GRAD J X Jx 1428.C9 W95 ^I~TY OA ya~~~;p' A< /1 X ^' > li ^^'7 x^^ ^'ir^-l QS $c V'Si?^^',V?, \4% _ tR.Y^^ - "^A^~*?" THE INSTITUTE OF ECONOMICS OF THE BROOKINGS INSTITUTION The Carnegie Corporation of New York in establishing the Institute of Economics declared: "The Carnegie Corporation, in committing to the Trustees the administration of the endowment, over which the Corporation will have no control whatsoever, has in mind a single purpose-namely, that the Institute shall be conducted with the sole object of ascertaining the facts about current economic problems and of interpreting these facts for the people of the United States in the most simple and understandable form. The Institute shall be administered by its Trustees without regard to the special interests of any group in the body politic, whether political, social, or economic." PUBLICATION No. 42 THE BROOKINGS INSTITUTION The Brookings Institution-Devoted to Public Service through Research and Training in the Humanistic Scienceswas incorporated on December 8, 1927. Broadly stated, the Institution has two primary purposes: The first is to aid constructively in the development of sound national policies; and the second is to offer training of a super-graduate character to students of the social sciences. The Institution will maintain a series of co-operating institutes, equipped to carry out comprehensive and inter-related research projects. The responsibility for the final determination of the Institution's policies and its program of work and for the administration of its endowment is vested in a self-perpetuating Board of Trustees. The Trustees have, however, defined their position with reference to the investigations conducted by the Institution in a by-law provision reading as follows: "The primary function of the Trustees is not to express their views upon the scientific investigations conducted by any division of the Institution, but only to make it possible for such scientific work to be done under the most favorable auspices." Major responsibility for "formulating general policies and coordinating the activities of the various divisions of the Institution" is vested in the President. The by-laws provide also that "there shall be an Advisory Council selected by the President from among the scientific staff of the Institution and representing the different divisions of the Institution." BOARD OF TRUSTEES ROBERT S. BROOKINGS VERNON KELLOGG WHITEFOORD R. COLE SAMUEL MATHER FREDERIC A. DELANO JOHN C. MERRIAM GEORGE EASTMAN HAROLD G. MOULTON RAYMOND B. FOSDICK JOHN BARTON PAYNE JEROME D. GREENE LEO S. ROWE ERNEST M. HOPKINS BOLTON SMITH DAVID F. HOUSTON PAUL M. WARBURG OFFICERS ROBERT S. BROOKINGS, Chairman LEO S. ROWE, Vice-Chairman FREDERIC A. DELANO, Treasurer HAROLD G. MOULTON, President ADVISORY COUNCIL (1931-32) CHARLES 0. HARDY EDWIN G. NOURSE ROBERT R. KUCZYNSKI HENRY P. SEIDEMANN LEVERETT S. LYON WILLIAM F. WILLOUGHBY THE CUBAN SITUATION AND OUR TREATY RELATIONS THE CUBAN SITUATION AND OUR TREATY RELATIONS by PHILIP G. WRIGHT WASHINGTON, D. C. THE BROOKINGS INSTITUTION 1931 i, I._~~~~~*-~ ~ I I, I. II b \ < H I/ orr COPYRIGHT, 1931, BY THE BROOKINGS INSTITUTION Set up and printed. Published September, 1931. All rights reserved, including the right of reproduction in whole or in part in any form. Bibsiothek des Bibliothek Hesssischn Land el a Printed in the United States of America by The Printing Corporation of America Washington, D. C. 7\ J ~~~Each investigation conducted under the auspices of The Brookings Institution is in a very real sense an institu-e tional product. Before a suggested project is undertaken it is given thorough consideration, not only by the Director and the staff members of the Institute in whose field it lies, but also by the Advisory Council of The Brookings Institution. As soon as the pro ject is approved, the investigation is placed under the supervision of a special Committee consisting of the Director of the Institute and two or more selected staff members. IIt is the function of this Committee to advise and counsel with the author in planning the analysis and to give such aid as may be possible in rendering the study worthy of publication. The Committee may refuse to recommend its publication by the Institution, if the study turns out to be defective in literary form or if the analysis in general is not of a scholarly character. If, however, the work is admittedly of a scholarly character and yet members of the Committee, after full discussion, can not agree with the author on certain phases of the analysis, the study will be published in a f orm satisfactory to the author, and the disagreeing Committee member or members may, if they deem the matter of suffici~ent importance, contribute criticisms for publication as dissenting footnotes or as appendices. After the book is approved by the Institute for publication a digest of it is placed before the Advisory Council of The Brookings Institution. The Advisory Council does not undertake to revise or edit the manuscript, but each member is afforded an opportunity to criticize the analysis and, if so disposed, to prepare a dissenting opinion. DIRECTOR'S PREFACE The part played by the United States in the winning of Cuban freedom and the intimate and peculiar treaty relations which were entered into between the two countries give the affairs of Cuba a place of exceptional interest to Americans in general and to American business men in particular. Our citizens have invested over a billion dollars in Cuba, and own more than three-fourths of the enormous sugar industry of the Island. Since the overwhelming growth of this industry has been due in no small part to the provisions of our treaties, and since the one-crop industrialized type of agricultural development has suffered a collapse which has threatened the whole economic and political stability of the Island, it seems an opportune time for Americans to make an objective analysis of the present situation. Only so is wisdom likely to govern our attitude and actions in the future. The study is confined in the main to the development of the sugar industry, the part which our treaty relations have played in this development, and its bearing on Cuban industry and trade. Other factors, some of them of great importance in themselves, notably the political situation and the banking situation, are touched upon only so far as is necessary to afford an adequate setting to the main theme. The members of the staff who served on the committee which co-operated with the author in the preparation of this volume were Leverett S. Lyon, Lynn R. Edminster, and Charles O. Hardy. EDWIN G. NOURSE, Institute of Economics Director. August, 1931 ix AUTHOR'S ACKNOWLEDGMENTS Besides making grateful acknowledgment to various members of the staff of the Institute of Economics, the author desires to thank His Excellency Orestes Ferrara, Cuban ambassador to the United States, for a careful reading and criticism of the manuscript, especially in matters relating to the history of Cuba, and for assisting the author to obtain data from the Cuban Departments of Commerce and Agriculture. The United States Tariff Commission freely extended the courtesy of its sugar division in obtaining material relating to production and prices. PHILIP G. WRIGHT. xi CONTENTS PAGE DIRECTOR'S PREFACE............................... ix AUTHOR'S ACKNOWLEDGMENTS...................... xi INTRODUCTION.................................... 1 CHAPTER I AMERICAN INTERVENTION.. 5 I. Political Reasons........................... 5 II. Economic Reasons.......................... 7 III. Events Leading to Intervention.............. 10 IV. Intervention............................... 12 CHAPTER II "CUBA LIBRE": OUR TREATY RELATIONS.............. 18 I. The Platt Amendment...................... 18 II. The Reciprocity Treaty..................... 23 III. Intervention under the Platt Amendment...... 31 IV. The Machado Administration................ 43 V. The Attitude of the United States........... 45 VI. Relation between the Treaty and American Investment.............................. 46 CHAPTER III CUBA'S RESOURCES: GROWTH OF THE SUGAR INDUSTRY THROUGH 1921.................................. 48 I. Cuba's Natural Resources................... 48 II. Cuba's Sugar Industry to 1921.............. 51 CHAPTER IV DEVELOPMENT OF THE CUBAN SUGAR INDUSTRY SINCE 1921........................................... 73 CHAPTER V CUBA'S OTHER INDUSTRIES AS AFFECTED BY THE SUGAR INDUSTRY AND BY OUR TREATY RELATIONS......... 102 I. Cuba's Industries and American Investment in Them................................... 103 II. Effect of Treaty Relations in Promoting Cuban Industry and in Diverting Trade to the United States............................ 123 xiii xiv CONTENTS CHAPTER VI BEARING OF OUR TREATY RELATIONS AND OF SUGAR ON CUBAN IMPORTS................................. 139 CHAPTER VII SUMMARY AND CONCLUSIONS....................... 165 APPENDICES APPENDIX A AMERICAN POLICY WITH RESPECT TO CUBA AS DEFINED BY SECRETARY ROOT............................. 189 APPENDIX B THE PLATT AMENDMENT........................... 191 APPENDIX C RECIPROCITY CONVENTION BETWEEN THE UNITED STATES AND CUBA...................................... 193 INDEX........................................... 201 INTRODUCTION This study is concerned with two subjects, the Cuban economic situation and our treaty relations with Cuba. These subjects on the surface may appear to be distinct, but they are in reality sufficiently connected so that one of them cannot be profitably studied without the other. However, the twofold nature of our subject matter will account for whatever lack of unity may appear in the discussion. Both elements are treated in some detail and an attempt is made to fuse them at their points of contact. Cuba is subject to periods of superlative business exaltation and business depression. All commercial countries are subject to business fluctuations but in Cuba they are peculiarly violent. During 1919 and the spring months of 1920 prosperity was so great and so permeating through all strata of society that the period came to be known as the "Dance of the Millions." The following year was one of complete collapse. In the fall of 1920 a moratorium was declared, in the following spring all of the Cuban banks failed and the property of many of the great sugar centrals went into the hands of foreign banks doing business in Cuba. For the first time in its history the nation defaulted in interest on its national debt. At the present writing, the country is again in a state of depression rivaling that of 1921. Several of the sugar centrals, among them the greatest of all, have gone into liquidation, and many others are virtually in the same situation but are being carried along by some of the great New York banks. The rural population in some regions is kept alive by rations doled out by the sugar centrals, and there is no immediate prospect of improvement. 1 2 THE CUBAN SITUATION The chief reason for these violent fluctuations is to be found in the fact that the sugar industry so dominates the entire economic life of the people that Cuba may without any great impropriety be called a onecrop country. When the sugar industry is prosperous Cuba is prosperous. When the sugar industry is depressed Cuba is depressed. This matter is of concern to the people of the United States not merely because of the broad human interest which we feel for the welfare of any friendly nation but also because we are attached to Cuba by "ties of peculiar intimacy" and are in some measure responsible for the ups and downs of her economic life. Our relations with Cuba are in fact unique in two particulars. Two treaties, unlike agreements in force between the United States and any other nation, exist between the United States and Cuba. The first of these, known as the "Permanent Treaty" or the "Platt Amendment," provides that the United States in certain exigencies has the right, and, indeed, the duty, to intervene in Cuban affairs. The provisions of this Treaty are also embodied in the Cuban Constitution. The other treaty is known as the "Reciprocity Treaty." Under it each country grants tariff concessions on imports of all products of the soil and industry of the other, and the Treaty further provides that while it is in force neither country shall grant similar concessions to any other country. It does not, however, prevent either country at any time from raising or lowering its general rates, but it does provide that if either country does so raise or lower its rates the same concession, computed as a percentage, shall apply to the new rates.1 1 The statement in the text to the effect that our relations with Cuba are unique has reference to the present time. The United States in the past has made reciprocity treaties with other countries-once with Canada and once with the Hawaiian Islands. INTRODUCTION 3 Cuba has asked for a revision of the Reciprocity Treaty more favorable to her interests, and Cuban pride is sensitive to the alleged derogation of her sovereignity implied in the Platt Amendment. Many persons in the United States also are questioning the wisdom of both of these arrangements. On the other hand, during the last quarter of a century business has adjusted itself to them and vast money interests, American as well as Cuban, are at stake. A careful study of the whole situation thus seems timely. Our treaty relations with Cuba, of course, have a history. They are intimately connected with the forces which are responsible for the peculiar violence of Cuba's business fluctuations. There is a logic in events. We cannot make an intelligent judgment with respect to the present without knowing its setting in the past. Accordingly, we shall begin this study with a brief resume of the circumstances which in 1898 led the United States to intervene in the Cuban War for Independence and at the close of the War to enter into the special treaty relations just referred to. We shall then cover rapidly the main events of Cuban history, especially such as have led to intervention, or nearintervention, under the provisions of the Platt Amendment. In this setting, we shall then study Cuba's economic development with especial reference to her great industry. We shall show how the sugar industry has grown to enormous proportions, encroaching upon and dwarfing other industries until it has become the dominating factor of Cuban economic life. We shall show the part played in this growth by American investment, by our treaty relations, by the Great War, and by the commercial policies of competing nations. We shall show how as a result of this rapid growth the sugar industry came to forfeit any benefit for itself from the 4 THE CUBAN SITUATION Reciprocity Treaty and in large measure to nullify the benefits which other industries might have received. We shall show how our treaty relations and other factors contributed to attract American investments to Cuba, especially to her sugar industry, until some 75 per cent of that industry was under American control. We shall show how this industry has come to dominate not only the export trade but also the import trade of the Island. And finally we shall present the unhappy outcome of this process of evolution-a country, unsurpassed in its climate and natural resources, brought to a state of industrial stagnation, a once independent rural population in helpless subjection to foreign overlordship, and the overlords themselves helpless in the presence of foreign tariffs and world-wide conditions of supply and demand. In the course of this narrative space will be given to the attempts which Cuba has made and is still making to extricate herself from her difficult economic position —crop limitation, the Claret plan, the Gutierrez plan, the National Sugar Export Corporation, and the work of the Chadbourne Committee in endeavoring to obtain a world agreement to limitation of output. The last chapter will be devoted to a summary of the preceding chapters, and to some discussion of the wisdom of retaining our treaty relations, but the main emphasis will be given to a discussion of the several projects under way for improving Cuba's economic position, with the final conclusion that while the attempt at control of world output may be temporarily helpful, and that much is possible from strengthening of world demand, Cuba's position will remain precarious until she has effected a substantial diversification of her industries. CHAPTER I AMERICAN INTERVENTION Why did the United States in 1898 intervene in the war between Spain and the Cuban revolutionists? The reasons were partly political, partly economic, and partly humanitarian. There is no sharp line of demarcation between political and economic motives. A political policy usually has an economic motive in the background. In the present discussion those features of our policy which had as their primary aim the strengthening and consolidation of the nation will be called political while motives looking primarily to private gain will be called economic. I. POLITICAL REASONS The United States has from the first been vitally interested in the political status of Cuba-more vitally, perhaps, than in any region of like extent outside of its own boundaries. A glance at the map will show the reason. It will reveal Cuba as a long, narrow island stretching for some 760 miles eastward from a line connecting Florida and Yucatan, and standing thus as a sentinel at the entrance of the Gulf of Mexico. It will also be seen that this island has many excellent harbors on both its northern and southern coast line, while the adjacent mainland is rather conspicuously deficient in good harbors. The power that controls Cuba can control the traffic of the Gulf. This circumstance shaped American policy with respect to Cuba for many years. Navigation of the Gulf was essential to national development. It was written in the "manifest destiny" of the United States that population should move westward and occupy the great 5 6 THE CUBAN SITUATION Mississippi Basin. But between the Mississippi Basin and the seaboard cities lay the Allegheny Mountains. Until the advent of railroads the only outlets for the products of this vast region were by way of the Great Lakes and the St. Lawrence River or the Erie Canal on the north or the Mississippi River and the Gulf of Mexico on the south. As population continued to move westward and to occupy the Pacific Coast region-separated from the East by the Rocky Mountains and the Great American Desert-means of communication became imperative to the full integrity of the Federal Union. Something better must be devised than the long voyage around Cape Horn or the covered wagon creeping across the desert. Railroads were an ultimate solution but long before their time it was foreseen that another solution was an all-water route by way of the Gulf of Mexico and a canal to be cut through the Isthmus of Panama. The control of Cuba meant the control of the Gulf, and free navigation of the Gulf was essential to our logical development as a nation, if not to our national security. Hence, for many decades the political status of Cuba remained a matter of profound American concern and a vexed question of national policy. The question, however, did not become prominent until after the cession of Florida to the United States in 1819.' Cuba remained in the possession of Spain, but from this time on there was a growing movement among Cubans, fired by the success of other Spanish colonies, for complete independence. In the United States there was no little sympathy with Cubans in their aspirations for independence. There was also a movement for annexation, which gradually gained strength up to the time of ' The treaty ceding Florida to the United States was signed in 1819 but was not ratified by Spain until two years later. AMERICAN INTERVENTION 7 the Civil War. The latter movement went to the point of instructions to our minister to Spain to open negotiations. Indeed, there was a veiled threat that if Cuba could not be obtained by purchase, she would be taken by force.2 But whatever may have been the difference of opinion as to what should be done-whether Cuba should remain with Spain, become an independent republic, or be annexed to the United States-there was general agreement as to what should not be done. Cuba should not be permitted to fall into the hands of Great Britain or France. The menace was believed to be much greater with Cuba in the hands of either of these aggressive powers than in the hands of a waning power such as Spain was at that time thought by Americans to be. II. ECONOMIC REASONS Political considerations, therefore, made the fate of Cuba a matter of deep concern to American statesmen. Hardly less important-certainly in the eyes of American business men - were economic considerations. Cuba possesses great natural resources. Under a stable and enlightened government few countries can be made to yield such bountiful returns. To the "Pearl of the 2 This threat was not officially sanctioned by any administration. It appeared in the so-called Ostend Manifesto, drafted by Soule, minister to Spain during the Pierce administration, and signed by him and by Buchanan and Mason, ministers respectively to England and France. The Manifesto was in the form of a report to Secretary Marcy and the paragraph suggesting violence read as follows: "After we shall have offered Spain a price for Cuba far beyond its present value, and this shall have been refused, it will then be time to consider the question, does Cuba, in the possession of Spain, seriously endanger our internal peace and the existence of our cherished Union? Should this question be answered in the affirmative, then, by every law, human and divine, we shall be justified in wresting it from Spain if we possess the power."