. Much of the book addresses overall company strategy. The remainder then uses the example of the Colombian operations to show how the company?s regional policies fit into the global strategy. The first three chapters sketch a quantitative picture of the company, examine the development of the demand for banana exports over the twentieth century, and describe the evolution of United Fruit?s global strategies for the production and export of bananas. The remaining chapters then incorporate how the company?s operations in Colombia contributed to the company?s global strategies, and more broadly provide new insights into the role of the foreign corporation and local entrepreneurship. The Colombian example demonstrates how the global and local interacted to transform a sector that was originally a foreign-controlled, monopsonistic enclave into a competitive industry with dominant local participation, with evidence of growing linkages into processing, local finance and other services.

The United Fruit Company is probably the most frequently studied of U.S. corporate ventures in Latin America, yet, despite so much attention, its history as a business remains obscure. Scholars have shown more interest in this multinational corporation as an object of muckraking. The criticism, as is well known, was at times well deserved; yet existing historical treatments often misleadingly adopt stereotyped views of multinational motives rather than offer a serious investigation of how individuals inside and outside the organization interacted to determine the company?s policies and behavior.

Bucheli carves a new path in this literature by seeking to offer a balanced assessment not only of the shady dealings of the company but also its legitimate activities. He does this by focusing his examination on the business strategies of the company. One learns how over time the management of the company?s Colombian banana operations responded both to global demand and supply factors in the banana market and to local factors, which interacted with changing political conditions and local entrepreneurial incentives. Although openly critical of observed exploitative practices, he finds that the company?s presence in the long run bestowed benefits on the development of the banana industry of the region. Benefits included favorable compensation packages for workers on the banana plantations, especially in the form of benefits such as free health care; the provision of credit to independent growers at low interest rates when no other local credit was available; and the transfer of knowledge and encouragement of an entrepreneurial class of banana planters and rival locally-owned export companies. The transformation was not rapid. It took the better part of three-quarters of a century for United Fruit to have to confront any significant local competition. However, Bucheli suggests that, when looking over the long term, the benefits of United Fruit?s presence in Colombia appear to outweigh the costs.

One important contribution is the story the book tells of how United Fruit eventually decided to abandon its initial policy of creating barriers to competition and accept fair dealing with rivals to its core business. Although its early history was one of raising barriers to competition and exploiting the weakness of unstable governments to establish its monospony position, he argues that in the long run the presence of this, or another multinational, was necessary for the development of a commercial banana industry in Colombia. United Fruit had pioneered techniques for how to commercialize a fragile and highly perishable product. Regardless of unethical practices when dealing with locals in the producing countries, the importation of the marketing techniques that such pioneers in the industry developed were of substantial value to local industry.

As with many technologies, tacit knowledge was best transferred by individuals who had experience and organizational capabilities. But foreign first-comer advantages were not permanent. Local employees and managers learned the tacit knowledge by observing and doing, and eventually they formed organizations to compete with El Pulpo [the octopus]. Over time, the strengthening of nationalist government policies caused the industry to pass to local independent banana growers and local entrepreneurial banana export ventures. Bucheli?s analysis, therefore, raises the question of whether the company?s early exploitation through the creation of a banana enclave was not critical, perhaps even necessary, for the development of a banana industry that later became a nationally-owned industry and an important sector for entrepreneurial opportunity in Colombia.

As a second important contribution, Bucheli demonstrates how the later changes in United Fruit?s business strategy in Colombia led to the development of an entrepreneurial middle class associated with the banana sector. This occurred in two ways. First, the multinational company transferred technology, including refined methods for commercializing a fragile and highly perishable fruit to be sold in a global market. The United Fruit Company, of course, did not introduce the cultivation of bananas into Colombia; but it did introduce Colombia into the global market for bananas, and it introduced Colombians to the commercial and organizational techniques of the global market.

