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From The New International, Vol. IX No. 7, July 1943, pp. 213–216.
Transcribed & marked up by Einde O’ Callaghan for the Encyclopaedia of Trotskyism On-Line (ETOL).
Big finance capital in one country can always buy up competitors in another, politically independent country, and always does so. Economically this is quite feasible. Economic “annexation” is quite “feasible” without political annexation, and constantly occurs. In the literature on imperialism one meets at every step with information such as, for example, that Argentina is really England’s “trade colony,” that Portugal is really England’s “vassal,” etc. This is true: economic dependence upon English banks, indebtedness to England, England’s buying up of the railroads, mines, lands, etc., in other countries, all this makes these countries England’s “annexations” in the economic sense, although their political independence is not violated. – Lenin.
Were Lenin writing today, he might easily have pointed to the relationship between Bolivia and the United States as an example of the feasibility of “economic annexation.” The conquest of the South American nation did not require the use of military force – or even the threat of such measures – but took place almost exclusively on the basis of Yankee “generosity.” Investments, loans, bribery, technical advice – and not a little chicanery – these were the instruments whereby the American capitalists came into the possession and control of the decisive portion of Bolivia’s major resources – tin and oil, the ownership of the railroads and control of the banks.
Early this year, as a result of the tin miners’ strike, a furious inter-departmental tempest arose over Bolivia, a country that is seldom mentioned in our daily press. The dispute was touched off by the charge of the chief of the Division of Labor and Social Information of the Pan American Union, Ernesto Galarza, that, contrary to the Good Neighbor policy of nonintervention, Pierre Boal, American Ambassador to Bolivia had been interfering in the internal affairs of that nation. Boal was accused of having informed the Bolivian President that the enforcement of the labor code (which the Bolivian trade unions had been demanding for a long time, and which was included in the strike demands of the tin miners), would raise the price of tin beyond the financial capacity of the United States purchasers. This in spite of the fact that the Board of Economic Warfare, responsible for procuring vital war materials, had already guaranteed a higher price. President Penaranda was advised by Boal to veto the minimum labor code, which included such elementary propositions as that the workers be paid every fifteen days. Boal cabled Hull that the miners “are now paid tardily deliberately in order to maintain them on the job, and to give them a stake in their next month’s pay.” Besides, he wrote, regular pay periods would increase bookkeeping costs! Other articles to which the Ambassador took exception required the operators to sign collective contracts and one which prohibits utilizing the services of labor collectors and contractors.
The State Department issued a denial, although Hull had to admit that Boal had been instructed to “make inquiries” to the Bolivian President about the effect on prices of the proposed code. For a few days, charges and counter-charges were flying back and forth, with the upshot that Galarza lost his job and a Bolivian-American Investigating Commission was sent down to South America to make a first-hand inquiry into Bolivian labor conditions. The report of the commission, whose revelations regarding the extreme poverty of the Bolivian tin miners are in themselves a refutation of the cry of the Bolivian government that the strike was Nazi-inspired, has not been released for general distribution; only a single copy has been passed around to newspaper reporters. A sketchy, unofficial, individual report, written by one of the labor members of the commission, Martin C. Kyne, vice-president of the Retail, Wholesale and Department Store Employees of America, is now available.
There are two things to bear in mind regarding the findings of the commission. In the first place, its main concern is with the raising of the productivity of Bolivian labor through improvements in the living conditions. After all, the undernourishment of the Bolivian worker and the universal practice of chewing the cocoa leaf to dull the pangs of hunger are old, old stories. But increased productivity is a vital war necessity, especially since the other two large tin-producing areas, Malaya and the Dutch East Indies, are in Japanese hands. Today, therefore, the commission finds what it describes as “little short of feudal serfdom” and an appalling death rate due to industrial disease (silicosis and tuberculosis are prevalent and there are in all of Bolivia not more than four hundred and twenty-five doctors) contributing to the low productivity of the workers.
Secondly, in all the protest against the brutal treatment of the Bolivian miners by the government and the mine operators, no mention has been made in the liberal and labor press of the fact that most of the mines are either owned or controlled by American corporations (they justly condemn Simon Patino, but they forget to mention his partner – a New York company) and that United States imperialism is, in the last analysis, responsible for the deplorable conditions of Bolivian labor.