-Chapman, C. E., A History of the Cuban Repviblic, p. 60. 8 THE CUBAN SITUATION Antilles" Spain clung with more desperation than to any other of her American colonies. The island has few mountains, the soil of its plains is fertile, and the climate favorable to agriculture of a tropical or semitropical character. It is suited to a diversified agriculture, including, however, no bread grains, except maize. A number of important crops, among which may be mentioned tobacco, pineapple, grapefruit, tomatoes, peppers, alligator pears, henequen and other fibres, cacao beans, and coconuts, are successfully raised and their output might be greatly increased. It possesses rich deposits of iron, copper, manganese, and asphalt. All of the items mentioned as well as cattle, honey, beeswax, mahogany, and sponges and other sea products are produced in sufficient quantities to be articles of export. But all of them, individually and collectively, sink into insignificance as compared with sugar. Production of cane and of sugar and molasses from the cane has so dominated Cuban industry in recent years that Cuba is usually thought of as a one-crop country. No other region in the world is so well adapted to the cultivation of the canle, and Cuba in fact produces more sugar than any other country. Her annual production is not far from 5,000,000 tons out of a world total of some 18,500,000 tons of cane sugar or of 2G,000,000 tons of cane and beet sugar combined.3 3 One reason for the supremacy of Cuba is the adaptability of the soil to continued "ratooning." There are two methods of growing sugar cane. The crop may be grown from "seed cane" or from "ratoons." By the former method a shallow furrow is plowed across the field and overlapping canes placed lengthwise therein. Shoots spring from the joints. By the second method, after cane has been cut, the roots are left in the ground and from them spring fresh shoots or "ratoons." Obviously, other things being equal, the greater the number of successive crops that can be grown by ratooning the less the cost. Some idea of the superiority of Cuba in this respect can be gained by a comparison with Louisiana. In Louisiana a seed-cane crop is followed by one ratoon crop (or a crop of stubble cane as it is AMERICAN INTERVENTION 9 With a country at our very doors so inviting to exploitation and with American capital eagerly seeking investment, the economic reason for American interest in Cuba is apparent. But if American business men were to gain the full benefit of these natural advantages tranquillity must be assured. Turbulence and near anarchy made investment hazardous. What business men in the United States, therefore, wanted for Cuba in the nineteenth century was a stable government affording in the first place favorable terms to foreign investment and adequate protection to life and property, and in the second place, security in commerce both with Cuba and with the rest of the Caribbean area. Business men, however, were no better united as to what ought to be done to attain these ends than were the politicians. On the whole the prevailing sentiment was probably in favor of a reformed Spanish rule rather than of revolution and independence. The large negro population made Americans apprehensive of the stability of an enfranchised democracy which might follow a successful revolution. Nor, except in the Southern states, were they enthusiastic for annexation. In the South before the Civil War, the movement for annexation was very strong. Cuba, like northern Mexico (later Texas) was coveted as a suitable field for the extension of the slave power. The cultivation of cane like that of cotton lent itself to slave labor. The Civil War, putting an end to the slave power, also put an end to any vitality in the movement for annexation. In the United States, therefore, political and economic considerations for some change in the political status called in that state), and the third year a crop of soy beans or cow peas is plowed in to restore the fertility. In Cuba the land may be profitably ratooned for eight or ten years-in some regions for as many as twenty. 10 THE CUBAN SITUATION of Cuba were ever lurking in the background, and frequently coming to the front. III. EVENTS LEADING TO INTERVENTION In Cuba, during these years, dissatisfaction with the status quo was more active than in the United States, but there was little more unanimity of opinion as to how it ought to be changed. Under Spanish rule the governor and all higher government officials were Spaniards. Governors were frequently changed and whatever were their circumstances when appointed, they went back to Spain enormously rich, and all of the office holders down to the lowest took their step from the governor. Nevertheless, not all Cubans were enthusiastic for independence. The revolution of 1868 -1878, it is true, begun at a time when slavery was still in existence, was led by the wealthiest and most cultured Cubans. But one of the results of this revolution was the abolition of slavery and at the time of the final War for Independence in 1895 the substantial classes, Spaniards and native Cubans, were hesitant. They were aristocratic and fearful of the masses, especially the negro masses, and in spite of graft and greed they preferred Spanish to Cuban rule-but they wanted a Spanish rule radically reformed. Some were favorable to annexation to the United States. It must be remembered that from a fourth to a third of the population of Cuba is negro or mulatto 4 and while the social status of the blacks is relatively much better than in the United States, nevertheless the Spaniards and white Cubans, like business men in the United States, hesitated at the prospect of democracy with so large a proportion of the population persons of color. ' In the census of 1919, 27 per cent of the population was so classified. AMERICAN INTERVENTION 11 The rank and file of the population, however, had set their hearts on freedom from Spain, and would be satisfied with nothing short of complete independence. For this end they were willing to fight and did in fact engage in two serious uprisings against Spanish rule before the final war which, with the aid of American intervention, secured their much coveted independence. It is not the purpose of this study to enter upon military details of the Cuban uprisings. It is, however, significant of the consciousness among Cubans of American interest in their affairs and especially of the interest in the Southern states, that Narciso Lopez, the leader of the first revolt, offered the command to Jefferson Davis, Robert E. Lee, and Governor Quitman of Mississippi. Each declined, but it is significant that they all gave the offer serious consideration. Lopez then assumed command himself. He gained some followers and met with some successes, but was captured and executed. This revolt lasted from 1848 to 1851. The next uprising took place in 1868 and lasted ten years. It was waged with great ferocity on both sides, costing the Cubans some 200,000 lives and $700,000,000 in property loss. The rebellion was eventually suppressed, but as a result of it the Cubans were distinctly nearer their goal. They had learned their power and had wrung substantial concessions from Spain, the most important of which were a pledge of political amnesty, the abolition of slavery, and a promise of political reform. The negroes had fought in the "patriot" armies and had proved themselves valient and efficient soldiers. The Cubans were temporarily put down, but the years from 1878, terminating the Ten Years' War, to 1895, the beginning of the final struggle for independence, were virtually merely a period of preparation for war. This was understood in Cuba and it was 12 THE CUBAN SITUATION probably well enough understood in Spain and in the United States also. The bearing of these fierce struggles upon our subject is this: The government at Washington was becoming more and more convinced that in some way peace and order must be restored. A perennially turbulent Cuba might easily become involved in international complications which would prove seriously embarrassing to the United States. Moreover, American business men, whether eager to exploit Cuba's natural resources or interested in trade around and through the Caribbean, desired peace and security. If these could be obtained by a reformed Spanish rule, well; if by annexation, well; and if by successful revolution, also well; but these they must have. Hence political and economic motives were converging on intervention, should hostilities again arise, and converging on intervention of a sort that would effectually prevent further turbulence. However, it is doubtful if these considerations alone would have led the United States to take part in the war which the Cuban patriots began in 1895. Humanitarian reasons tipped the beam. IV. INTERVENTION It came about in this wise. War had been going on with increasing savagery for three years. Maximo G6mez, the patriot leader, had announced that if the Spaniards would not give up Cuba he would make the country worthless to them. He issued orders that nobody was to engage in any commerce with towns in Spanish possession or to raise any sugar, nor were laborers to work in sugar factories. Violation meant destruction of property and death. Other properties which might be of aid to the enemy were put to the torch. The Spaniards, especially after entrusting the AMERICAN INTERVENTION 13 conduct of the war to General Weyler, responded in kind. As a result of these policies little destructible property was left standing and as a further result Americans having investments in Cuba-and such investments even at this time were estimated at some 30 to 50 million dollars-found the situation intolerable. Moreover, during the 17 years between the second and third insurrection,5 Jose Marti and Estrada Palma, both Cuban patriots who had been active in the former war, spent their time in the United States organizing American sympathy for the Cuban cause. Marti reorganized the Cuban junta in New York. Clubs of Cuban sympathizers sprang up in other parts of the country, especially in Florida. It is said that there were 61 such clubs in Key West and 15 in Tampa. Funds were solicited and expeditions planned. The United States government intercepted three vessels of the junta. Popular sentiment in favor of the Cuban cause was kindled. It needed only some burning point on which a diffused public feeling could focus. Such burning points were found in General Weyler's method of conducting the war, and in the sinking of the American battleship Maine. When the war broke out the Spanish forces were commanded by General Martinez Campos, the victor of the Ten Years' War, who was disposed to be moderate and conciliatory in his methods. As he appeared to be losing ground he was superseded by Valeriano Weyler who had won a reputation for cruelty in the former war, a reputation which he augmented till he came to be known as "Butcher" Weyler. He introduced the "reconcentrado" policy. Men, women, and children from all over the Island were forcibly moved to garrisoned towns or concentration camps. No civilian was permitted to go into 6 There were several minor insurrections, but those mentioned in the text were the most important. 14 THE CUBAN SITUATION the rural districts without a passport. People were crowded into cities and camps, with nothing to do, and without food or sanitary provisions. It is said that 52,000 perished of hunger and disease in the province of Havana alone. The American press played up the situation with great effect. Popular indignation and sympathy were brought to focus and burst into flame. Spain, becoming alarmed, recalled Weyler late in 1897 and substituted Ramon Blanco, a man of more humane type. He announced a policy of reform, including abolition of the reconcentrado camps and the establishment of home rule, and indeed set up an autonomist government in January, 1898. But now it was the diehard Spaniards in Cuba who made trouble. They instituted demonstrations again Blanco, against home rule, and against the United States and all American citizens in Cuba. To protect American interests the Maine was sent to Havana. On February 15, while lying quietly in harbor, this vessel was mysteriously blown up with the loss of 264 lives. It was never proved that Spain was in any way responsible for this tragedy, but that made no difference in the then frenzied state of mind in the United States. The conflagration broke. "Remember the Maine" became a slogan, and though Spain expressed willingness to meet nearly all of the conditions imposed by the United States government, it was too late. War was declared. It was a brief war, characterized by a naval victory under Admiral Dewey in Manila Bay, the occupation of the Philippine Islands and Porto Rico, the bottling up of the Spanish fleet in Santiago Harbor and its complete destruction when it attempted to run the blockade, and the campaign of the "Rough Riders" under Theodore Roosevelt. War had been declared on April 11 and by July 26 Spain was ready to sue for peace. AMERICAN INTERVENTION 15 The treaty terminating the war and at the same time Spanish rule in Cuba was signed April 11, 1899, just one year from the date of McKinley's message to Congress which virtually began the war. Spanish rule had ended: what was to take its place? It was generally expected in Europe that Cuba would be annexed to the United States. Spain herself preferred such a settlement of the problem to Cuban independence and endeavored to secure it in thie negotiation of the treaty of peace; partly, as alleged, because she thought that the life and property of Spaniards in Cuba would be more secure under American than under Cuban rule, and partly because she wished to transfer to the United States that part of the public debt budgeted as "Cuba." The Cuban revolutionists themselves feared that annexation would be the outcome. American intervention had aroused little enthusiasm. G6mez wished that no American troops should be landed, except perhaps some artillery. Yet from the first the United States had disclaimed any intention of annexing Cuba. In his first annual message to Congress in December, 1897, President McKinley in discussing the intolerable situation in Cuba had raised the question as to what action the United States should take and pointed out several possible courses of procedurerecognition of belligerency or independence, intervention against both sides or in favor of one side against the other-but of annexation he said: I speak not of forcible annexation, for that cannot be thought of. That, by our code of morality, would be criminal aggression.6 6 This repugnance to criminal aggression did not, apparently, extend to Porto Rico and the Philippine Islands. As a result of the war, the former was taken without asking the consent of the inhabitants and the latter against their armed resistance. Spain was paid $20,000,000 and the Philippine Islands were occupied. 16 THE CUBAN SITUATION To the joint resolution of April 20, which empowered the President to use the army and navy to terminate Spanish rule, was attached an amendment proposed by Senator Teller which read: That the United States hereby disclaims any disposition or intention to exercise sovereignty, jurisdiction, or control over said Island except for the pacification thereof, and asserts its determination, when that is accomplished, to leave the government and control of the Island in the hands of its people. At the time of the signing of the treaty of peace, however, the people of Cuba were in no condition to assume the responsibilities of government. They were dying of starvation and disease, industry was at a standstill, and what property Weyler had spared the armies of Gomez had destroyed. Responsibility for restoration devolved on the United States. The solution was found in the appointment of a military governor, first of General John R. Brooke and then of General Leonard Wood, to take charge of affairs in Cuba pending the adoption of a constitution and the election of officers of what was to be the new Cuban Republic. General Brooke took the initial steps in restoring order. He remained at the head of affairs till December, 1899, supplying food and medicine and reconstructing the governmental machinery. General Wood on assuming command proceeded with great energy-indeed, he has been described by one of his admirers as a human dynamo. During his administration from December, 1899, to May, 1902, the courts were reorganized, schools were established throughout the Island, yellow fever was stamped out and sanitary conditions were improved, prison reform was accomplished, and many public works were advanced. Under this head are to be enumerated hospitals, roads, AMERICAN INTERVENTION 17 bridges, telegraphs and telephones, and an efficient customs service. Under instructions from Washington he also took measures to prepare Cuba for self-government. He issued orders providing for the selection of delegates to frame a constitution for the new Republic and for the election of a president and other officials. In due time the constitution was drafted and adopted, the president elected, and on May 20, 1902, amidst fireworks and a frenzy of rejoicing, the Cuban flag was run up on the presidential palace and on Morro castle and "Cuba Libre" was an accomplished fact. In the midst of this rejoicing General Wood quietly went on board a vessel waiting for him in the harbor and returned to the United States. CHAPTER II "CUBA LIBRE": OUR TREATY RELATIONS The "free Cuba" established in 1902 had a string attached to it. The order for the election of delegates to a constitutional convention issued by General Wood on July 25, 1900, contained the following words: The convention was "to frame and adopt a constitution for the people of Cuba, and, as a part thereof, to provide for and agree with the government of the United States upon the relations between that government and the government of Cuba." What did this last phase mean? The delegates knew very well, though they would have liked to ignore it and, indeed, in the first draft which they prepared, did ignore it. I. THE PLATT AMENDMENT In the message which President McKinley sent to Congress on April 11, 1898-the message which brought on the war-occur these words: "In the name of humanity, in the name of civilization, in behalf of endangered American interests which give us the right and the duty to speak and to act, the war in Cuba must stop." If this sentence be read critically it will be observed that there is no comma after "American interests." From the standpoint of the American people whose feelings had been harrowed by the representations of Marti and Palma and by the cruelty of Weyler, as they read of his acts from day to day in the press, the war was waged "in the name of humanity." No person whose memory extends back to that period of excitement will doubt this statement. It was difficult for the administration to resist the popular pressure even before the sinking of the Maine. After that 18 OUR TREATY RELATIONS 19 tragedy the pressure became irresistible. And it would be unfair to President McKinley and his advisers to assert that they were unmoved by the same appeal, but it must not be overlooked that what the President asserted gave the United States "the right and the duty to speak and to act" was "endangered American interests." What these interests were, political and economic, it has been the main purpose of the preceding pages to bring out. The political interests were adequately summed up in the letter of instructions which Secretary Root sent to General Wood on February 9, 1901, and which the latter had communicated to the convention which was to draft the constitution. They were to the effect that it had hitherto been regarded as vital to American interests that Cuba should not fall into the hands of any foreign power other than Spain. He cited a long line of statesmen from Jefferson to Everett in justification of this position, and stated that since Spain had been ousted it was equally vital that Cuba should not be permitted to fall into the hands of any foreign power whatever. As Cuba alone might not be able to preserve her independence against the aggression of a powerful foreign antagonist, she must recognize in her constitution the right of the United States to aid her. It must also be provided that the United States should have the right to intervene to prevent Cuba from performing acts which might justify intervention by any other foreign power —such as incurring foreign debts which could not be paid or rendering the lives and property of foreigners insecure.1 The matter of debts and the security to life and property were advanced by Secretary Root as part of 1 See Appendix A, p. 189, for extracts from the text of Secretary Root's letter. 