Second, a larger class of entrepreneurs emerged as independent growers who subcontracted with United Fruit. By 1960 the company decided to abandon vertically integrated banana production. Although formerly it could produce its own bananas more cheaply, labor demands and the threat of strikes, by the 1960s, had pressed the company to give free health care, free milk, subsidized food, and free housing, until eventually cost-benefit analysis favored subcontracting. In shifting to exclusive subcontracting of bananas, the company moved from its original seat in Magdalena to a new area, Urab?, where it made key investments that assisted in the development of the local market for bananas for export. The policies encouraged middle-class investors from Medellin to set up entrepreneurial banana-growing ventures and contract to sell bananas to United Fruit. By Bucheli?s assessment, this class of entrepreneurs would probably not have emerged without the presence of United Fruit, or some other multinational company. The story is reminiscent of another legendary migration of antioque?o entrepreneurs, who established one of the most prosperous and relatively egalitarian coffee growing regions of Colombia. One key difference is noteworthy, however. The migration to Urab? to grow bananas was supported, apparently in a mutually beneficial fashion, by a notorious multinational company.

?The entrepreneur is absent? in the historiography of Latin America, writes Marcelo Bucheli, because of the ?weak development of business history in Latin America as a discipline, but it is also a result of the dominance of dependency theory? (pp. 187-88). One suspects that there are many more stories of entrepreneurial significance in Latin America, such as the story of antioque?o migration into Caldas and Bucheli?s story of banana entrepreneurs in Urab?. If there are, it is unfortunate that historians have not shown much interest in them because we know much too little about them. This, of course, makes the significance of Bucheli?s examination of the Urab? entrepreneurs that much more important.

As we observe this transition from partial vertical integration to exclusive subcontracting and the geographical move from Magdalena to Urab?, we also learn something about the institutions and contractual relations of banana production in Colombia. First, the contracts that the United Fruit Company wrote with growers have been criticized in the literature as onerous and exploitative. Contracts were exclusive sales contracts, and they also required growers to bear the costs of damaged fruit. Of course, the transaction costs of handling fruit that is fragile and perishable explain the terms of the contract. The exporter was subject to potential moral hazard and holdup if the terms of the contract had not provided for exclusive dealing and assigned the costs of damage to the grower. I would have liked to have seen more on this question, however. The reader is given a brief description of the terms of the typical contract, but is not given an example showing the exact language or other provisions that may have served to offset other transaction costs. Therefore, it is impossible to know whether, or how, damage to bananas in shipment once they were in the hands of the exporter was handled. Without further detail, we cannot be sure that some of the accusations of unfair terms were not valid. Bucheli does tell us, however, that, as local entrepreneurs developed competing exporting operations, they adopted the same contractual terms. So the terms were not dependent on the exporter being either a foreign multinational or a monopsonist.

We also learn something about the institutions of credit for banana growers. For most of the history of the banana industry in Magdalena, no formal credit is available to banana growers except for that supplied by United Fruit. But the company suffered considerable losses in its credit dealings toward the end of its operations in Magdalena. Learning by doing led to an alteration in the way it set up its provision of credit to growers in Urab?. Instead of lending directly to growers, it financed a locally owned corporation that provided loans to growers. The local corporation had better information, the advantage of a being national entity in claims disputes, and did not own the debt directly.

Bananas and Business takes issue with the existing narrow emphasis in the Colombian economic and social historiography on the early United Fruit of 1928 and before. Much of the former attention centered on the tragic banana massacre of 1928, about which many have read in Gabriel Garc?a M?rquez?s One Hundred Years of Solitude. Bucheli points out that this, in fact, was perhaps the nadir in United Fruit?s labor relations in Colombia, and that, in fact, this event and the ensuing years mark a turning point. Much was accomplished by the labor struggles of those years and it positively transformed the company?s relations with local labor and entrepreneurs. Bucheli?s penetrating business historical analysis brings new light and radically improves our understanding of the long-run consequences of the United Fruit Company in Colombia. It serves as an important challenge to existing stereotyped views, and points the way to what business history can uniquely offer to the study of the long-run processes of economic development.

Alan Dye is the author of Cuban Sugar in the Age of Mass Production: Technology, and the Economics of the Sugar Central, 1899-1929 (Stanford University Press).