Two factors – nature and time – seemed to conspire to force Bolivia onto the path of economic servitude to one of the big imperialist powers. Geography is a key to Bolivia’s backwardness. Here is a country with an area of 416,040 square miles and a population of some three and a half millions, cut off from the sea (Bolivia lost the Pacific port of Antofagasta in the war with Chile in 1883), with climatic conditions which range from wintry bleakness to tropical jungle heat, split into two sections by the high mountain system which runs down the center of the continent in a longitudinal direction. On the west of the Cordillera Real, stretching from Lake Titicaca to the Chilean and Argentine borders, is the high, desolate plateau, where life is an eternal struggle for the barest necessities. Buried beneath the mountains which rise out of the Alto is the wealth of Bolivia – the tin deposits, second only to those of the Malayan states – the old silver mines, gold, copper, lead, bismuth, antimony and tungsten. The absence of coal, however, creates all sorts of difficulties for the mining industry.
The Yungas mountain valleys lead down the Cordillera to the East, where lie the fertile plains capable of yielding enough food to feed a population several times that of Bolivia’s. But, for the most part, agriculture remains as primitive and undeveloped as in the days before the Spanish conquest, except for the large estates held by absentee landlords, where Indian peons raise large quantities of cocoa and sugar cane. Foodstuffs like rice and flour are imported from Chile and the United States, although both could easily be raised in abundance in the Bolivian lowlands. Despite all the favorable conditions for cultivation, the plains have not attracted many settlers because they are cut off from the outside world. Except for the partially completed La Paz-Yungas Railway, long, hazardous mountain trails and passes traversed on mule-back or by foot are the only roads leading to eastern Bolivia. It still takes nearly forty days to go from Santa Cruz to Cochabamba, a distance of some two hundred and fifty miles! In the 1920s, a loan was made to construct a railroad between these two cities. In 1937, surveys were still being made for this railroad, and today it still remains a dream for the future.
Railroads, indispensable for industrial development, have for a long time been and still are Bolivia’s most critical need. Railroads to unite eastern and western Bolivia; railroads leading out of the country – through Chile to the Pacific, through Argentina to the Atlantic. But railroads require large outlays of capital which are lacking within the country and have to be obtained abroad. Capitalism, however, will not make financial investments in backward areas out of altruistic considerations. Railroads in Bolivia, and loans for them, had to wait until they were profitable – not to the Bolivians – but to the money-lenders. It was not until the beginning of the current century that Bolivian tin began to play an important part in world economy, and it was this fact which provided the necessary impetus for investments in railroads. In line with this, however, only such railroads were constructed as were needed to carry machinery and fuel to the tin mines and to haul the tin concentrates westward to the Pacific Ocean. In 1937, of the 1,379 miles of railroad, none went further west than Potosi and Cochabamba, centers of the mining industry, and all but 271 miles were privately owned.
In 1908, Bolivia had no foreign debts; by 1927, her foreign obligations amounted to over $40,000,000, all of which, with the exception of a small amount to England, was owed to the United States. In 1908, Bolivia borrowed 800,000 pounds sterling (roughly $4,000,000) from J.P. Morgan & Co. at six per cent, for the purpose of stabilizing exchange; in 1910, 1,500,000 pounds (roughly $7,500,000) were borrowed from the Parisian Banco de la Nacion, and in 1913 the Crédit Mobilier lent to the Bolivian government 1,000,000 pounds at five per cent to build the Atocha-La Quiaca Railway. The Yungas Railway loan of 1917 in the amount of $2,400,000, taken at six per cent from Chandler & Co. and the Equitable Trust Co. of New York, marks the beginning of long-term financing by North American banks and their economic infiltration and conquest of Bolivia. This loan was secured by a first mortgage on the electric railway built from La Paz to the Yungas, a lien on the government-owned branch of the Arica-La Paz Railway, and the first charge on the general revenues of the department of La Paz. The loan agreement also stipulated that the material used in the building of the railway and the rolling stock and equipment were to be purchased in the United States. The railroad itself was never completed; its abrupt termination on the other side of the Andes, in an uninhabited region, makes it practically worthless. The loan on this railway hangs like a dead weight on the neck of the Bolivian people.
In 1920, the government issued $2,253,000 in six per cent bonds, the so-called Sanitation Bonds, which the Ulen Contracting Co. took in payment for the construction of sewer systems in La Paz and Cochabamba. The contract in this case too called for the use of American construction materials. These bonds were secured by a lien on fifteen different customs duties and internal revenues. Since sewers are not a source of income, the entire burden of this loan has fallen on the Bolivian government, to be met out of taxes – i.e., by an intense exploitation of the Bolivian masses.