20 THE CUBAN SITUATION the political interest. In these matters it is obvious that there was also a direct economic interest. Inconspicuously placed in McKinley's message was an allusion to the economic interests which had given the "right and the duty to speak and to act." It is found in the words: "We have... become... the guarantors of a stable and orderly government protecting life and property in that Island." Even at the time of the War for Independence (1895) American investments in Cuba were substantial. Such were the resources of the Island that they had grown in spite of unfavorable conditions under Spanish rule. Roads, railroads, harbors, docks, warehouses, and credit facilities were inadequate. The unsatisfactory political conditions resulting in the recurrent insurrections which have been described made capital cautious. Add to these, burdensome taxes, high interest rates, and the extent to which the land of the Island was mortgaged, and it is not surprising that foreign investors had not developed Cuban resources to anything like the extent easily possible under more favorable conditions. Nevertheless, as just noted, American investments were substantial. They have been estimated at $50,000,000, chiefly in sugar properties and mines2 and the remainder in fruit, tobacco, and other enterprises. British investments, chiefly in railroads, reached about the same total, and there was also some French, German, and other foreign capital in the Island. But considerable as were these, they were insignificant as compared with the volume of investment correctly foreseen as easily possible under more favorable conditions. Though conditions since the termination of Spanish rule, as will be shown, have been far a Estimate of Secretary of State Olney in his Annual Report, Dec. 7, 1896, as quoted in Jenks, Our Cuban Colony, pp. 36-37. OUR TREATY RELATIONS 21 from ideal, the 1927 estimate for the United States alone is $1,504,000,000. Investments by other foreign countries have also grown enormously, though none has so much at stake as has the United States. Hence the immediate and prospective interests of foreign capitalists were powerful influences leading the United States government to demand, in certain exigencies, the right of intervention in Cuban affairs. Nevertheless this right was not secured without friction. The Cuban constitution was drafted after animated discussion and was signed by the delegates on February 21, 1901. It provided among other things for the separation of church and state and for manhood suffrage. On account of the high percentage of illiteracy the wisdom of the latter provision was questioned by the conservatives. The United States, however, raised no objection to any of the inclusions in the constitution, but did raise objection to the omissions. There was no provision designed to meet the requirements for the articles referred to in General Wood's order of July 25, 1900, which should define the relation of the new government to the United States. In fact the convention was unwilling to provide anything which should meet this requirement and sent representatives to Washington to protest against such an infraction of sovereignty. Secretary Root met the committee in a conciliatory manner and assured them that there was no disposition on the part of the United States to meddle in Cuban affairs. In order to allay the apprehensions of the delegates, Mr. Root wrote to General Wood on April 3, 1901, as follows: You are authorized to state officially that in the view of the President the intervention described in the third clause of the Platt Amendment is not synonymous with intermed 22 THE CUBAN SITUATION dling or interference with the affairs of the Cuban government, but the formal action of the government of the United States, based upon just and substantial grounds, for the preservation of Cuban independence, and the maintenance of a government adequate for the protection of life, property, and individual liberty, and adequate for discharging the obligations with respect to Cuba imposed by the Treaty of Paris on the United States. Similar assurances were given the committee. It was also intimated that Cuba might get a favorable commercial treaty after the Platt Amendment had been adopted. But on the main issue under contention Secretary Root was inflexible and the Cubans were given to understand that the military control would not be withdrawn until the requirements were met. Finally on June 12, 1901, by a vote of sixteen to eleven, four members being absent, the obnoxious articles were adopted as an appendix to the constitution and later were embodied in a permanent treaty. In substance these articles, constituting what is popularly known as the Platt Amendment, are as follows: 3 Cuba engaged never to enter into any treaty or compact with a foreign power which would impair her independence, nor to permit any foreign power to obtain by colonization or for military or naval purposes lodgment in or control over any portion of the Island. She further engaged never to contract a public debt so great that interest and sinking fund could not be met from ordinary revenues. She gave her consent to intervention on the part of the United States for the preservation of Cuban independence, and for the purpose of maintaining a government adequate 8The Platt Amendment received its name because it was adopted as an amendment proposed by Senator Platt to the army appropriations bill before the United States Congress. It passed the Senate on February 27, 1901, and the House on March 1. For the full text see Appendix B, p. 191. OUR TREATY RELATIONS 23 "for the protection of life, property, and individual liberty" and for discharging the obligations with respect to Cuba imposed by the Treaty of Paris on the United States. There were certain other provisions in regard to sanitation, the Isle of Pines, and the establishment of naval and coaling stations on the Island by the United States, which will be found in the full text as given in Appendix B, page 191. II. THE RECIPROCITY TREATY Cuba was thus induced to acquiesce in the demands of the United States government by a threat and the promise of a douceur. If she did not acquiesce, military control would not be withdrawn; if she did, she might receive a favorable commercial treaty. Cuba had accepted the American conditions by appending the Platt Amendment to her constitution, and embodying the same provisions in a permanent treaty. It remained to be seen what would be done with the implied promise. So far as the executive branch of the government was concerned, there was no equivocation or hesitation. As early as December 5, 1898, in his annual message the President had said: It is important that our relations with this people shall be of the most friendly character and our commercial relations close and reciprocal. General Wilson, one of the military officers high in authority in Cuba, in his reports of June and September, 1899, went so far as to recommend free trade between Cuba and the United States with a common tariff against all other nations, but qualified his recommendation with the statement that "if for any reason it should be found impracticable to adopt this provision 24 THE CUBAN SITUATION in full, then there should be the greatest allowable reduction of duty on sugar, which is the principal crop of the Island, and the one which required the greatest possible concession." General Wood in his first annual report was equally emphatic: All far-seeing business men [he said] realize that Cuba's prosperity and advancement depend absolutely upon her commercial relations with the United States, where her two main products have their principal market. High duties against Cuban products mean that the development of Cuba will be slow, if at all. The importation of United States products into Cuba, while it is increasing, is yet considerably below the total importation from other countries. The establishment of reciprocity in commercial relations between Cuba and the United States means everything to Cuba, for if she can obtain favorable duties on her tobacco, and especially on her sugar, her development will be immediate. Secretary Root in his annual report for 1901 urged reciprocity on three grounds-in fulfillment of a moral obligation to Cuba, as a benefit to American exporters, and for reasons of public policy. He said: Cuba has acquiesced in our right to say that she shall not put herself in the hands of any other power, whatever her necessities, and in our right to insist upon the maintenance of free and orderly government throughout her limits however impoverished and desperate may be her people. Correlative to this right is a duty of the highest obligation to treat her not as an enemy, not at arm's length as an aggressive commercial rival, but with generosity which toward her will be but justice; to shape our laws so that they shall contribute to her welfare as well as our own. Our present duty to Cuba can be performed by the making of such a reciprocal tariff arrangement with her as President McKinley urged in his last words to his countrymen at Buffalo on the 5th of September. A reasonable reduction in our duties upon Cuban sugar and tobacco in exchange for fairly compensatory reductions of Cuban duties upon OUR TREATY RELATIONS 25 American products will answer the purpose, and I strongly urge that such an arrangement be promptly made. It would involve no sacrifice, but would be as advantageous to us as it would be to Cuba. The market for American products in a country with such a population, such wealth and purchasing power as Cuba with prosperity would speedily acquire, made certain by the advantages of preferential duties, would contribute far more to our prosperity than the portion of our present duties which we would be required to concede. Aside from the moral obligation to which we committed ourselves when we drove Spain out of Cuba, and aside from the ordinary considerations of commercial advantage involved in a reciprocal treaty, there are the weightiest reasons of American public policy pointing in the same direction; for the peace of Cuba is necessary to the peace of the United States; the health of Cuba is necessary to the health of the United States. The same considerations which led to the war with Spain now require that a commercial arrangement be made under which Cuba can live. The condition of the sugar and tobacco industries in Cuba is already such that the earliest possible action by Congress upon this subject is desirable. Finally, President Roosevelt on coming into office after the tragic death of President McKinley took the same view with respect to Cuba as his predecessor and Secretary Root. In his first annual message, December 3, 1901, he said: Elsewhere, I have discussed the question of reciprocity. In the case of Cuba, however, there are weighty reasons of morality and national interest why the policy should be held to have a peculiar application, and I most earnestly ask your attention to the wisdom, indeed to the vital need, of providing for a substantial reduction in the tariff duties on Cuban imports into the United States. Cuba has in her constitution affirmed what we desired, that she should stand, in international matters, in closer and more friendly relations with us than with any other power; and we are bound by every consideration of honor and expediency to pass commercial measures in the interest of her material well-being. 26 THE CUBAN SITUATION President Roosevelt followed up his recommendations with characteristic energy. Indeed, energy and persistence were needed if anything was to be done; for in spite of the recommendations of a military governor, a secretary of war, and two presidents, Congress was slow to act. That part of the President's message which dealt with Cuba was referred to the Committee on Ways and Means and on January 15, 1902, hearings were granted. Testimony covering 545 pages was taken. On March 19 a bill providing for reciprocity with Cuba was introduced and referred to the Committee on Ways and Means, which bill was reported back to the House on March 31, with a recommendation for favorable action. Discussion began on April 8, and it was soon apparent that the bill would meet serious opposition. Several amendments were proposed, one of which, the so-called Morris Amendment, provided for the repeal of the "differential" on refined sugar. On the surface this Amendment, which would have considerably reduced the duty on refined sugar, would appear to have been as much against the interests of beet-sugar producers, whose product is refined sugar, as of the eastern refiners. Yet it was supported by representatives of beet-sugar states. The real purpose of the Amendment was to make it possible for Republicans from beet-sugar states to vote for a bill providing for reciprocity with Cuba and thus to appear to be "regular" in the eyes of the administration, confident that the bill would be killed in the Senate where the refining interests were strong. The plan succeeded. The House passed the amended bill on April 18 but it died in committee in the Senate when the Senate adjourned on July 1. It will throw light on the whole problem of our commercial relations with Cuba to devote some space at this point to the reason why Congress was so reluctant OUR TREATY RELATIONS 27 to follow the administration in its Cuban policy, at least so far as reciprocity was concerned. As has been shown in the preceding pages the reasons for American concern in Cuban affairs were political and economic. At the time of American intervention, however, there was an added reason which may be called chivalric or humanitarian. This appeal of sentiment undoubtedly played a part in the recommendations of General Wilson and General Wood, men close to the scenes of misery, and of Secretary Root. It certainly affected President Roosevelt, a man of strong emotional character. However, as evidenced by their words their chief concern in asking for measures looking to the rehabilitation of Cuba arose from political and economic considerations, the nature of which has already been sufficiently explained. Members of Congress, however, very generally conceive it their duty to represent the interests of the states or districts which have honored them, and the interests of the states or districts are generally interpreted as meaning the powerful business interests within them. Hence, while it would be too much to say that sentiment and reasons of state played no part in determining the votes on the reciprocity bill in the House and Senate, a study of the debate and the testimony offered at the hearings makes it clear that the dominant forces were diverse private economic interests. First, there were the refiners and investors in Cuban sugar estates, both favoring a reciprocity treaty. The refiners desired to have raw sugar enter American ports as cheap as possible, and hence thought that they would benefit by such a treaty. The investors in Cuban sugar estates desired to have access to the American market on terms as favorable as possible, and hence they also favored a reciprocity treaty. In pressing 28 THE CUBAN SITUATION their interests, however, both at the hearings and through their representatives in Congress they urged their claims not on the basis of money benefit to themselves but in behalf of Cuba. It will be noted that in connection with these interests the question arises which of them would in reality receive the benefit. Would the refiners' expectations be realized? Would they in fact get their raw sugar cheaper? Would it be the American investors in Cuban sugar estates who would benefit, because, as they hoped, they would get a better price for their raw sugar in the American market? Would any benefit from reciprocity filter through to the Cuban growers of cane and finally to the Cuban people? Would American consumers benefit from a lower price of sugar in the United States? An attempt will be made to answer these questions in a later chapter. At this point it is sufficient to note that the interests which agreed in favoring reciprocity, favored it with different expectations as to what its effects would be. Second, there were the beet- and cane-sugar interests in the United States and also the tobacco interests, all of which opposed a reciprocity treaty. They feared that reciprocity would lower the price of sugar in the United States and hence subject them to more severe competition. They were, moreover, frank in giving this as their reason for opposition. They had invested large sums, they said, and largely under the direct encouragement of the United States government in developing the beet-sugar industry on a firm foundation. If Cuba was suffering from the low price of sugar, due to general world over-production, so were they also. To reduce the duty and thereby reduce the price would imperil the very existence of their industry. They did not wish to be understood as opposing OUR TREATY RELATIONS 29 assistance to Cuba, but protested that such assistance should not be at the expense of a promising American industry. They would favor retaining the duty as it was and making a direct gift to the Cuban government of 20 per cent of the customs revenue derived from Cuban sugar. They doubted if the proposed reciprocity act would in fact benefit the Cuban people. The benefit, they said, would inure wholly to the "Sugar Trust." Finally they asserted that the treaty would be not a benefit but an injury to Cuba in that it would tend to make her a one-crop country. It is now possible to understand the animus underlying the Morris Amendment providing for the removal of the differential in the duty on refined sugar. This provision, if it passed, would hurt them as much as it would hurt the "trust" but they judged and judged rightly that it would not pass. What has been said about the sugar interests in their opposition to a reciprocity treaty will apply also in a general way to the tobacco interests. It is significant of the small regard paid to the interests of American consumers in tariff discussion that an amendment, proposed by Senator Spooner, actually provided that "the President should have authority to terminate the concession and collect full duties whenever he was satisfied that the duty reductions were benefiting purchasers in the United States of Cuban products rather than the producers in Cuba"! President Roosevelt, however, was not to be diverted from his purpose. On the failure of Congress to pass the bill providing for reciprocity he at once set about negotiating a treaty along the same lines. Such a treaty was finally agreed upon by representatives of the United States and Cuba and was submitted to the Senate on December 17, 1902, and finally approved by 30 THE CUBAN SITUATION that body on March 28, 1903. The treaty, however, contained a provision that the convention was not to take effect until it had been approved by both houses of Congress. In order to expedite its passage the President convened the first session of the 58th Congress on November 9, 1903, and submitted the Cuban treaty for its approval, declaring that the legislation was "demanded not only by our interest but by our honor." The bill passed the House on November 19 and the Senate on December 16. On December 17, the President signed the law and formally proclaimed the treaty. As provided for in the treaty itself it went into effect in both countries on the tenth day after the exchange of ratifications-namely, on December 27, 1903. The Reciprocity Treaty provided that articles on the free list in either country at the time of ratification should continue to be admitted free even though in subsequent tariff acts they should be made dutiable as against other countries. Articles on the dutiable list in the United States should be given a 20 per cent concession when "products of the soil or industry of Cuba" and articles on the dutiable list in Cuba should be given concessions ranging from 20 to 40 per cent when "products of the soil or industry of the United States." Either country was left free to change the general rates of duty by subsequent legislation, but the same rates of concessions should apply to the new rates. There was one exception to the provisions above enumerated. It was provided that "tobacco, in any form, of the United States or of any of its insular possessions, shall not enjoy the benefit of any concession or rebate of duty when imported into the Republic of Cuba."4 ' The full text of the Reciprocity Treaty is given in Appendix C, pp. 193-99. OUR TREATY RELATIONS 31 III. INTERVENTION UNDER THE PLATT AMENDMENT The circumstances under which the United States and Cuba entered into special treaty relations have now been given. In subsequent chapters their bearing on the growth of Cuba's industries and on trade between the two countries will be shown. It remains here, in order to complete the historical setting, to give a very brief account of the interventions which have actually