The Big Ditch: How America Took, Built, Ran, and Ultimately Gave Away the Panama Canal

ONE: Introduction to the Ditch

o n e I N T R O D U C T I O N T O T H E D I T C H From a distance, in North America, the Panama Canal seems like an imperialist anachronism, a historical leftover from a discreditable and nearly forgotten chapter of U.S. history. Up close, however, it is immediately apparent that the Panama Canal is one of the world’s great waterways, the highly efficient economic engine for a rather prosperous Latin American country. Both of these interpretations of the Panama Canal are correct. This book was written to reconcile these seemingly conflicting points of view. There is a stylized narrative many Americans learn about the history of the Panama Canal. In the late nineteenth century, so the story goes, French private interests tried and failed to build a canal across the Isthmus of Panama. Amidst the wreckage of the French effort, President Theodore Roosevelt stepped in, unleashing America’s industrial energy on the isthmus, and in the process accidentally inspiring the greatest palindrome in the English language . The Panama Canal became an unparalleled economic and strategic success, cutting the cost of ocean transport and permitting the U.S. Navy to dominate two seas for the price of one. President Jimmy Carter, however, mysteriously decided that the United States could no longer ignore the Panamanians. And so the Americans , controversially, at great risk, and with no gain to themselves, arranged to give one of their greatest engineering triumphs to the Panamanian people, whom they fully expected to squander it. This standard story of the Panama Canal raises more questions than answers. The Isthmus of Panama might have enjoyed a uniquely privileged geographic location, but Panama remained a 2 | ChapTer one backwater for hundreds of years. The United States and Colombia were unable to negotiate an agreement on the Panama Canal to their mutual benefit, despite the obvious advantages for both nations . The Panama Canal project was a triumph of American engineering skill, but the reports of the time documented extensive delays , cost overruns, and management problems. The independent Republic of Panama remained an underdeveloped country, despite the presence of one of the world’s major commercial arteries on its territory. The Carter administration gave into Panamanian requests that American administrations had ignored for decades and agreed to return the canal back to Panama in 1999. Finally, once Panama took back ownership of the canal, the waterway became phenomenally profitable despite the growth of alternative transport routes and fuelled a prolonged economic boom after decades of stagnation and relative decline. What explains these paradoxical outcomes? Broadly speaking, this book is about the economics of American imperialism. “Imperialism,” of course, has almost as many definitions as it has authors who have written about it. The most useful definition of “imperialism,” we believe, is the use of state-enforced sanctions (or the threat of sanctions) by one political community to impose policies upon another political community.1 As with any political institution, imperialism can be formal or informal. “Formal” imperialism follows rules laid down in constitutions or treaties, in which the government of the ruling community either exercises full sovereignty or exercises direct control over specific policy spheres in the subordinate community. “Informal” imperialism follows a less transparent but not necessarily less effective set of sanctions and rewards. (The line between the two is fuzzy; an example would be a treaty giving one country the right to intervene in the internal affairs of another under specific circumstances .) Imperialism can also be direct or indirect. When the government of the ruling political community is able to routinely impose its will upon individual members of the subordinate political community—most obviously, but not exclusively, through a formal colonial administration—then imperialism is direct. If the inTroDuCTion To The DiTCh | 3 government of the ruling political community exercises its will through intermediaries, be they traditional tribal rulers or “sovereign ” elected governments, then imperialism is indirect. The literature on the economics of imperialism is long and distinguished . It has two general lacunae, however. The first is a relative lack of detailed case studies informed by quantitative analysis and economic theory. This is not to say that there is not a long and distinguished literature on the history of various imperial ventures. It is simply to say that with a few exceptions (such as Foreman’s work on India), they do not engage in the explicit...