Published by EH.Net (June 2014)

Noel Maurer, The Empire Trap: The Rise and Fall of U.S. Intervention to Protect American Property Overseas, 1893-2013. Princeton: Princeton University Press, 2013.  ix + 558 pp.   $39.50 (hardcover), ISBN: 978-0-691-15582-1.

Reviewed for by Alan Dye, Barnard College, Columbia University

As the United States government flirted with empire circa 1900, it found itself drawn again and again into disputes between private American investors and foreign governments over property.  The Empire Trap shows how and why.  In an energetic narrative, Noel Maurer examines the most prominent threats to American overseas assets and shows how one administration after another was compelled, often against national or strategic interest, to intervene to protect a small minority of private investors.

The “empire trap” was set by Teddy Roosevelt’s Corollary to the Monroe Doctrine. Once this first commitment was made credible, president after president found himself bound by the inexorable logic of the empire trap. Even the high-minded Woodrow Wilson, who considered it “perilous” and beneath the “national integrity” to allow material interests to dictate foreign policy, could not say “no.”  Wilson, the president who vowed that “that United States [would] never again seek one additional foot of territory by conquest,” was pushed to occupy Haiti in 1915 and Panama in 1918.

A key finding of The Empire Trap is that enforcement mechanisms underwent important “technological” (or institutional) innovations, and these innovations defined the distinct phases of American imperialism. The first major innovation was in 1901. The Supreme Court ruled that territories could be annexed without being “incorporated.”  It gave Congress the power to annex the Philippines without extending citizenship or constitutional rights to Filipinos.  Congress then restricted private American investors’ access to the Philippines to limit their influence. Under the constitution, Congress could not have done this; but in unincorporated territories an unchecked Congress could not be trusted to facilitate private interests.  By granting Congress unlimited constitutional powers in the formal colony, the Court’s decision put an end to business support for formal empire.

So the U.S. moved fatefully into informal imperialism.  As Maurer shows, the problem became that, once the government accepted the task of protecting private properties abroad, pressures at home made it hard to get out of the responsibility. Private interests moved vigorously to lend or invest in countries likely to default or without secure private property. They did so expecting the American executive to step in when necessary to provide the enforcement, knowing that the executive could bear significant political costs if he refused to come to the rescue of American citizens’ overseas property in danger.

The method of choice in the first informal empire was the fiscal takeover.  In 1904, the Dominican president asked Roosevelt to take over customs collection in the Dominican Republic to end the seizures of customs revenues by his political rivals. Roosevelt used this opportunity not only to announce his credible commitment to protect overseas investments but also to establish a policy of fiscal intervention to help willing and responsible leaders to reform their fiscal systems.  American officials believed that fiscal intervention could get foreign houses in order and solve chronic problems of political instability. The U.S. set up customs receiverships in the Dominican Republic, Cuba, Nicaragua, Haiti, Liberia, Panama, Peru, and Bolivia. They were all unqualified failures.  In only one case, the Dominican Republic, did fiscal intervention result in a significant improvement in revenue collections.  In no case did fiscal intervention reduce corruption or political instability.

The Great Depression changed the political cost calculus. Before the crisis, the interests of bondholders and direct investors were typically aligned.  During the crisis they weren’t.  Bondholders preferred actions aimed at servicing the debt. Raising tariffs, suspending tax exemptions, and cutting spending were good things.  But these actions hurt the value of direct investments. Maurer finds that when domestic interests were not aligned, presidents were able to dismantle the informal empire. Herbert Hoover and Franklin Roosevelt thus allowed widespread defaults on sovereign debt; signed the Smoot-Hawley tariff into law, despite the damage to foreign direct investments in Cuba; and granted the transition to Philippine independence, which direct investors did not want.

Yet, when the crisis was over, the United States fell back into the empire trap. But it was different now.  The failed technology of fiscal intervention was replaced by foreign aid and covert action. Thus arose the “second American [informal] empire.”  The government got out of the debt enforcement business, ended the formal protectorates in Cuba and Panama, and established a “Good Neighbor Policy”; but it continued to intervene when American direct investments abroad were threatened.  The canonical case was the Mexican oil expropriation of 1938. Despite his aversion to intervention, FDR obtained compensation for expropriated American oil properties that actually exceeded their market value. American presidents learned to master the “carrot” as well as the “stick.” Access to U.S. markets, credit, and grants in aid were deployed to defend private American interests.  In cases of expropriation, Maurer finds that the U.S. almost always succeeded in getting adequate compensation, or better.

The Cold War changed the game again. Covert actions were aimed at communist threats, yet covert actions taken in Iran and Guatemala were also intended to defend American oil interests and the United Fruit Company.  The context and technology of intervention changed with the Cold War, but the logic of the empire trap remained mostly unaltered.

The most recent innovations in the technology of enforcement are also the most revolutionary.  They provide companies with legal instruments – expropriation insurance and arbitration – for property-rights enforcement that depend on international institutions rather than discretionary executive intervention.  Expropriation insurance evolved out of a postwar program associated with the Marshall Plan.  Arbitration had always been possible, but only between sovereign states; private investors still had to call on the state.  But in the 1950s and 1960s, a series of international conventions and the creation of the International Centre for Settlement of Investment Disputes (ICSID) broke down institutional barriers so that private investors could independently enter arbitration with a foreign government.  These institutions became better enforcement mechanisms in the 1990s as more countries became signatories.  Maurer shows that the recent emergence of mechanisms that obviate the need for intervention is truly a remarkable institutional feat.

The Empire Trap traces government enforcement of private investors’ foreign property rights from the coup d’etat of Hawaii staged by American settlers in 1893 to the Venezuelan 2007 expropriation of oil properties owned by eleven multinational corporations.  It is impressive not only for its scope – by my count it examines at least 26 different episodes of international intrigue – but also for its attention to detail in each of the cases presented.  Most important, Maurer’s analysis brilliantly captures a big picture that challenges much of the conventional wisdom – showing how a small number of private investors draw government into one international quagmire after another because it was the only way they could have their property rights enforced. There had to be a better way.

One thing that the book does not offer, which I would like to have seen, is some discussion of how the U.S. approach compares with other countries. How, for example, does the enforcement of property rights in the U.S. informal empire compare with property-rights enforcement in the British formal or informal empire?  But an author must make choices about boundaries, and this project was already a large one. Comparison with other countries will undoubtedly come. The Empire Trap has permanently changed the conversation about American informal imperialism.

Alan Dye’s publications include “The Political Economy of Land Privatization in Argentina and Australia, 1810-1850: A Puzzle,” Journal of Economic History (with Sumner LaCroix, 2013).

Copyright (c) 2014 by EH.Net. All rights reserved. This work may be copied for non-profit educational uses if proper credit is given to the author and the list. For other permission, please contact the EH.Net Administrator ( Published by EH.Net (June 2014). All EH.Net reviews are archived at