taken place under the Permanent Treaty. For this Treaty has by no means been a dead letter. Under its provisions the United States has formally or informally intervened in Cuban affairs no less than five times and the knowledge that it had the right and power to intervene, even when it did not do so, has undoubtedly had a sobering effect on a too exuberant "patriotism." The Intervention of 1906. The first intervention was brought about in connection with a presidential election. The first president, Tomas Estrada Palma, during his term of office had shown himself a man of scrupulous integrity. He entered the presidency a poor man and left it a poor man. He restrained subordinates and his handling of the public funds was a model of economy and honesty. Yet in an evil hour he permitted himself to be persuaded by his followers that his re-election was so essential to the security of the Republic that even the most high-handed methods would be justified to attain it. This is the more unfortunate as it is generally conceded that had he not resorted to such methods he would have been peaceably elected. As it was, he dismissed his cabinet, and appointed in their places violent partisans known as the "fighting cabinet." His followers resorted to fraud and intimidation. Public servants of the opposing party, even school teachers, were dismissed. Partisans 32 THE CUBAN SITUATION were appointed to controlling positions in the local governments. Registration lists were padded; out of 432,313 names 150,000 were fraudulent. The opposition declined to take part in the farce. They preferred to appeal to the sword. Palma was accordingly declared elected and began his second term on May 20, 1906. However, if one is to succeed by strong-arm methods one must have a strong arm. Among Palma's praiseworthy economies had been economy in the military establishment. A revolution led by Jose Miguel Gomez, the "Liberal" candidate for president, broke out in August and soon showed every prospect of success. Palma thereupon appealed to the United States to intervene under the terms of the Permanent Treaty. This, President Roosevelt was extremely reluctant to do. Instead, he attempted to effect an amicable adjustment between the contending factions and to this end sent the Secretary of War, William Howard Taft, and the Assistant-Secretary of State, Robert Bacon. Their coming undoubtedly prevented bloodshed and the destruction of property but at no time offered any promise of bringing about an adjustment. Palma stood on his dignity and refused to entertain any proposition which involved compromise with the "rebels" while they were under arms. He preferred intervention and finally he made intervention inevitable. On September 28, he tendered to the Cuban Congress the resignations of himself and the members of his cabinet. The VicePresident also resigned. Cuba was now without a government and Roosevelt was forced to act. A provisional government was established at first with Taft, and later with Charles Edward Magoon, as governor. As far as possible the provisional government was conducted along the lines provided by the Cuban constitution. The Cuban flag was hoisted over the government buildings, all the executive depart OUR TREATY RELATIONS 33 ments and the provincial and municipal governments continued to be administered as under the Cuban Republic, and Cuban law continued to be administered in the courts. The purpose of the United States was to restore Cuba to the Cubans as soon as possible. The Magoon administration closed on January 28, 1909. A peaceable election had been held, and the successful candidate, Jose Miguel G6mez, took office. It is not pertinent to this discussion to enter into the merits or demerits of the Magoon administration. It did accomplish the purpose laid down in the Permanent Treaty as warranting intervention-it protected life and property on the Island. The Veteranist movement. During the G6mez administration two "near" interventions occurred, the first occasioned by the "Veteranist" movement and the second by a negro uprising. Many abuses developed under G6mez, the chief of these being graft in connection with government expenditures. A movement led by General Nfifiez, ostensibly to effect reform, but partly political (for the General had presidential aspirations) arose and made rapid headway. The situation soon became sufficiently serious to excite official notice in Washington. On January 17, 1912, Secretary of State Knox sent a note to the government of Cuba saying that the situation gave the United.States "grave concern," that the laws should not be "defied" in the way threatened by the Veteranists. It added the significant warning that Cuba ought to prevent any development which might compel the United States government "to consider what measures it must take." This communication naturally aroused the fury of the Veteranists and of General Nuifiez. The latter is said to have declared that the Veterans would "fight to the death," against any interference by the United States. The politicians, however, feared that if the 34 THE CUBAN SITUATION government of the United States once came into the Island again, it might never get out. "Patriotism" simmered down, and Cuba was again saved for the time from insurrection and bloodshed. The Negro uprising of May, 1912. The negroes wanted a greater share of the political plums and took to armed violence as the simplest and most direct means of satisfying their desires. They claimed that they had furnished 85 per cent of the soldiers in the War of Independence, and that their votes had been decisive in securing the "Liberal" (that is, the G6mez) victory. They asserted, moreover, that the Liberals had been generous in promises in 1908, but short of fulfillment in 1909. The leaders of the movement, Evaristo Estenoz and Pedro Ivonet, as early as 1907 had founded a political party-the Independent Party of Color-in order to further the aims of the negro population and by 1910 the movement had become recognized as so dangerous that a law was passed-the so-called Mordia law 5-forbidding the formation of a political party on color lines. The leaders, refusing to abide by the law, were arrested but were later released. By the late spring of 1912 the situation had become so acute that the United States became alarmed. A note was delivered to the Cuban Secretary of State announcing American naval dispositions in Cuban waters and stating that if the Cuban government were unable to protect life and property troops would be landed. The note, however, added that such a procedure ought not to be considered intervention. G6mez protested that it would in fact constitute intervention and that it should not be done without previous agreement with Cuba. The United States would not agree to the necessity of prior agreement with Cuba and Marines were in fact landed on I The law was so named from Mordia Delgado, himself a colored man. OUR TREATY RELATIONS 35 May 31. G6mez, making a virtue of necessity, did, however, give consent. The American forces remained on Cuban soil several weeks protecting foreign-owned mines and sugar estates.6 G6mez remained in office until May 20, 1913. He was succeeded by Mario Garcia Menocal, the nominee of the Conservatives. The Liberals had nominated Alfredo Zayas. Gomez, it is alleged, gave clandestine support to Menocal. At any rate he did not abuse his position to secure the election of Zayas and the election was tranquil. Intervention on the part of the United States was not called for until the next election when Menocal ran for a second term. 6 This near-intervention, if it may so be called, undoubtedly diminished the destruction of property but it was unable to prevent severe fighting and much loss of life. It illustrates the difficulty which the United States government experiences if it attempts to pass judgment on the merits of issues involved between contending factions. It has been alleged that this insurrection was in the beginning staged by G6mez himself as a political maneuver to secure his re-election. G6mez, it is said, in spite of the Morfia law not only tolerated the Independent Party of Color but even aided Estenoz, by furnishing him with passage money, in strengthening that organization, and fomenting the race question. The plot, as alleged, was that Estenoz was to simulate a revolution. Gomez was to assume an attitude of firmness in suppressing it, and thereby prove himself a man necessary to the safety of the Republic. But the matter got out of hand. Some of the insurgent leaders, either because they were not in the plot or because they refused to obey orders, began an attack. The La Maya sugar mill was burned and fighting began. G6mez found himself confronted with a genuine revolution. He acted with vigor. For some weeks there was severe fighting but by the middle of July the last body of negroes had been cut to pieces or captured and the country was pacified. An amnesty bill closed the incident. It is estimated that some 3,000 negroes were killed. The partisans of G6mez deny that any such plot as has been described existed. It is not important to the inquiry to ferret out the truth. The case, however, may be cited as one of the many which explain the somewhat pragmatic attitude assumed by the State Department in dealing with intervention not only in Cuba but in other Caribbean countries. 36 THE CUBAN SITUATION The Gonzales "notes." The Liberals had again nominated Zayas. The campaign was marked by violence and a good many people were killed. The Liberals, indeed, openly proclaimed as their slogan, "Zayas or Revolution." The election took place on November 1, 1916. It is significant of the methods employed that from a registration list of 477,786 legal voters a poll of 800,000 votes was cast! On the face of the returns it at first appeared that Zayas had won, and Menocal appeared ready to concede defeat. But, persuaded, it is said, by the women members of his family, he changed his mind, and so manipulated the count that later returns gave him the victory. The Liberals protested, and their claim that the ballots had been tampered with was sustained by the Electoral Board. A new election in districts where fraud was evident was ordered. The Liberals, convinced that fraud and intimidation were to be repeated, made an unsuccessful plea for supervision of the election by the United States; and when the elections were finally held they were so convinced that the party in power was ready to go to any lengths to defeat them that they preferred revolution to partial elections held under the control of a Conservative government. The situation was not unlike that at the close of Palma's administration, with one exception: Menocal was an expert military strategist, and had adequate forces under his command; Palma had neither of these advantages. G6mez was the military leader of the Liberals. The plan was to enter Havana and compel Menocal to abdicate, so that the partial elections would be fair-fair, at least, from the standpoint of the Liberals. The revolution began in February, a meeting of Liberal leaders was held in Santa Clara province, and orders issued to begin the conflict. Affairs, however, did not work out as planned, partly because the Conservatives had in OUR TREATY RELATIONS 37 Menocal a man of military genius 7 and partly, perhaps principally, because the United States early took a hand in the game. At the time of the Cuban election in 1916 the United States had special reasons for maintaining peace and order in Cuba. It was becoming apparent that the country was drifting into war with Germany and the Cuban sugar crop was regarded as indispensable for the conduct of the war. Accordingly the American minister to Cuba, William Elliott Gonzales, acting under instructions from Secretary of State Lansing, issued to the press a number of "strong" notes, whose influence on the issue was decisive. In all of these notes it was made apparent that the United States would back the constituted authorities against any forces engaged in insurrection. As early as November, Gonzales, who was at that time in the United States, cabled to a friend in Cuba to the effect that in his opinion peace in Cuba depended on the wisdom and patriotism of the Cubans themselves. He expected Menocal to act justly but was convinced that any improprieties could be corrected in a permanent and satisfactory manner only by employment of the methods provided by law.8 Notes of increasing strength were given to the press on February 11, 14, 19, and 25, 1917. The substance of all of them was that the United States would give its confidence and support only to constitutional government and would 7Menocal had fought under Mdximo G6mez, Mano, and Calixto Garcia in the War of Independence, and on one occasion "made such a skillful disposition of men and guns that competent witnesses have said that the conduct of this battle stands out in the entire record of the Revolution as the one combat in which the Cuban forces were disposed and directed in accordance with the principles of military science."-Chapman, History of the Cuban Republic, p. 321. 8 Ibid., p. 365. 38 THE CUBAN SITUATION oppose any government that came into power by revolution or illegal means. The last note, that of February 25, was very sharp. An American had been killed near Cienfuegos and Menocal's troops had pursued the murderers. In the note it was stated that the United States would attribute any damage to crops to those in rebellion. The rebels must lay down their arms. The United States would support only constitutional methods. The Cuban government was urged to continue its efforts to capture and punish the murderers [of the American citizen], and to do so with all other rebels who should dare to attack the lives and property of American citizens. This note virtually settled the issue. The Liberals could not hope to win if the United States took sides actively against them. The attitude of the United States, however, created much bitterness in Cuba against Gonzales and President Wilson. Though the issue was virtually settled hostilities continued for some weeks longer. On March 7 G6mez was led into a trap at Caicaje and captured. On March 8 a body of American Marines was landed in Santiago. American forces also occupied Guantanamo, Manzanillo, and Nuevitas, and a detachment was sent inland to protect the mines of El Cobre. The Liberals had been sufficiently strong in Camagiiey to appoint a governor, Gustavo Caballero. He remained in power for a while but in April he was wounded in battle and captured and soon after died-it is generally believed because he was put to death. By June the revolution was crushed. There had been some stiff fighting and some destruction of railway property and sugar estates, but neither the losses nor the destruction had been great, presumably much less than would have been suffered had the United States not intervened. Meanwhile, the supplementary elections had been held. The Liberals OUR TREATY RELATIONS 39 refrained from going to the polls, and Menocal took office for his second term on May 20, 1917. General Crowder's Mission. The situation leading to the next intervention, beginning in 1921 and continuing for several years, was brought about not only by danger of revolutionary turbulence similar to that which had led to previous interventions but also by a condition of financial chaos. To consider first the political crisis: As we have seen, the previous intervention was occasioned by the revolutionary violence accompanying the second election of Menocal. In that election Zayas had been the nominee of the Liberals. Though willing to precipitate a revolution he himself had played so inglorious a part in it as to destroy his chances for further political advancement with that party. As the new election approached he organized a third party under the name of the "Popular Party." His followers were numerous enough to enable him to make a bargain with the Conservatives by which he secured the nomination for the presidency on a combined Conservative-Popular ticket. G6mez obtained the nomination of the Liberals and threatened to provoke a revolution if they were not given a fair chance. A significant note from Washington, however, advised the Liberals that they had better go to the polls and promised to have "official observers" on hand. Menocal, indeed, was induced to "request" the observers. The observers came but could do nothing. Menocal used his official position to assure the election of Zayas. The Department of the Interior was combined with the Department of War so that one and the same man had control of the conduct of the elections and of the soldiery and rural guard. Mayors and police were suspended in Liberal towns and military supervisors appointed. The election was held on November 1. 40 THE CUBAN SITUATION There were intimidation and murder, failure to open polling places in Liberal districts, the appointment of criminals as policemen, and the closing of polling places at unexpected hours. As a result of the election Zayas was declared elected and Gomez appealed to the courts. As early as 1919 at the invitation of both Liberals and Conservatives General Crowder 9 had come to Cuba to aid in a revision of the election laws. The revised laws were operative in this election and were so devised as to leave much power, in the case of dispute, in the hands of the judiciary. Because of the threatening situation in January, 1921, Crowder was again sent to Cuba-this time without invitation. His coming was welcomed by the Liberals but resented by the Conservatives. The courts were slow in acting but Crowder compelled them to clear their dockets. Their findings favored the Liberals, elections in 250 districts were annulled, and a new election in these districts called for. Crowder inspected the storm centers, and got Menocal, Gomez, and Zayas together in a "pact of honor." The elections were held on March 15, but again the Liberals refused to go to the polls and Zayas won! He was inaugurated May 20, 1921. Gomez soon afterwards died in New York and became a martyr and a hero. Crowder, however, remained in Cuba to "aid" Zayas. He needed aid. Because of violent fluctuations in the price of sugar, of which more will be said in the next ' This was General Enoch H. Crowder, the man who had been responsible for the organization of civil government in the Philippine Islands, who had raised the American army for the World War under the terms of the Selective Service Law, and who in this capacity, with the aid of 193,117 subordinates, had "registered nearly 24,000,000 men, classified industrially as well as in a military way some 17,000,000, physically examined about 8,000,000, selected and entrained nearly 4,000,000, and had 2,000,000 more ready on Armistice Day to respond to demands for man-power in case they should be needed." OUR TREATY RELATIONS 41 chapter, Cuban finance and Cuban industry were in a state of complete collapse. The banks had failed, there was a congestion of shipping in the Havana docks, and for the first time in her history Cuba defaulted in her bonded debt, both domestic and foreign. It was therefore quite as much on account of the chaotic financial condition as of the political tangle that early in January General Crowder had been sent to Cuba as President Wilson's personal representative. He continued in that capacity throughout the remainder of Wilson's administration and then continued as the personal representative of President Harding until January, 1923, when he became the first American ambassador to Cuba, in which post he remained until the summer of 1927. After the beginning of 1923 his relations were purely diplomatic, but his activities during the preceding two years were of a nature to constitute intervention, even if not so defined by the administration at Washington. His methods of dealing with the revolutionary menace have already been noted; his treatment of the financial situation was no less significant. In addition to the general collapse brought about by the violent fluctuations in the sugar market, the situation was further complicated by the existence of a great mass of floating indebtedness on the one hand and a sharp decline in revenue on the other. This floating debt was the result of extravagance during the Menocal administration and consisted largely of left-over contracts in the Department of Public Works. Many of the contracts were fradulent and others had been based on unit prices sufficient to permit a generous allowance of graft to public officials. Finally, the expanded public revenues during the Menocal regime had made it possible for politicians to reward their followers generously with "botellas" and thereby to burden the public 42 THE CUBAN SITUATION service with enormous expenses for these political jobs. Cuba faced bankruptcy. The situation was such as to give Crowder the whip hand. Zayas knew that without aid from outside the country would go bankrupt and thereafter Cuban credit would be ruined or seriously impaired. Success in obtaining aid from the United States depended on the good will of General Crowder. Therefore, although Zayas, as shown by his subsequent career, was even more alive to the possibilities of