American Sugar Kingdom: The Plantation Economy of the Spanish Caribbean, 1898-1934

4. Vertical Integration in the Colonies

• Vertical Integration in the Colonies It is commonly recognized that the sugar economies of Cuba, the Dominican Republic, and Puerto Rico in the period 1898-I 934 were dominated by large foreign corporations. The corporations were absentee owned. The structure ofownership of these corporations, however, has not been studied. How was United States capital organized in these semicolonial and colonial territories? Were the firms small and independent, or were they interlocked with each other and linked to oligopolistic structures in the United States? Were they controlled by managers, as managerial theory would have us believe? Or were they under proprietary control, and if so, how was this proprietary control organized? Were they linked to one another, related to banking capital , or vertically integrated? Were North American interests organized separately in each island, or were they organized regionally into corporations and groups of companies encompassing the three islands? This chapter seeks to answer these questions by looking at the history and interlocking directorate structure of the large concerns that controlled sugar production in the Spanish Caribbean before the Great Depression ofthe 193os.I The exact extent and precise form of organization of absentee capital in the islands of the Spanish Caribbean had a direct bearing on the process ofdevelopment. Direct VERTICAL INTEGRATION IN THE COLONIES 75 foreign investment in plantations contributed to the overspecialization of the islands in the production ofsugar and blocked an alternative path ofdevelopment based on national ownership and a diversified economy. Whereas the precise forms of political rule of the territories occupied by the United States varied considerably, from direct colonial rule in Puerto Rico to indirect rule in Cuba under the provisions of the Platt Amendment, the pattern ofindustrial organization in the sugar industry was similar across the islands. Vertically integrated enterprises, controlled by the same groups of US. refiners, owned a considerable share of sugar production in each island. The empirical evidence examined here shows, furthermore, that US. capital was organized into structures that encompassed the three islands. Some groups of US. refiners owned plantations in all three islands. This opens the possibility of studying the sugar industry and the process ofunderdevelopment comparatively across the islands and gives rise to an important methodological question in the study ofdevelopment and underdevelopment in the region. Given the fact ofcommon absentee ownership, does it not make more sense to study the region as awhole and comparatively instead ofeach "national" economy separately? Most scholars who have studied US. investments in the Spanish Caribbean have focused on one island and have thus lost sight of the regional framework within which US. capital operated. The evidence also suggests that the so-called managerialist thesis is inadequate for explaining overseas corporate expansion. The managerialist paradigm holds that the emergence of the modern corporation signified the emergence of manager control over the assets of capitalist enterprises. Its main weakness when applied to a colonial context is that it is incapable of explaining the expansion of metropolitan capital because such control was based on ties organized essentially around property rights, not around managerial prerogatives. A wide structure of proprietary control existed, and it encompassed the sugar refining industry ofthe United States, large New York banks, and colonial plantations in Puerto Rico, Cuba, and the Dominican Republic. The findings confirm the analysis ofMaurice Zeitlin and support the notion that the theory of managerial control is based on paucity ofinformation about real centers ofproprietary control.2 The process of vertical integration of US. corporations was not an unproblematic or "efficient" market response to increased demand for raw materials. Instead, power struggles among refiners gave initial impetus to the process ofvertical integration, and the final emergence of vertically integrated groups of plantations and refineries depended on the power of the metropolitan state, which created the conditions for the expansion of US. big business through colonial military intervention and 76 VERTICAL INTEGRATION IN THE COLONIES through the enforcement of a colonial division of labor imposed by the metropolitan tariff system. United States military interventions paved the way for the expansion ofUS. capital and the development ofa monocultural sugar plantation economy encompassing Cuba, Puerto Rico, and the Dominican Republic. In contrast to the United States South after the Civil War, there were no major movements of settlers or carpetbaggers to the islands. Instead, highly organized capital came to reap the profits of colonial enterprise. Many of the sugar companies operating in the Spanish Caribbean were vertically integrated...