It was in 1922, however, that Bolivia was really turned over to the United States bankers. The story of the 1922 Bolivian loan is worth retelling here because it is in many respects a classic illustration of the method by which American imperialism operates – through the employment of dollar investments whenever possible, rather than troops – an expensive and dangerous operation – in the building of the Yankee empire.
In 1920, the Liberal government was overthrown by the Republicans, whose leader, Bautista Saavedra, appointed himself president. Negotiations for a loan from Imbrie & Co. for the cancellation of the French debt were broken off as a result of the overturn. The new government, however, soon found itself in need of funds to meet the annual deficits in the budget, and in 1921 it turned to the St. Louis firm of Stifel-Nicolaus for a six-month loan of $1,000,000 at six per cent. In the course of negotiating the terms of this loan, the American banking house extorted a preferential option for three years on any loan that the Bolivian government might contemplate. In 1922, the Saavedra government was again seeking a foreign loan to carry through a program of railroad construction, without which no party could remain in power in Bolivian politics. In accordance with the 1921 contract, this loan had to be taken from Stifel-Nicolaus, although more favorable terms were being offered by several other banks.
In 1922, therefore, Bolivia became saddled with a loan of $29,000,000 – a sum far in excess of the amount originally requested by the borrowers – which would run for twenty-five years, until 1947, at eight per cent. Associated with Stifel-Nicolaus were the Equitable Trust Co. of New York and the Spencer Trask Co. The specific terms of the loan are so harsh that it came in for a great deal of criticism in Bolivia and numerous futile attempts were made to moderate them. During the recent controversy over Bolivia’s situation, Roosevelt referred to the loan as unfortunate, not in keeping with the Good Neighbor policy, and so forth – but Bolivia still labors under it.
The bond issue became known as Bolivian Eights of 1947 and was secured by the national revenue as follows:
Not less than 114,000 government shares in the Banco de la Nacion. Since this number of shares was sufficient to control the bank, the American financiers obtained a stranglehold on Bolivian banking. Should the capital stock of the bank be increased at any time during the life of this loan, the government must acquire such proportion of the additional shares as to maintain its control, and such additional shares are to be immediately pledged for security on the loan.
In addition, the following revenues were pledged as security on the loan: All revenues representing dividends on the bank shares; all taxes on mining claims and concessions, taxes on all corporations, net profits of mining companies, revenues from alcohol and tobacco monopolies, all import and export duties, surcharge on import duties, tax on mortgage interests, and finally mortgages and liens upon the properties and earnings of railroads constructed and to be constructed. In the event of foreclosure sales of railroads, the purchasers shall have the right to operate them for a period of ninety-nine years from the date of purchase. In brief, all revenues except taxes and royalties from oil and oil developments were pledged to the bankers.
Moreover, to insure the actual collection of these taxes, it was stipulated that a permanent fiscal commission of three – two members of which should be chosen by bankers – should have charge of the collection of taxes for the quarter century life of the loan. One of the two commissioners chosen by the bankers also serves as director of the Banco de la Nacion Boliviana; the other is director-general of customs.
Starting with a request for a loan to build railroads, the loan grew to $29,000,000 – part of which was to be used to refund a certain amount of the outstanding debt. In most cases, however, the refunding loan carried a higher interest charge than the obligations it was supposed to repay, involving an additional loss to Bolivia. By the time advance interest charges, etc., were deducted, Bolivia obtained $26,836,939, which was used in the following manner:
|
Refunding of old debts |
$14,175,570 |
|
Services and commissions |
2,119,956 |
|
Railroad construction |
10,541,412 |
|
(or a little better than a third of the total loan) |
|
Bolivia now spends $2,900,000 a year just to service this loan.
Bolivia is one of the three large tin-producing countries and is responsible for about one-fourth of the world’s output. With the Japanese occupation of the Malay peninsula and the Dutch East Indies, Bolivian tin has become extremely important to the Allied powers – the smelting industry in England and the manufacturers in the United States. The price of tin has been rising steadily since the beginning of the war and Bolivia shows a “favorable trade balance.” Actually this is more apparent than real, since most of the tin mines are owned or controlled by North Americans, who drain off the profits outside the country, and the taxes on mining profits are used to repay the notes held by the United States bankers.