graft than his predecessor, he was obliged for a time to harmonize his official acts with Crowder's views. Without going into detail the successive steps taken may be outlined as follows: Provision was made for the gradual lifting of the moratorium; merchants were to meet their obligations in a series of instalments culminating in June; bankers were given somewhat longer periods but were to meet their obligations in full by June 10. The budget was reduced to $59,000,000 (actual expenditures during the preceding year had been $182,000,000) and to $55,000,000 in the following year. There was a dismissal of useless public servants who had been appointed only for political reasons. A sales tax was imposed to increase the public revenue. A so-called "honest cabinet," made up of men acceptable to General Crowder, was appointed. It retained office until Zayas had a freer hand. The floating debt was reduced by the cancellation of fraudulent contracts (that is, contracts made by Menocal without legislative authority) and by the substitution of lower unit prices in many others where it could be shown that the previous figures made generous allowance for graft. A loan for $5,000,000 for immediate necessities was obtained from the House of Morgan. The proceeds of this loan were made available in October, 1921. In the meanwhile negotiations were under OUR TREATY RELATIONS 43 way for a further loan of $50,000,000, the contract for which was signed early in 1923. It was the necessity of securing this loan in order to save Cuban credit that had compelled Zayas to adopt the reform measures suggested by Crowder. The loan once obtained, Crowder's power to shape Cuban legislation and administration in accordance with his ideas came virtually to an end. Intervention came to a practical close. IV. THE MACHADO ADMINISTRATION Zayas continued in office until May 20, 1925. He was succeeded by Gerardo Machado who, in the previous November in an election which more nearly approached fairness than any which Cuba had had since the time of Estrada Palma, was elected president. He was pledged to a one-term policy, which pledge, however, he ignored. In 1927, having determined to succeed himself as president, he brought about an amalgamation of the three political parties, and the convening of a constitutional assembly. The assembly prolonged the terms of office of certain senators and representatives without election, extended the term of office from four to six years for the president and also extended the term of office of members of Congress, and abolished self-government for the city of Havana. Under these conditions President Machado was elected for a second term in the fall of 1928. He could hardly escape it as his name appeared on the ballots of all three of the political parties and especially since another achievement of the constitutional assembly had been a repeal of the law authorizing the establishment of new parties. President Machado has ruled with a strong hand. He has been called a dictator: certainly opposition has been ruthlessly suppressed.10 In any event his adminis10 In an article appearing in Current History, for May, 1930, the author, William English Walling, made certain specific 44 THE CUBAN SITUATION tration has been effective in promoting public improvements. Perhaps his greatest achievement has been the construction of 700 miles of highway from Havana to Santiago, binding the Island from east to west. This trunk highway is part of a general plan of road-building, involving lateral roads, which, if completed, will vastly improve means of internal transportation and communication, and should be of great aid in any program of crop diversification. The building of the lateral highways has, however, been suspended because of the industrial depression. The Permanent Treaty stands in a somewhat peculiar relation to the Machado administration. He himself has asserted that it is a thing of the past, that Cuba, a full member of the League of Nations, is now a sovereign state in every sense of the word, and thereby has retained some measure of popularity in spite of his arbitrary methods. For the Cuban people have always resented the Permanent Treaty. They have felt it to be an abridgment of sovereignty, especially galling since no such treaty has been imposed on other countries in the Caribbean area. charges. It was asserted that opposition parties were not tolerated, that students of the university had been denied the right to hold meetings on public questions, that on several occasions the university had been closed, that newspapers had been seized and suppressed, that the right of free speech and free assembly had been suppressed also, and finally that active critics of the government, editors and labor leaders, had been imprisoned or killed by assassins who had in no case been discovered. In the same number of the magazine appeared another article entitled "A Vindication of Machado" by Orestes Ferrara, the Cuban ambassador to the United States. Mr. Ferrara pointed to the rapid advance of Cuba in the last quarter of a century, to the achievements of the Machado administration in promoting this progress, and to the necessity of vigorous measures to preserve order and suppress Communism. The Ambassador's article is not to be regarded as in any sense a reply to Mr. Walling's article. It was written independently and was designed to present his views of the general situation in Cuba. OUR TREATY RELATIONS 45 Yet in spite of Machado's statements, there has been no formal abrogation of the Treaty. Under it the United States still has the right to intervene and presumably would intervene, if it thought its interests sufficiently imperiled. Moreover, paradoxical as it may seem, it is a fair question how much Machado himself would welcome its formal abrogation. There is evidence that it is of no small aid to him in maintaining himself in his position of power. To understand this we must consider the attitude of the United States. V. THE ATTITUDE OF THE UNITED STATES Interventions in the past have been brought about through turbulence connected with the political aspirations of some leader; and the prevalence of graft and the proneness to revolution have bred a somewhat cynical indifference to the merits of the case. As for the United States, it is not concerned in the political aspirations of one faction or another. Furthermore, the likelihood of any foreign power's gaining a foothold in Cuba has become so small as to be almost negligible. The political interest which formerly loomed so large in the Permanent Treaty is now relatively unimportant. But, with every year, the economic interest, which was also a factor leading to the Treaty, has increased. The primary motive of the United States in maintaining the Permanent Treaty is now the protection of life and property of Americans who have interests in the Island. Machado's position has appeared to be very strong. By asserting the obsolescence of the Permanent Treaty, he wins support from patriotic Cubans, though at the same time he is probably aware that its existence is of no small value to him in perpetuating his power. So long as there is no revolutionary violence endangering American interests on the Island, the government at 46 THE CUBAN SITUATION Washington is not likely to regard his utterances as grounds for intervention; and the precedent set by the United States of intervening in behalf of the constituted authorities, whenever there is a revolutionary uprising, acts as a strong deterrent to any such uprising. His pronouncements and his administrative methods, so long as they do not directly affect American interests, are regarded as essentially Cuban affairs. "Has appeared" is used above because at the present writing (1931) the situation in Cuba is very tense. The success of revolutionary methods in overthrowing the governments of other Latin American countries during the past year, the acquiescence of the United States in such revolutionary overthrows, the depression almost to the point of desperation, which will be described later in these pages, all have conspired to bring about a threatening situation, the outcome of which it would be folly to predict. VI. RELATION BETWEEN THE TREATY AND AMERICAN INVESTMENT From what has been said it is clear that an interesting relation exists between the Permanent Treaty and the economic interests just referred to. The Treaty conduces to the growth of the economic interests, and the growth of the economic interests conduces in turn to the permanence of the Treaty. The Treaty, by its virtual guaranty of security of life and property to American investors who desire to exploit the natural resources of the Island, is a powerful agent for promoting such investment. On the other hand, the more powerful these interests become the more potent is the pressure which they can bring to bear on the United States government to maintain the Treaty intact. Whether they will in fact bring such pressure to bear depends on their estimate of the necessity for the OUR TREATY RELATIONS 47 Treaty. If they become convinced that the Cubans, unaided, can maintain a stable government they may be willing to let the Treaty lapse. But if they have reason to believe that, except for the prospect of American intervention, every presidential election is to be followed by a revolution, they are likely to be very insistent that the Treaty be maintained. CHAPTER III CUBA'S RESOURCES: GROWTH OF THE SUGAR INDUSTRY THROUGH 1921 In the preceding chapters the setting has been given in which the growth of Cuba's industries and her trade relations with the United States must be studied. We have seen how both political and economic considerations made Cuban affairs a matter of concern to American statesmen so vital as to lead to intervention in Cuba's War of Independence and, when independence was achieved, to cause the American government to insist on a permanent treaty granting the United States the right of subsequent intervention whenever it should seem essential to preserve Cuba's independence or to protect life and property. We have seen how political differences have led to insurrections and how because of such menacing conditions the United States has in fact intervened and restored order. Finally, we have seen how, in order to strengthen the bond of peculiar intimacy between the United States and Cuba, a reciprocity treaty was negotiated between the two countries in accordance with which each granted certain tariff concessions to the other. We are now prepared to study the growth of Cuba's industry and trade. In this chapter, after a few introductory paragraphs in regard to her natural resources, we shall take up her sugar industry and discuss at some length the causes of its amazing growth through its period of greatest prosperity. I. CUBA'S NATURAL RESOURCES Cuba has been called the Pearl of the Antilles. So great are her natural resources that it has been said: 48 THE SUGAR INDUSTRY THROUGH 1921 49 "Cuba cannot sink so low that two years' economical administration cannot restore her." I Her experience in recovering from chaotic conditions goes far to warrant this statement; yet, as we shall presently see, it must not be pushed too far. She has this great asset: she combines with the luxuriance of a tropical country a temperature sufficiently moderate to admit of her being peopled by the white race without loss of vigor. The mean monthly temperature in Havana between the years 1900 and 1924 has ranged from a minimum of 670 Fahrenheit for January, 1905, to a maximum of 830 in July and August, 1915. Indeed, the lowest temperature on record is 470 and the highest 990. The soil is fertile and a considerable number of crops can be grown with success. Among these are pineapples, bananas, oranges, grapefruit, and other tropical fruits, and tomatoes, onions, potatoes, and other vegetables. Tobacco, coffee, coconuts, and cacao beans are also important products of the Island. She possesses rich mineral deposits, iron, copper, manganese, and asphaltum being the most important, and she also produces in large quantities, sponges, beeswax, forest products, and animals and animal products. All of the commodities mentioned in this paragraph are produced in sufficient quantities to show a considerable export surplus above domestic requirements. Yet with all her natural resources the significant fact remains that Cuba is to a surprising extent dependent on foreign countries for foodstuffs. She imports large quantities of breadstuffs, beverages and oils, dairy products, fish, fruits, meats and vegetables. Her imports of such commodities, indeed, constitute a large part of her consumption. Java, which resembles Cuba 1A. S. de Bustamente, as quoted in Jenks, Our Cuban Colony, p. 308. 50 THE CUBAN SITUATION in many respects, especially in adaptability to sugar production and in a large output of this crop, and which has a ninefold greater density of population, is, nevertheless, nearly self-sustaining.2 Cuba's dependence on imports for food is in part due to the distribution of rainfall, but chiefly to her specialization in sugar. Though the soil is fertile and the cliPRODUCTION OF SUGAR IN CUBA, 1902-03 THROUGH 1930-31 a Crop Year Short Tons Crop Year Short Tons 1902-03............ 1,124,327 1917-18............ 3,859,613 1903-04............ 1.179,218 1918-19............ 4,448,389 1904-05............ 1,331,012 1919-20............ 4,177,686 1905-06............ 1,390,932 1920-21........... 4,408,365 1906-07............ 1,626,199 1921-22............ 4,475,953 1907-08............ 1,102,130 1922-23............ 4,035,259 1908-09............ 1,745,047 1923-24............ 4,554,639 1909-10............ 2,056,525 1924-25............ 5,741,086 1910-11........... 1,661,465 1925-26........... 5,470,817b 1911-12............ 2,123,502 1926-27............ 5,045,282b 1912-13............ 2,719,961 1927-28............ 4,493,123b 1913-14............ 2,909,460 1928-29............ 5,775,073 1914-15............ 2,903,787 1929-30............ 5,231,811 1915-16............ 3,368,865 1930-31............ 3,998,400d 1916-17........... 3,386,566 ' Data for 1902-03 to 1910-11 are from Loose-leaf Service Concerning Sugar, p. H-5; data for 1910-11 through 1930-31 were furnished by the U. S. Tariff Commission. b Crop restricted by government decree. e Crop restriction removed. d Crop restriction under Chadbourne plan. mate salubrious, conditions are unfavorable to many crops because the dry season is too dry and the wet season too wet. In the dry months the soil is hard and baked, the trees are leafless, the pasturage is parched, and the corn well-nigh dead.3 Bread grains, except corn, cannot be grown. Many crops can be grown suc' The density of population in Java is 700 to the square mile; in Cuba, 76. 8 See Miller, E. M., "Cuba a One-Crop Country," Commerce Monthly, June, 1927, pp. 3-15. THE SUGAR INDUSTRY THROUGH 1921 51 cessfully only by means of irrigation, and the river system of Cuba does not lend itself to irrigation. Recourse must generally be had to artesian wells. The problem is about as bad in the rainy season because of the luxuriant growth of weeds. GROWTH OF THE CUBAN SUGAR INDUSTRY, 1902-03 THROUGH 1930-31 II. CUBA'S SUGAR INDUSTRY TO 1921 The explanation of Cuba's dependence, however, is to be found principally in her marvelous adaptability to the growth of the sugar cane and to other circumstances, to be explained later, which have led her to specialize in sugar, largely to the exclusion of other crops. The basis of her soil is disintegrated limestone. The process of disintegration is still going on and this 52 THE CUBAN SITUATION fact accounts in large measure for her unrivalled adaptability to the cane. The soil replenishes itself year after year, thus making possible the long period of ratooning referred to in a previous chapter (see page 8). This situation-Cuba's dependence on imports for food and the diversion of her labor and soil to sugar, to the exclusion of other crops-is, therefore, merely a rather striking example of the economic principle known as "comparative advantage." Cuba can get more in terms of meat, grain, vegetables, and textiles, by producing sugar and exchanging it for these products than by producing them herself. It is a case of the advantage of a geographical division of labor which lies at the root of the economic argument in favor of free trade. In sugar, then, has been found the basis of Cuba's prosperity and resiliency from disaster; in sugar also is found her Achilles heel. So overwhelmingly important is the sugar industry in Cuba's economy and so far-reaching are its effects on the development of every other form of industry, that it necessarily becomes the point of departure in this study. We shall, therefore, proceed at once to a study of Cuban sugar. A. Growth of the Cuban Sugar Industry During the period of the Cuban Republic, Cuba's sugar production has increased more than fivefold. The table on page 50 and the chart on page 51 show the production year by year from the crop year 1902-03 to the crop year 1930-31. It will be seen that from the crop year 1902-03 through the crop year 1918-19 the increase was almost continuous. There was a falling off in the year 1907-08, a year of general business depression, and another in the year 1910-11, but in each case the recovery was THE SUGAR INDUSTRY THROUGH 1921 53 rapid. By the year 1918-19 the crop had become four times that of 1902-03. Since the year 1918-19 there have been some violent fluctuations, the causes of which will be studied in their proper place. But the enormous crops of 1924-25 and of 1928-29 indicate that in capacity, even if not every year in actual production, there has been a notable increase far above that of 1918-19. The outputs of 1924-25 and of 1928-29 were both about 29 per cent higher than the output of 1918-19. B. Growth of American Investments in the Sugar Industry Even before intervention in 1898 American investment in the sugar industry had been substantial. Pioneers were E. Atkins and Company of Boston, who started the central Soledad; Hugh Kelly and Franklin Farrell, founders of Santa Teresa; and members of the Rionda family, who organized the Tuinuctia Cane Sugar Company.4 By 1906 it is estimated that some $30,000,000 of American capital had been invested in the Cuban sugar industry. By 1911 the investment had increased to $50,000,000 and continued to grow at a quickened pace during the World War. During this period new mills were built by Edwin F. Atkins, the Warner Sugar Refining Company, and the West India Sugar Refining Company. More marked, however, than the building of new mills was the enlarging and reorganization of mills already in existence. The movement, which for many years had been in the direction of fewer mills with greater capacity for each mill, was accelerated. In 1916, 72 mills were listed as "American" by the Cuban Bureau of Statistics; by 1920, only 55; yet the output was rapidly increasing. 'Jenks, Our Cuban Colony, pp. 34-35. 54 THE CUBAN SITUATION Among the large investments at this time were those made by Manuel Rionda and Miguel Arango in the Cuba Cane Sugar Corporation. In 1915 Rionda and his friends formed a syndicate to invest $50,000,000 in Cuban sugar mills. The coming of representatives of the syndicate produced great excitement among mill owners and a boom in the value of sugar properties. Preferred stock to the amount of $50,000,000 was quickly disposed of, the sale being facilitated by an issue of $50,000,000 of common stock, largely given away with the preferred shares. "Management was entirely in the hands of the Czarnikow-Rionda Company or its close associates. It handled the sugar of the Company's mills through long-time contracts; and its Cuban representative was purchasing agent for the Company. Local management was not interfered with, the original proprietors continuing in many cases to run the mills upon a salary contracted for, and with an interest in the preferred dividends. They also had the satisfaction of being part of the largest sugar enterprise in the world." 5 The boom period reached a climax in 1920. The impetus afforded by the Great War to the growth of the Cuban sugar industry and to American investment in it was not exhausted by the close of hostilities. It continued unabated for several years thereafter. In spite of large crops and the steady recovery of Europe's beet-sugar industry prices continued rising6 and 5 Ibid., p. 180. 'Promedio (average f. o. b. Cuban ports) prices for raws, in cents per pound, for the years 1913-1921 were as follows: 1913 1914 1915 1916 1917 1918 1919 1920 1921 1.95 2.64 3.31 4.37 4.62 4.24 5.06 11.95 3.10 (Data are from Secretaria de Agricultura, Comercio y Trabajo, Industria Azucarera, Zafra de 1930, p. 109.) THE SUGAR INDUSTRY THROUGH 1921 55 profits were large. The temptation to American investors proved irresistible, especially during the early months of 1920 when prices rose to unheard of figures and profits were fabulous. In May of that year the promedio (average f. o. b. Cuban ports) price of raw sugar touched 19.4 cents. These prices were the result of entirely abnormal conditions and had not investors been made drunk with cupidity they might have foreseen disaster. As it was they bought sugar properties recklessly.7 It was a period of integration, and sugar properties of all kinds were rapidly changing hands. Central Dos Rosas was sold by the Cardenas-American Sugar Company to the Hires Company for $1,500,000. E. Atkins and Company purchased Caracas for $3,000,000 and Santa Augustin for $3,800,000. Cuba Cane sold San Ignacio to the tenants for $2,000,000. Centrals Amistad and G6mez Mena were sold to interests associated with the Warner Sugar Corporation for $16,000,000. Nearly 50 mills, approximately one-fourth of the sugar factories of Cuba, changed hands during the boom of 1919 and 1920.8 The collapse that followed the boom also contributed to the absorption of Cuban sugar estates by Americans. 7An amusing story cited by Jenks in Our Cuban Colony (p. 221) illustrates the feverish eagerness of investors. "Proprietors themselves were astonished at offers which were made them. The proprietor of one estate counted his assets thriftily and added a generous profit with one eye to the market. His price he decided would be $4,500,000. He might take less. The story goes that the millionaire chocolate manufacturer appeared and declared he would not negotiate. He had made his own estimate. The Cuban could take it or leave it. He would pay for Rosario $8,000,000 and not a cent more. Sefior Pelayo concealed his astonishment until the papers were signed and the money paid. A member of his family continued to manage the mill." 8 Ibid., p. 221. 56 THE CUBAN SITUATION As was noted, the prices of the spring of 1920 were wholly abnormal. The collapse following the boom was rapid and precipitous. From 22.5 cents in May, 1920, the price of sugar fell, with occasional partial recoveries, until on January 1, 1922 it touched 1.8 cents. To make matters worse for the Cubans, during this period, on May 27, 1921 the United States emergency tariff was enacted increasing the duty on Cuban sugar from 1 to 1.6 cents per pound. During the era of expansion the sugar companies had borrowed heavily from the banks. With the collapse they were unable to meet their obligations and most of the banks failed. Many sugar properties fell into the hands of the few banks-American and Canadian-that were able to weather the storm. The National City Bank of New York is said to have taken over some 50 or 60 mills. A subsidiary corporation was organized to conduct their operations. Other surviving banks followed similar methods. Even the greatest of the sugar companies, the Cuba Cane, was so heavily involved that its affairs were put in the hands of an executive committee of bankers. But it was the mills of Cuban or Spanish ownership that suffered most. By 1925, 33 centrals which ground during the 1920-21 crop had closed down entirely. Cut-throat competition prevailed. The inflated prices paid for sugar properties meant vast capital outlay and heavy overhead. A mill ceasing to produce suffered a heavy loss from fixed charges: if it continued to produce it suffered a loss because of the low price of sugar. Of the two evils the latter was generally felt to be the lesser, hence production continued increasing with a falling off only in the year 1922-23 (see table, page 50). These conditions resulted in feverish THE SUGAR INDUSTRY THROUGH 1921 57 competition to reduce unit costs by increasing mill efficiency. More powerful machinery was introduced with a view to greater output per mill and more thorough extraction of the sucrose content of the cane. In this relentless struggle American mills, because of the capital at their disposal, were in a position of advantage. The weaker competitors were being squeezed out. Four mills belonging to the Punta Alegre Sugar Company increased their output 54 per cent; the Cuban Dominican Company increased its output 65 per cent; the mills operated by the General Sugar Company had an increase of 135 per cent; and the three mills operated by the Antilla Sugar Company showed an increase of 359 per cent. Seven leading bankcontrolled groups accounted for 700,000 tons of Cuba's augmented production.9 As a result of this struggle to the death American control of the Cuban sugar industry greatly increased. Shortly before the World War American mills had produced about 35 per cent of the sugar of Cuba. By the year 1920, the crop had doubled and American mills manufactured 48.4 per cent of it.10 By 1927 this proportion had increased to approximately 75 per cent. The figures on which this estimate is based are taken from a table given in Jenks' study entitled Our Cuban Colony 1 which shows the distribution of land and other interests of 32 American controlled companies having mills in Cuba. In this table an aggregate of $514,500,000 in property and plant and $67,100,000 in net working assets is shown. The value, in millions of dollars, of the property and plant (less depreciation) Ibid., pp. 282-83. 'Ibid., p. 281. " Pages 285-86. 58 THE CUBAN SITUATION and the net working assets of the ten most important of these companies are as follows: Property and Net Working Company Plant Assets Cuba Cane................ 83.7 14.9 Cuban Dominican.......... 37.4 4.6 General Sugar............. 36.5 4.5 Cuba Trading.............. 35.0 5.0 American Sugar........... 32.0 5.7 Cuban-American........... 29.1 19.8 Lowry and Company....... 28.2... Hershey................. 25.0 Punta Alegre............. 23.4 6.2 Antilla................... 23.4... Most of these figures are based on values at the close of the crop year 1926-27. Undoubtedly during the present depression (1930-31) many of these values have shrunk, but there is no reason for supposing that they have shrunk more than those of non-American holdings. Hence the percentage (75) given in the preceding paragraph would not necessarily be affected. An estimate by Orestes Ferrara, Cuban ambassador to the United States,12 shows an even higher American investment both absolutely and relatively. It is $600,000,000 of American investment out of a total of $700,000,000 or 85.7 per cent. C. Growth of Cuba's Export Trade in Sugar By far the greater part of Cuba's sugar output is exported. Only a small fraction is retained for domestic consumption. Hence a table showing her total exports would nearly duplicate the table on page 50 showing her total production. What is more important for the present discussion is (1) the percental relation 'Ferrara, Orestes, The Economic Loss from the High Tariff on Sugar, p. 5. THE SUGAR INDUSTRY THROUGH 1921 59 SUGAR TRADE OF CUBA AND OF THE UNITED STATES, 1899-1929 (In millions of pounds) Exports from Cuba Imports of Duty-Paying Sugar into the United States Year Percentage Percentage Total United Exported From Coming Total e a to United Total Cuba b from States Cuba 1899..... 1900..... 1901..... 1902..... 1903..... 1904..... 1905..... 1906..... 1907..... 1908..... 1909..... 1910..... 1911..... 1912..... 1913..... 1914..... 1915..... 1916..... 1917..... 1918..... 1919..... 1920..... 1921..... 1922..... 1923..... 1924..... 1925..... 1926..... 1927..... 1928..... 1929..... 696 1,121 1,021 2,348 2,811 1,969 2,787 3,111 2,168 2,861 3,655 3,312 3,547 4,896 5,673 5,299 6,747 6,122 6,435 8,850 6,883 6,310 10,972 7,636 8,750 10,882 10,300 9,290 8,778 10,933 696 1,121 1,020 2,309 2,800 1,969 2,777 3,098 2,168 2,861 3,446 3,308 3,285 4,407 4,921 4,694 5,147 4,697 4,690 6,980 5,229 5,233 8,773 6,840 7,582 8,087 8,399 7,465 6,515 8,519 100.0 100.0 100.0 98.3 99.6 100.0 99.6 99.6 100.0 100.0 94.3 99.9 92.6 90.0 86.7 88.6 76.3 76.7 72.9 78.9 76.0 82.9 80.0 89.6 86.7 74.3 81.5 80.4 74.2 77.9 3,359 3,391 3,970 3,020 4,197 3,639 3,603 3,910 4,367 3,333 4,106 3,919 3.708 3,669 4,537 4,950 5,094 5,416 5,065 4,730 6,827 7,756 5,627 9,164 7,233 7,596 7,918 8,652 7,365 6,573 8,362 663 705 1,099 984 2,397 2,819 2,058 2,782 3,236 2,309 2,862 3,510 3,348 3,187 4,312 4,927 4,785 5,151 4,669 4,561 6,686 5,762 5,180 9,054 6,853 7,385 7,846 8,560 7,301 6,499 8,297 19.7 20.8 27.7 32.6 57.1 77.5 57.1 71.2 74.1 69.3 69.7 89.6 90.3 86.9 95.0 99.5 93.9 95.1 92.2 96.4 97.9 74.3 92.1 98.8 94.7 97.2 99.1 98.9 99.1 98.9 99.2 a The figures in this column were derived from Cuban sources and are for fiscal years to 1918. b The figures in this column were derived from United States data for imports from Cuba and are for calendar years throughout. It will be seen that the data for exports from Cuba to the United States differ somewhat from the data for Cuban imports into the United States. The differences, however, are relatively small and do not affect the conclusions. 60 THE CUBAN SITUATION of her sugar exports to the United States to her total sugar exports and (2) the percental relation of her sugar exports to the United States to the total dutypaying imports of sugar into the United States. These data are shown in the table on page 59. It will be noted that through 1909 practically all of Cuba's sugar exports went to the United States. After that year though more continued to go to the United States than to all other countries combined, still a substantial and increasing proportion went to other destinations. It will also be noted that the percentage of duty-paying sugar imports into the United States that came from Cuba was small in the early years of the table, but, with some fluctuations, tended to increase until about 1910. After that year the percentage that came from all sources other than Cuba was small, exceeding 10 per cent only in 1912 and in the abnormal year of 1920. Moreover, if we examine the facts more closely it will be found that practically all of even these relatively small imports were taken by refiners for the purpose of re-export with privilege of drawback. The statement is substantially correct that after 1910 all duty-paying sugar imported for consumption in the United States came from Cuba.13 The facts brought out in the last paragraph are of great importance to an understanding of the bearing of the Reciprocity Treaty and the sugar duty on our commercial relations with Cuba. This matter will be taken up again later in our discussion. "' The one exception is the year 1920. In this year the price of raw sugar c. and f., New York, touched 22.5 cents. Such an unheard of price attracted sugar from all over the world resulting in the importation of a large amount of full-duty sugar for consumption, and the accumulation of a surplus of about a million tons in Cuba. This surplus was one of the factors in the gravity of the crisis of 1921. THE SUGAR INDUSTRY THROUGH 1921 61 D. Factors Chiefly Responsible for the Foregoing Developments The factor primarily responsible for the phenomenal growth of Cuba's sugar industry is her peculiar adaptability to the cultivation of the cane. To this may be added her propinquity to the great and rapidly growing market of the United States. Cuba is only a few hours' sail from Florida. Except for the slight handicap of a difference in language and such artificial handicaps as result from customs duties, trade relations would be expected to be as intimate as between adjacent states of the Union, and the fact that Cuba has a tropical climate while that of the United States is temperate or sub-tropical, causing the products of their respective soils and industries to be to a considerable extent complementary, tends to augment the trade above that which would arise merely from the nearness of one country to the other. These characteristics of soil and climate and facilities for trade would have assured Cuba a great sugar industry even without artificial stimuli. But other forces tended to augment those supplied by nature and brought about the phenomena which have been described-a rapid growth in output until Cuba has become by far the greatest sugar producing country in the world and side by side with this expansion an increase in American investment until some 75 or 80 per cent of the industry is American owned. The most important of these forces were the Platt Amendment, the Reciprocity Treaty, the World War, and the collapse of 1920-21. The Platt Amendment fostered the growth of the industry and American investment in it. It is impossible to give statistical evidence of the extent to which 62 THE CUBAN SITUATION this statement is true. There was American investment while Cuba was under Spanish control and such investment would doubtless have increased had Cuba remained under Spanish control or had Cuba attained her freedom without American intervention. Yet there can be no reasonable doubt that the Platt Amendment, in its essence a guaranty by the United States government of protection of life and property in Cuba, has acted throughout the past quarter of a century as a powerful magnet in attracting American investments to Cuba. A feeling, based on observation and experience, is widespread in the United States that Latin Americans are prone to revolution as a means of settling political differences. Prospective investors know that sugar is a highly inflammable crop, they remember that both the revolution of 1868 and the final War for Independence were characterized by great destruction of sugar properties, and hence when they are weighing in their minds the lure of profit against the hazard of complete loss, the guaranty of the Platt Amendment has a reassuring effect and tips the scales in favor of the investment. And it must be confessed that not a little in Cuban history has tended to justify them in a feeling of reluctance before the prospect of abandoning some such guaranty. It may be that on the occasions when the United States intervened or threatened to intervene, it took the wrong side. It may be that it would have been better for Cuba in the long run had she on all these occasions been left to fight out her own quarrels in her own way. All this may be true but a survey of the events described in Chapter II indicates that the exercise by the United States of its rights under the Platt Amendment has in fact tended to protect the THE SUGAR INDUSTRY THROUGH 1921 63 property of American investors, and that was the one aspect of the situation in which they were interested. We may therefore conclude that, whether such a result is desirable or not, the Platt Amendment has tended to increase the volume of American investment in Cuba. To summarize: the Platt Amendment was a powerful agent for encouraging American investment in Cuba, and the peculiar adaptability of Cuba to the production of sugar directed such investment to that industry. An added incentive is found in the fact that the manufacture of sugar lends itself to the use of machinery and mass production, a type of industry peculiarly adapted to the genius of American enterprise. There remains to be considered the bearing of the Reciprocity Treaty on the growth of the sugar industry and American investment in it. The effect of the Reciprocity Treaty depends on the extent to which Cuban sugar contributes to the American demand for imported sugar. The debate in Congress on the Reciprocity Treaty developed a doubt as to what the effect of the proposed treaty would be. The intent, at least as expressed by the President, was to benefit Cuba. This would indicate a belief that the effect would be to increase the price received by Cubans for their sugar by the amount of the concessions. But would this be the effect? Opponents of the bill asserted that it would not benefit the Cubans at all. It would simply lower the price of Cuban sugar in New York by the amount of the concession to the benefit of American sugar refiners, a part of which benefit might ultimately filter through to American consumers. This lowering of price, they asserted, would be a distinct injury to domestic sugar producers. Now that the Treaty has been in effect for many 64 THE CUBAN SITUATION years it is possible to answer the question that arose in this debate. The price of imported raw sugar in New York to the refiner (and the New York price determines the price throughout the United States) is obviously the same as the foreign price plus transportation costs and duty. So long as sugar is imported in substantial quantities from other countries than Cuba, say for example from Germany, the New York price will be the same as the German price plus transportation costs from Germany plus the full duty. As all sugar of the same grade selling in the New York market will sell at the same price, it follows that Cuban sugar in the New York market will fetch as good a price as German sugar. Therefore, the price received by Cubans will be the New York price minus transportation costs from Cuba and the Cuban duty. Hence the Cuban will receive a better price for his sugar than the German by the full amount of the Cuban concession and whatever freight advantage there may be, arising from Cuba's propinquity. Suppose, however, that Cuba's output increases to a point where it is sufficient to supply the entire American demand for imported sugar and leave a surplus for export to other countries, then clearly the price which she receives for sugar exported to these other countries will be fixed by the world price. Cuban sugar and German sugar, for example, must sell in the London market at the same price and the price received by the Cuban will be this price less transportation from Cuba to London (and less the duty, if at the time there is an English duty on sugar). Nor can the Cuban receive any better price for sugar shipped to New York. If it temporarily rose, so many Cubans would attempt to sell in the New York market that their competition THE SUGAR INDUSTRY THROUGH 1921 65 would quickly beat down the price to that received for sugar shipped to other ports. Under these conditions the entire benefit of the concession under the Reciprocity Treaty would go to American consumers-first to refiners and then to the general public in the form of a lower price. Cubans benefited for some five or six years from the concession under the Reciprocity Treaty. It was noted in connection with the table on page 59 that up to 1909 practically all of Cuba's sugar exports went to the United States but that Cuban sugar was far from constituting the total of United States sugar imports. After this date these conditions were reversed. Nearly all of the United States imports of duty-paying sugar came from Cuba, while Cuba had a considerable export surplus to ship to countries other than the United States. From the analysis just given we should therefore expect that up to 1909 Cuban producers would receive some price benefit from the reciprocity concession. This a priori conclusion has been found to tally exactly with facts. In 1919 the United States Tariff Commission made a painstaking study, comparing prices of Cuban sugar with prices of German sugar. A chart was constructed comparing New York market prices, "960 centrifugals," with "Hamburg parity" 14 14 As explained in the text, in order to study the effect of the Reciprocity Treaty it is necessary to compare the price abroad of full-duty sugar with the New York price. A difficulty arises from the fact that foreign and New York prices are based on different grades of sugar and different currencies and hence a calculation must be made to reduce the two sets of quotations to a common denominator. New York prices are quoted in terms of "96~ centrifugals," that is, sugar testing 96 degrees by the polariscope. The most available price quotations for fullduty sugar are for beet sugar testing 88 per cent analysis as quoted on the London market. An example will show how the reduction is made. Assume that beet sugar, 88 per cent analysis, is quoted in London at 9s. per hundredweight (112 pounds), 66 THE CUBAN SITUATION month by month from January, 1899 to July, 1914. The Commission's conclusions may be summarized as follows: 15 (1) Even before the Treaty went into effect, the New York price was found at times to fall below Hamburg parity. This fall was most marked during the period from February to May-months in which a new Cuban crop was seeking a market and when, in consequence, the supply of Cuban sugar was so abundant, and competition in disposing of it was so keen, that for brief periods of time it completely supplanted sugar from other foreign sources in the New York market. During these periods American consumers received a part of the benefit arising from the low transportation cost to the United States. (2) Beginning with 1904 the occasions in which the New York price dropped below Hamburg parity became more frequent, indeed, became the rule rather than the exception, and the amount of the discrepancy became greater. The inference is that with a steadily increasing output of Cuban sugar and with increasthat freight and lighterage to refinery is 7.5d., and that exchange is at $4.88. ThenCents Per Pound The price of sugar, as above described, c. and f. New York................................... = 2.098 Insurance, bank commission, lost weight (1.5 per cent).................................... =.031 Duty (Act of 1897, 88 per cent analysis outturn = 940 polarization)...................