The largest mining interests are organized in the Patino Mines & Enterprises Consolidated, incorporated in the state of Delaware, and owned jointly by Simon Patino, Bolivia’s absentee tin king, and the National Lead Co. of New York. Organized in 1924, the company is capitalized at $50,000,000, includes the richest mines, a private railroad, with interests overlapping in the Williams-Harvey tin smelting concern (British) which is one-third owned by Patino. In 1942, this enterprise produced nearly one-half of the tin exported from Bolivia.
Guggenheim Brothers own outright the second largest mines, the Caracoles Tin Co. in the Potosi region. They account for over twenty per cent of the total output, and the Aramayo Mines, British owned, contributed about seven per cent. The remainder is divided up among a number of small companies, which are owned fully or in part by United States interests.
The Bolivian oil fields, which stretch from the Argentine border norward along the Cordillera Real for some three hundred miles, fell to the possession of Standard Oil of New Jersey through a system of grants and concessions, which started in 1920, when the government turned over to the Richmond Levering Co. about one million hectares of oil lands. In 1916, all oil deposits had been nationalized by law and no oil grant was to be made in perpetuity. In 1921, the Bolivian government, profiting from the Mexican experience, sought to prevent the oil lands from falling to the permanent ownership of foreign companies, amplified the 1916 law by decreeing that no one company shall receive a grant of more than 100,000 hectares, and that oil concessions shall be limited to fifty-five years. Government royalties were set at eleven per cent. The Calvo clause stipulated that foreign concessionaires waive the right of appeal to their home governments in case of dispute and that transfer of holdings to foreign governments be prohibited.
Standard Oil, however, got around these legal restrictions through a system of subsidiaries. In 1921, at organized the Standard Oil Co. of Bolivia, which took over the properties held by William Braden, who had bought up $2,500,000 worth of old Chilean titles. The new subsidiary was capitalized at $5,000,000. Later that year, the Atlantic Refining Co., closely associated with Standard Oil, obtained a concession of 3,125,000 acres of oil lands in the Lake Titicaca region. In 1922, when the Saavedra government again reduced the royalty rates from the twelve and a half and fifteen per cent to which they had been raised by his predecessor, the Richmond Levering grants passed into the hands of Standard Oil.
Drilling began in 1923 under the most difficult conditions. The oil lands were accessible only by mule trail (the building of railroads was too costly) and it was in this manner that machinery and supplies had to be hauled to the wells. By 1928, Standard Oil had to its credit seventeen abandoned wells, five successful ones, with actual production of oil a thing of the future.
Tin, oil and the loan of 1922 combined to start the war of the Chaco. From 1926, the price of tin began a steady decline and by 1931 the Bolivian government, whose revenue depended so largely on tin profits, defaulted on its loan obligations. With every source of revenue mortgaged, the Bolivian government looked to the development of oil production as a new source of income. But oil could be piped out of Bolivia only through the Chaco region to Paraguay and thence by boat down the Paraguay and Plata rivers to Buenos Aires on the Atlantic. Paraguay and Argentina, however, have oil of their own, controlled by British Dutch Shell, which was not too eager to have Standard Oil start competitive operations. In the summer of 1932, the two South American republics were at war, with Bolivia encouraged and aided by the United States and Chile, and Paraguay by England and Argentina. The struggle, in which 100,000 men were killed, lasted until July 1938, when a commission of arbitration, composed of Argentina, Brazil, Chile, Peru, Uruguay and the United States, fixed the new boundary. As a result, Paraguay kept the Chaco region, but Bolivia won the right of transit and free port privileges at Port Casado. It was an empty victory, since there has been no Bolivian oil produced which needed to be shipped through the Chaco. In 1937, the Bolivian government expropriated the oil properties and after a dispute of five years, Standard Oil finally settled in 1942 for $1,729,375 in payment for the oil rights, interest and properties, together with the maps and geological studies.
This, then, is Bolivia – American-type colony. Its condition today reveals all the unevenness and disproportion common to a latercomer on the scene of world capitalism. Its economy has had a one-sided development, useful only to the foreign imperialists. Capable of raising any number of crops to feed its population well, Bolivia suffers from starvation because all the productive energy is put into tin, for which the enslaved Indians have precious little use. Railroads have been built to carry tin concentrates to the sea, but the ordinary Bolivian still travels on mule back or afoot. For this privilege the whole wealth of the country has been mortgaged to the bankers. Today tin is bringing a high price and Bolivia is meeting her foreign obligations. Tomorrow, when the market drops or the tin deposits are exhausted, her position will become even more precarious. Bolivia is doomed to remain an economic colony so long as imperialism continues to rule the world.
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