=.... = 1.615 Difference in value to refiners................... =.190 Beet, 88 per cent, f.o.b. Hamburg, parity of centrifugals, 960 at New York.................... =3.934 16 The discussion in full may be found in U. S. Tariff Commission, Reciprocity and Commercial Treaties, pp. 328-36, and, with some additions, is reprinted by the Commission in Effects of the Cuban Reciprocity Treaty, 1929, pp. 64-78. THE SUGAR INDUSTRY THROUGH 1921 67 ingly active competition to dispose of it, there were longer and longer periods of time during each year when it displaced all other foreign sugars. At such times the New York price was fixed entirely by conditions of supply and demand in Cuba and the United States, and the competition among Cuban producers to dispose of their stock forced the price down so as to give American consumers a greater and greater share of the joint benefit arising from lower transportation costs and the new tariff concession. These periods showed a marked correlation with the seasons, the depression showing itself first in December and continuing through longer and longer periods during the winter and spring months while the Cuban crop was being marketed. During the remainder of the year American consumers had to import from other foreign sources to meet their needs. When such importations became substantial the New York price showed a tendency to rise relatively to Hamburg parity and frequently for brief periods exceeded it. During these months, such Cubans as had held their sugar obtained some benefit arising from a lower freight rate and the tariff concession. (3) Not until 1909 did the drop in the New York price below Hamburg parity (even during the spring months) appreciably exceed 0.36 of a cent-a difference which might be accounted for by transportation advantages alone. After 1909 the periods in which the difference was less than 0.36 of a cent tended to become shorter and shorter and ultimately to disappear. The inference is that up to 1909, while American consumers received price benefit, they received no more than could be accounted for by transportation advantage. During this period Cuban producers may be said to have reaped the entire benefit resulting from the Treaty. From 1909 on, however, the benefit arising both from freight 68 THE CUBAN SITUATION and from the treaty concession tended more and more to go to American consumers. It is further to be noted that it was in the years following 1909 that Cuba began to export in substantial quantities to other countries and hence was compelled to accept the "world price" for her sugar. If we do not insist too meticulously on an exact date, it may be said that, since 1909, Cuba has received very little benefit from the Reciprocity Treaty so far as it relates to sugar. Whatever benefit resulted from the Treaty has accrued chiefly to American consumers-either refiners or ultimate consumers in the form of a lower price for sugar. Since 1913, at least with respect to sugar, the Reciprocity Treaty has been for the most part a nominal concession. So long as any considerable amount of full-duty sugar was imported into the United States the concession under the Reciprocity Treaty was a real concession, the benefits of which were shared in the manner which has just been explained between Cuban producers and American consumers. This was certainly true under the Act of 1897 and to a minor extent under the Act of 1909. The full duty under the former was 1.685 cents per pound and after the Reciprocity Treaty went into effect the duty on Cuban sugar became 1.348 cents per pound, a concession of 0.337 of a cent per pound. These rates continued under the Act of 1909 and it is probable that at that time it was not realized that thereafter importations of full-duty sugar would virtually cease. Hence, the difference between the Cuban rate and the full duty may still be regarded as a concession-in the early years to Cuban producers, in the later years to American consumers. But when the Act of 1913 was under discussion a different party was in power with a different tariff policy. As the Act passed, the full duty was reduced THE SUGAR INDUSTRY THROUGH 1921 69 to 1.256 and the Cuban duty accordingly to 1.0048 cents per pound, with the proviso that after the first of May, 1916, sugar should be on the free list. As by 1913 practically all duty-paying sugar came from Cuba, the most rational explanation of the policy adopted is that the Cuban rate was regarded as a sufficient concession to domestic producers in order to give them temporary protection before they were subjected to the full brunt of Cuban competition. Had the proviso gone into effect,16 the putting of sugar on the free list would, of course, have automatically terminated any concession to Cuba. Apparently the full duty was a nominal rate adjusted to the Cuban rate in order that the law might conform to the Treaty. No one expected it to be of any practical significance. What was true of the Act of 1913 was true of all subsequent acts. The Act of 1913 was enacted when a low-tariff party was in power and subsequent acts have been enacted when a high-tariff party was in power, but in all of these acts the only rate that was talked about or thought about was the Cuban rate. It was the Cuban rate which was adjusted to the conflicting interests of domestic producers, American owners of Cuban sugar properties, refiners, and final consumers. When this rate was agreed on a "full duty" was computed from it, because so long as the Treaty was in effect it was necessary that there should be a full duty. Had there been no Reciprocity Treaty there is every reason to believe that the duty on sugar would have been, not what has been the full duty, but what has been the Cuban duty. It may be said that even though the Reciprocity Treaty no longer benefited Cuban producers by giving them a higher price, it still remained a benefit in that it "6 The proviso was repealed by a special act on April 27, 1916, and the original rate provided for in the act continued in force. 70 '70 ~THE CUBAN SITUATION excluded other foreign sugars from the United States, thus giving Cuba a monopoly of all duty-paying sugars in the United States markets. It would be too much to deny any validity to this argument, but its force may be easily overrated. By 1913 Cuba was already shipping a substantial part of her sugar exports to countries other than the United States, and hence must have been selling all her sugar at a world price. In the United States market her propinquity and the consequent saving in transportation costs gave her a distinct advantage over nearly all other foreign competitors. This was clearly shown by the Tariff Commission's analysis outlined in an earlier paragraph. Because of this, even with no tariff concession, she would have retained about as much of a monopoly in the American market as she possessed with it. The abolition of the concession, provided the Cuban rate were retained as the full duty, would have had little effect on the course of trade. If this view is correct it may be confidently stated that since 1913, so f ar as sugar is concerned, the 20 per cent reduction of duty made by the Reciprocity Treaty has been of little or no benefit to Cuba or to American consumers and of little or no injury to American producers. It has been, in short, an empty gesture. Since 1913 developments in the Cuban sugar industry have been profoundly influenced by events connected with the War. While the Reciprocity Treaty virtually ceased to be operative, certainly as early as 1913, the Platt Amendment still remained a factor directing American investment to Cuba, but the great factor in the growth of the Cuban sugar industry during the decade ending in 1920 was the World War. The War affected disastrously the European beet-sugar industry. The sugar-beet areas in France and Belgium THE SUGAR INDUSTRY THROUGH 1921 71 were ravaged. Germany and Austria which before the War had had enormous export surpluses were deprived of foreign markets and cut down their outputs to less than half of their former production. Russian production all but disappeared. From a production of over 9,000,000 tons during the year immediately preceding the War in the countries mentioned the output dropped to less than 2,000,000 tons. The figures for the two crop years are given in thousands of tons in the following table: 17 Country 1912-13 1919-20 Austria and Hungary............ 2,116 558 Belgium........................ 331 161 France......................... 1,079 170 Germany....................... 3,012 815 Russia...................... 1,550 97 Total........................ 9,088 1,801 The deficit created by this decline was Cuba's opportunity. As shown by the table on page 50 Cuban production increased from 2,719,961 short tons in 1912-13 to 4,448,389 tons in 1918-19. That is, from a production of less than one-third of that of the chief beetsugar producing countries of Europe, Cuba's post-war production rose to a figure more than double the postwar production of the same countries. The immediate stimulus to this increased output was a rising price. In 1913 the price of sugar was low, lower than in any year since 1902, and Cuba suffered a period of severe depression. It remained low for several months in 1914, but rose rapidly on the outbreak of the World War. The promedio price jumped from 2.11 cents per pound in July to 4 cents in August. Averages (promedios) for the war years and imme17 These data are from Concerning Sugar, p. C. Czechoslovakia is included in the 1919-20 figure for Austria and Hungary. 72 THE CUBAN SITUATION diate post-war years were: 1914, 2.64; 1915, 3.31; 1916, 4.37; 1917, 4.62; 1918, 4.24; 1919, 5.06; 1920, 11.95.18 A series of seven years each showing a notable advance in price over that of the preceding year and culminating in the unheard of price of 11.95 cents per pound is sufficient to account for the rapid increase in Cuban sugar production and in American investments in Cuban sugar properties described earlier in the chapter. This growth was due primarily to events directly or indirectly connected with the World War. The Permanent Treaty, however, still remains a contributing factor. 18 Secretaria de Agricultura, Comercio y Trabajo, Industria Azucarera, Zafra de 1930, p. 109. CHAPTER IV DEVELOPMENT OF THE CUBAN SUGAR INDUSTRY SINCE 1921 In the last chapter attention was directed to the rapid growth of the Cuban sugar industry and the accompanying "occupation" of the industry by an army of American investors, until some 75 per cent of it was in American hands. It was pointed out that our treaty relations contributed to these results, the Platt Amendment as a constant but incalculable factor after 1904, and the Reciprocity Treaty as a temporary stimulus. The major factor, however, was shown to be events directly or indirectly resulting from the Great War. We left the Cuban sugar industry in 1921 in common with Cuban business in general in a state of collapse. In this chapter we shall trace the subsequent development of the industry from 1920 to the present writing in 1931. American sugar producers were hard hit by the low prices of 1921. The slump in the sugar market beginning in June, 1920, and continuing until January, 1922, brought disaster to the Cuban sugar industry, to the Cuban banks, and to Cuban business in general. But Cuban interests were not the only ones affected. Sugar producers in the United States and its insular possessions were also hard pressed. It will be remembered that it was these interests which were the chief opponents of the Reciprocity Treaty when it was first proposed. They feared that any lowering of the duty on Cuban sugar would lower the price. For some years, as has been shown, the effect of the concession had been rather to raise the Cuban price than to lower the 73 74 THE CUBAN SITUATION New York price and even after this effect of the concession wore off and in spite of the reduction of the duty in 1914, prices, because of events connected with the War, remained at a satisfactory level, and domestic producers generally prospered. Evidence of this is afforded by the almost steady growth of domestic beetsugar production from 86,082 tons in 1900 to 1,089,021 tons in 1920. No less striking than the progress to 1920 is the failure to increase since that date. Year-byyear figures in the table below. BEET-SUGAR PRODUCTION IN THE UNITED STATES, 1900-1929 a (In thousands of short tons) Year Quantity Year Quantity Year Quantity Year Quantity 1900... 86 1908... 426 1916... 821 1924... 1,091 1901... 185 1909... 512 1917... 765 1925... 901 1902... 218 1910... 510 1918... 761 1926... 897 1903... 241 1911... 599 1919... 731 1927... 1,081 1904... 242 1912... 693 1920... 1,086 1928... 1,051 1905... 313 1913... 733 1921... 1,008 1929... 1,092 1906... 484 1914.. 722 1922... 690 1907.. 464 1915.. 874 1923... 882 Concerning Sugar, p. E-27. During this period production in Louisiana far from increasing actually declined from 308,648 tons in 1900 to 169,127 tons in 1920. This decline, however, can hardly be attributed to Cuban reciprocity or even to the lowering of the duty in 1914. They were at best minor factors. Frosts, floods, the mosaic disease, and the fact that Louisiana lies at the very margin of the cane-sugar zone were the important factors. But with the collapse in the market in 1920 and 1921 the domestic industry found itself in distress, and like most domestic industries when in distress, it appealed to Congress for an increase in the duty on imports. To the pressure exerted by the sugar manufacturers was added that of beet growers who united with other agri THE SUGAR INDUSTRY SINCE 1921 75 cultural groups through their spokesmen in the socalled Farm Bloc in Congress for a general increase of duties on agricultural products. In this movement they were successful. The duty on Cuban sugar was raised from 1 cent per pound to 1.6 cents per pound in the emergency tariff and again to 1.76 cents per pound in the Act of 1922. The first increase in duty acted rather to depress the Cuban price than to raise the New York price. It simply succeeded in adding to the burden under which Cuba was sinking rather than in bringing any aid or comfort to domestic sugar manufacturers or to sugar-beet growers. The reason for the failure of the duty under the Act of 1921 to increase the domestic price may be briefly explained. The price boom in 1920 had drawn sugar to the United States from all over the world. The result was a surplus stock of some million tons in Cuba. When the collapse came the following year most of this sugar came into the possession of banks through foreclosure of chattel mortgages. The banks felt themselves compelled to dispose of this sugar "at any price," and when the duty was increased they simply sold at a price lower by the increase in duty than they would otherwise have received. Statistical evidence is afforded by the fact that when the duty was increased from 1 to 1.6 cents per pound the spread between the New York price c. and f. and the New York price duty-paid increased by the same amount and that this increase appeared to arise from a further slump in the c. and f. price rather than from a stiffening of the duty-paid price. Following the Act of 1922 conditions in the sugar industry temporarily improved, both in the United States and Cuba. Prices touched bottom level on January 1, 1922. Up to that time the emergency tariff had been of no benefit to domestic producers but, as noted in the last paragraph, its effect had been to add to the 76 THE CUBAN SITUATION distress of Cuba. It will be remembered that 1921 was a year of severe depression in the United States as well as in Cuiba, and that the weakening of demand arising from this depressed condition augmented the effect of the over-abundant supply in depressing the price of sugar. But with the beginning of 1922 business conditions in the United States began to improve, and with the disposal of the surplus and the stiffening of demand resulting from better general business conditions the price of sugar gradually rose. When in September of that year the duty was still further increased to 1.76 cents per pound, the demand was strong enough to cause the duty-paid price to rise proportionately. That is, by this time the burden of the sugar duty was borne chiefly by American consumers. The duty was having its desired effect of aiding domestic producers. Cuban interests also benefited by this increase in price; and production, which had shown a slight tendency to fall off since 1919, again shot upwards. From an output of a little over 4,000,000 tons in 1922-23 it increased to over 5,700,000 tons in 1924-25. The period from 1923 to 1930 has been marked by a downward trend of prices and increasing severity of competition in the sugar industry. Owing to the era of increasing "prosperity" which began in the early months of 1922, the demand for sugar strengthened so greatly that in spite of increasing world crops the price continued to rise, reaching a peak in May, 1923. By this time, however, under the stimulus of advancing prices, output throughout the world began to expand so rapidly that a new price recession began, which continued, with recoveries, sometimes for considerable periods of time, until the summer of 1930. The course of prices just referred to is shown in the table on page 77 and the chart on page 78. The prices are for 96~ centrifugals in public warehouses, Cuba (promedios), THE SUGAR INDUSTRY SINCE 1921 77 indicating the prices received by Cuban producers; and for refined granulated New York, indicating the amount absorbed by the tariff, by transportation costs, and by the costs of refining. PRICES OF REFINED SUGAR IN NEW YORK COMPARED WITH RAW SUGAR PRICES IN CUBA, 1921-1930 a (In cents per pound) I. Average New York Price for Refined Granulated Sugar Month 1921 1922 1923 1924 1925 1926 1927 1928 1929 1930 January... 7.56 4.86 6.6;4 8.37 6.19 5.16 6.11 5.66 5.01 5.08 February.. 7.13 5.00 7.44 8.65 5.85 56 5.90 5.57 4.90 4.91 March... 7.92 5.21 8.57 8.33 5.83 4.97 5.80 5.62 4.75 4.86 April..... 7.08 5.19 9.18 8.06 5.65 5.17 5.83 5.78 4.80 4.78 May..... 6.31 5.32 9.43 7.12 5.47 5.41 6.08 5.88 4.79 4.72 June...... 5.59 5.81 9.19 6.48 5.44 5.43 6.03 5.83 4.85 4.49 July...... 5.55 6.63 8.35 6.50 5.27 5.54 5.81 5.65 5.15 4.59 August.... 5.83 6.52 7.51 6.62 5.34.55 5.56 5.45 5.39 4.39 September. 5.50 6.25 8.31 7.18 5.26 5.63 5.78 5.41 5.32 4.32 October... 5.15 6.55 8.55 7.35 5.00 5.72 5.68 5.16 5.11 4.40 November. 5.19 6.91 8.77 7.24 5.10 5.89 5.54 5.07 5.01 4.58 December. 4.87 6.86 8.76 6.84 5.19 6.11 5.59 5.15 4.97 4.56 Average. 6.14 5.93 8.31 7.40 5.47 5.48 5.81 5.52 5.04 4.81 II. Average Promedio Price of Sugar in Public Warehouses, Cuba January... 3.71.... 3.24 4.47 2.47 2.07 2.97 2.48 1.78 1.74 February.. 4.27 1.67 4.49 5.12 2.53 2.68 2.86 2.22 1.68 1.60 March.... 4.41 1.97 5.21 4.83 2.66 2.01 2.73 2.43 1.67 1.58 April...... 3.83 2.09 5.71 4.23 2.41 2.08 2.69 2.39 1.61 1.46 May...... 3.44 2.14 5.89 3.54 2.29 2.12 2.77 2.41 1.54 1.25 June...... 2.63 5.69 3.04 2.33 2.09 2.60 2.32 1.49 1.13 July...... 2.59 3.21 4.85 3.03 2.20 2.07 2.48 2.24 1.83 1.04 August.... 2.83 3.19 4.23 3.26 2.28 2.15 2.46 2.14 1.80.99 September. 2.25 3.33 4.64 3.73 2.19 2.31 2.74 2.04 1.93.91 October... 2.11 3.23 5.58 3.90 1.82 2.43 2.59 1.93 1.97 1.08 November. 2.09 3.46 5.10 3.78 1.97 2.56 2.58 1.89 1.71 1.18 December. 1.90 3.57 5.17 3.30 1.99 2.98 2.52 1.94 1.71 1.08 Average. 3.03 2.77 4.98 3.85 2.26 2.30 2.67 2.20 1.73 1.25 a Data were obtained from the U. S. Tariff Commission. This long-continued fall in prices has brought inevitable hardship to sugar producers in the United States, in Cuba, and indeed in all sugar producing countries. Competition has been keen, and in every region competing producers have resorted to all methods at their disposal to reduce costs. For some producers whose costs were already low it was merely a question of reduced profits; for others it was a life or death struggle THE CUBAN SITUATION 78 in which some have gone to the wall and others are tottering. In this struggle for survival producers in our insular possessions appear to have fared better than those in the continental United States. Evidence for this statement is found in the table on page 80 and the chart on COMPARISON OF REFINED SUGAR PRICES IN NEW YORK WITH RAW SUGAR PRICES IN CUBA, 1921-1930 -REP/NEO GRA NULAtO SUGAR INNSt YORK RA SUGAR IN CUBA page 79, and is based on the supposition that steadily increasing output in a given region over a series of years is evidence of the ability of producers in that region to meet the competition of producers in other regions. Referring to the chart on page 78 it will be seen that the peak of prices following the depression in 1921 was reached in 1923. Prices, however, remained at a fairly satisfactory level for the industry throughout 1924. Under the stimulus of such prices as prevailed in 1923 and 1924 production in every THE SUGAR INDUSTRY SINCE 1921 79 region, except Louisiana, shown in the chart on page 79 rapidly increased. In fact, as the chart shows, the stimulus of good prices carried over to the crop year 1924-25. From this year onward, however, beet-sugar production has hardly held its own, the average out TREND OF SUGAR PRODUCTION IN SPECIFIED REGIONS, 1919-20 THROUGH 1929-30 put for the years since 1924-25 being 1,004,000 tons as against 1,091,000 for that year. The Louisiana output constitutes but a small part of our domestic consumption and even that part showed a marked tendency to decline after 1922. There has, however, been some recovery since 1927. On the other hand, in all of the insular possessions, Porto Rico, the Hawaiian Islands, and the Philippine Islands, in spite of the downward 00 SUGAR PRODUCTION IN THE REGIONS SPECIFIED, 1919-20 THROUGH 1929-30 a (In thousands of short tons) Region b 1919-20 1920-21 1921-22 1922-23 1923-24 1924-25 1925-26 1926-27 1927-28 1928-29 1929-30 UNITED STATES.................. 2,132 2,608 2,689 2,198 2,613 3,273 2,930 3,047 3,516 3,536 3,800 Louisiana and Texas........... 121 176 328 295 162 88 139 47 71 132 185 Hawaiian Islands.............. 556 569 562 537 701 775 790 811 904 925 913 Virgin Islands................ 14 5 6 2 3 8 6 8 12 4 8 Porto Rico.................... 486 490 406 379 448 660 606 630 751 594 762 Philippine Islands............. 224 282 379 295 417 651 488 654 697 830 840 Beet sugar from 19 states....... 731 1,053 1,008 690 882 1,091 901 897 1,081 1,051 1,092 CUBA........................... 4,178 4,408 4,476 4,035 4,555 5,741 5,471 5,045 4,493 5,775 5,232 WORLD....16,959 18,484 19,671 20,444 22,450 26,459 27,324 26,480 28,264 30,327 31,245 Cane sugar...................13,340 13.244 14,226 14,684 i5,954 17,492 18,143 17,936 18,248 19,963 19,695 Beet sugar......3,619 5,240 5,445 5,760 6,496 8,967 9,181 8,544 10,016 10,364 11,550 a Figures were obtained from the U. S. Tariff Commission. b Production is of cane sugar unless otherwise designated. 4 tX1 (%4 t) L — t2 C4 11-4 1-3 Qi;bl1.1 11.4 0 t; THE SUGAR INDUSTRY SINCE 1921 81 trend of prices, the trend of output has been steadily upward. The evidence becomes even more striking when we compare the combined production of all regions in the continental United States (beet-sugar states and Louisiana) with the combined production of the insular possessions (Hawaiian and Philippine Islands and Porto Rico). It will be seen that in 1921-22 production in these two regions is about the same, but from that year onward the lines steadily diverge and are far apart in 1929-30. The comparison, instead of being made by trends, may be made by output figures. In the two years 1921 -22 and 1922-23 the total production from domestic sources was 4,887,000 tons, of which the insular possessions furnished 2,566,000 tons or 52.5 per cent. In the two-year period 1928-29 and 1929-30 the total production from domestic sources was 7,336,000 tons of which our insular possessions furnished 4,876,000 tons or 66.5 per cent. It would appear, therefore, that the insular possessions can stand an era of low prices, so far as the sugar industry is concerned, better than the continental United States. The evidence is not conclusive. A better comparison would be one based on costs of production. Such data, however, are not available for recent years. But when we remember the large areas open to beet-sugar production which would certainly have been appropriated had the industry been profitable, and on the other hand the fact that available land in the Hawaiian Islands and in Porto Rico had been so nearly appropriated by 1922 that it was thought doubtful by some students of the subject whether there could be any 82 THE CUBAN SITUATION substantial increase in those regions after that year, 1 the evidence based on increase of output, if not conclusive, is at least impressive. The Tariff Act of 1922 has played a role, but not a leading role, in the sugar drama of the decade 1920 -1930. In the main the trends of sugar prices and sugar outputs during recent years have been the result of world forces which probably would have followed much the same course quite independently of American legislation. After the general depression of 1921 business began to recover throughout the world and prices to rise. This rise in prices was one factor contributing to the increase in world output. Another was the situation of the beet-sugar industry in Europe. The partial destruction of this industry during the war years had, as has been noted, afforded an abnormal stimulus to the growth of Cuba's sugar industry. When peace was restored the beet-sugar countries of Europe endeavored to regain their former standing. In this they have been surprisingly successful. From the low levels shown in the table on page 71 there has been steady improvement. By 1930 Germany had increased from 815,000 tons to 2,166,000 tons; Austria, Hungary, and Czechoslovakia from 558,000 tons to 1,527,000 tons; France from 170,000 tons to 959,000 tons; Belgium from 161,000 tons to 281,000 tons; Russia from 97,000 tons to 1,344,000 tons; and Europe as a whole from a low of 2,869,182 tons in 1919-20 to 10,421,722. Other countries shared in this increase. World production (cane and beet sugar) increased from 16,959,174 tons in 1919-20 to 31,244,507 tons in 1929-30. During these years, because of the increase in population, the growing desire for sugar, and the general 'This was the opinion of the author and was based on the testimony of producers in these regions. See Wright, Philip G., Sugar in Relation to the Tariff, p. 75. THE SUGAR INDUSTRY SINCE 1921 83 recovery from the War, the demand for sugar was also strengthening; but so great was the increase in world output that the demand, though much stronger, was not strong enough to absorb the vast flow of sugar that kept pouring into the market save at a constantly decreasing price. We thus account for the trend of prices shown in the chart on page 78. The part played by the American Tariff Acts of 1921 and 1922 in this world drama was that of a stimulus to production in all regions under the American flag. The normal effect of a duty on a commodity of which there are substantial imports is to make the domestic price higher, and the foreign price lower, than it would otherwise have been.2 As has been noted the Act of 1921 was effective chiefly in lowering the Cuban price, but by the time the Act of 1922 was passed conditions had changed and the chief effect of the duty of 1.76 cents per pound was to raise the American price. During the rise in prices until 1923 and also during the subsequent decline the American price, as a result of the tariff, was higher, and the Cuban price lower, than they would have been had the duty not been imposed. As a result of this higher price it may confidently be stated that domestic production, particularly in the insular possessions, was greater than it would otherwise have been and that this greater production, taken 2 This does not mean that the domestic price will necessarily be higher, or the foreign price lower, than it was before the duty was imposed. The tariff influences price through its effect on supply and other factors also influence supply. Moreover, demand conditions are constantly changing and on these the duty has little or no effect. The actual price is the result of all the factors which affect demand and supply conditions and some of these may be so much more potent than the tariff that after the duty is imposed the domestic price may actually fall. But in that case the effect of the duty is to retard the fall. For a full discussion of this subject the reader is referred to Appendix B, of The Tariff on Animal and Vegetable Oils, by Philip G. Wright. 84 THE CUBAN SITUATION in conjunction with increasing production in other parts of the world, contributed to the decline in prices. Tariff legislation in other countries also contributed to world "over-production." Doubtless domestic production would have increased had there been no change in the tariff. But it can be said with equal confidence that the tariff was a contributory factor. Moreover, the United States was not alone in its policy of protecting a domestic industry. The recovery of the European beet-sugar industry was in large measure due to similar methods. Domestic sugar production was directly or indirectly subsidized in Austria, Czechoslovakia, Finland, Latvia, Poland, and the Irish Free State. In Germany a cartel agreement was arranged in accordance with which a certain percentage of the total output was to be reserved for domestic production, the remainder to be exported. In the crop year 1929-30 the portion to be exported was 15 per cent; in 1930-31, 25 per cent. The German duty on sugar varies somewhat with the price, but is based on a rate of 2.917 cents per pound on raws and 3.457 on refined. The domestic price by these means is, so to speak, "pegged" by means of the tariff to a figure about three times the export price. Even England, which up to the time of the War had been known as a free-trade country, imposed a discriminatory duty on sugar in favor of "empire sugar" and granted a subsidy to the beetsugar industry within the Island. Sugar duties, expressed in cents per pound, in a few of the leading countries in Europe, are as follows: Austria (including consumption tax), raws, 3.961; refined, 4.779. France, raws (98 per cent yield, or less) 2.426; (more than 98 per cent) 2.488. Hungary, 3.313. Norway, 3.032. Bulgaria, raws, 2.603; refined, 3.579. Great Britain (protection granted including duty and subsidy) 4.65. Rates similar to these prevail in other THE SUGAR INDUSTRY SINCE 1921 85 countries. They give an idea of the difficulties with which a country, which is forced to rely so preponderantly on its sugar exports as Cuba, must contend. Nationalistic policies with respect to sugar, in the United States and elsewhere, have borne with peculiar severity on Cuba's sugar industry. As has just been noted the effect of the American Tariff Act of 1922 was at first chiefly to raise the American price. Hence for some months Cuba was little affected by it and, as is shown by the table on page 50 and the chart on page 51, production shot up from 4,035,000 tons in the crop year 1922-23 to 5,741,000 tons in the crop year 1924 -25. Throughout the greater part of this period prices were satisfactory and the Cuban sugar industry was prosperous. But as world production increased and prices, as a result, continued to decline, it suffered increasing hardship. To this increasing world output the tariff policies of the United States and other countries contributed. Production under the flag of the United States increased from 2,198,000 tons in 1922-23 to 3,800,000 tons in 1929-30. Of course not all of this gain was due to the tariff. Doubtless domestic production, particularly in the earlier years of rising prices, would have increased had there been no change in the tariff. But it can be said with equal confidence that the tariff was a contributory factor; and the same statement may be made of other nations that enacted defensive tariff legislation with respect to sugar. So long as a country continues to import a substantial part of its sugar it can maintain a domestic price at any desired level for the benefit of its domestic producers. This it can do by simply increasing the duty as the world price declines.3 But the normal effect of each When the duty becomes so high as to be prohibitory, the domestic price ceases to have any relation to the world price. It is determined solely by conditions of domestic supply and demand. No further increase in the duty can effect it. 86 THE CUBAN SITUATION increase in duty (and by normal effect is meant the effect when isolated from the effects of all other factors which influence prices) is in part to depress the foreign price as well as to raise the domestic price. And once the new rate is adopted the effect of the increased domestic price is to stimulate domestic production, and the normal effect of the increased domestic production (as a part of the world production) is to depress the world price. Hence, after a duty has been increased, so far as it affects the course of events, we may expect: first, an increase in the domestic price and a depression of the foreign price; second, an increase in domestic production; third, a gradual decline in both the domestic and foreign price, along parallel lines always separated from each other by the amount of the duty; fourth, the ultimate depression of the domestic price to a point at which a large number of domestic producers are unable to make a profit and a consequent imperative demand for a still further increase in duty. A comparative study of the price chart on page 78 and the production chart on page 79 shows that since the Tariff Act of 1922 the expected has happened. Domestic production, particularly in the insular possessions, has increased, and prices after a temporary rise have steadily trended downward. By 1929 they reached a level as low as that which brought distress to domestic producers in 1922 and an imperative demand arose for a further increase in the duty. An importing country by increasing its tariff can, therefore, at least for a time, save its domestic producers from the decline in world prices resulting from increasing world output. An exporting country,4 on 'That is, a country in which the chief reliance of the industry is on exports. Even an exporting country, if production for domestic consumption is the more important item to the domestic industry, may aid the industry by "pegging" the domestic price by means of the tariff, as Germany has done. See p. 84. THE SUGAR INDUSTRY SINCE 1921 87 the other hand, has no such refuge. As higher and higher tariff barriers are raised against its exports it must suffer from a progressive price decline. Its only resource is to decrease its output and turn to other industries. This is precisely the situation in which Cuba finds herself at the present writing in 1931. To meet the growing distress of her chief industry Cuba attempted to bring about a decrease in world production. The rapid increase in Cuba's sugar production in the crop years 1923-24 and 1924-25 will be noted. From an output of 4,035,000 tons in 1922-23 production increased to 5,741,000 tons in 1924-25, or over 40 per cent. This great increase in conjunction with that in other regions resulted in the slump in prices in 1924 and 1925. Cuba first responded to this situation by attempting to limit world output simply by lessening her own. Her output constitutes such a considerable part of the world output (22 per cent in 1924-25) that the idea seemed at least plausible. By presidential decree centrals were compelled during the crop year 1925-26 to postpone grinding until the middle of January, and for the two following crop years, crops were limited to 4,500,000 long tons and 4,000,000 long tons respectively.5 The theory was, of course, that though a smaller quantity of sugar would be sold, the price would be so much higher that the gross return would be greater. Prices did in fact rise during 1926 and 1927 but not enough to justify the sacrifice in quantity and in 1928-29 the restrictive policy was abandoned. The abandonment of restriction in 1928-29 did not mean the abandonment of the idea. It was seen that satisfactory results could not be obtained unless other 6 The table on page 50 shows that these limits were in fact slightly exceeded. Expressed in tons of 2,000 pounds the limits would be 5,040,000 and 4,480,000 respectively. Actual outputs were 5,045,282 and 4,493,123. 88 THE CUBAN SITUATION countries could be induced to co-operate. In 1928 Colonel Jose Miguel Tarafa, who had strongly advocated the policy of crop restriction, was sent to Europe to discuss the matter with representatives of the sugar producers of France, Belgium, Czechoslovakia, Germany, and other countries. The representatives of the Java sugar industry, with whom Colonel Tarafa conferred in Holland, took a different view and refused to co-operate. This opposition deprived Tarafa's endeavors of any practical result. In the following year the Cuban producers tried again to reach an international agreement. Their representative in Europe was Viriato Gutierrez, at that time secretary to President Machado. Mr. Gutierrez had an interview in Brussels during the spring of 1929 with the representatives of the Belgian, French, German, Czechoslovakian, Dutch, and other producers. Plans were discussed for regulating sugar production throughout the world for a period of three years on a basis of allocation of output to each country of a specified proportion of an estimated world production. It was, however, impossible to reach an accord. Two plans-the Claret plan and the Gutierrez plan -aimed at obtaining for Cuba some benefit from the Reciprocity Treaty. As has been shown on page 68 Cuba has gained little or no benefit in price from the concession on the sugar duty since 1909. An ingenious plan proposed by Santiago Claret aimed to regain for Cuba some part of this concession. The plan in brief was that Cuba should impose an export tax on all sugar shipped to the United States and then distribute the proceeds of the tax among all Cuban producers in proportion to output. The theory of the proposal as advanced by Mr. Claret was this. The export tax levied by Cuba only on shipments to the United States would not affect the world price at which Cuba was selling THE SUGAR INDUSTRY SINCE 1921 89 to other countries. Its effect would be to raise the New York price by the full amount of the tax. Hence sellers to the United States would get as good a price for their sugar as sellers to other countries and all Cuban producers, whether selling to the United States or elsewhere, would receive in addition a share of the refunded tax. In brief, the effect would be the same as though, instead of an export tax levied by Cuba, there had been an addition to the import duty levied by the United States, except that the proceeds of the tax instead of going to the United States Treasury would go to Cuban sugar producers. The provision that the proceeds were to be distributed in proportion to output and not in proportion to United States sales was important. In the latter case sellers to the United States would have discounted their price by nearly the amount of the tax. The plan would virtually have been merely to have provided an indirect mode of payment for sales to the United States. By making the distribution in proportion to output, each producer received the same share of the total proceeds of the tax whether he shipped to the United States or to some other country. Hence all sugar, wherever sold, would fetch the same price. At the time the plan was discussed (July, 1930) the Act of 1930 had gone into effect providing for a full duty of 2.5 cents per pound and a Cuban duty of 2 cents per pound. The rate proposed by Mr. Claret for the export tax was 0.4 of a cent per pound. Even with this addition to the New York price it would still have been 0.1 of a cent per pound less than the world price plus the full duty, which he thought would be sufficient to prevent other foreign sugar from entering the United States. It thus appears that under this plan, its sponsors hoped to restore to Cuba four-fifths of the possible benefit under the Reciprocity Treaty. 90 THE CUBAN SITUATION The plan was ingenious, but it had one weak point. Mr. Claret was in all probability wrong in thinking that the tax would not depress the world price. The effect of the duty (when segregated from all other factors affecting price) would be to raise the price in the United States at first by the full amount of the duty. But this increased price would decrease the quantity that could be sold and hence, unless the tax were accompanied by crop restriction, would increase the quantity to be sold in other markets. Competition among sellers to dispose of this surplus would depress the price. The final result of the tax would be a world price somewhat lower than before and a New York price higher than this depressed world price by the amount of the duty. In other words, the effect of the plan were it to be put into effect in normal times would be to enable Cuba to sell a somewhat smaller quantity of sugar than before in the United States, but at a higher price, and a somewhat greater quantity than before in other markets but at a lower price. The net gain, therefore, would depend on the extent to which the New York price would rise because of the tax and the extent to which sales in the United States would fall off because of the rise of price. An estimate by the author, based on the average elasticity of demand for sugar in the United States over a considerable period of years gave a net gain of 0.15 of a cent per pound on all exports of Cuban sugar as a result of imposing a 0.4 of a cent export tax. However, at the time the plan was discussed conditions were anything but normal. Cuba was confronted with a surplus much as in 1921 when sugar was going at almost any price that could be obtained. Under such conditions the increase in the New York price might have been much less and the depression in the world price much greater than was estimated in THE SUGAR INDUSTRY SINCE 1921 91 arriving at the above result. The effect of the 0.4 of a cent tax at that time would probably have been a much less net gain than 0.15 of a cent-it might well have been a loss. Even were the plan to work as its author predicted, it would be questionable policy for Cuba. The increased returns to Cuban producers would stimulate production in Cuba, and the increased New York price would stimulate production in the United States. Such an artificial increase in world production would be bad for the industry as a whole throughout the world and especially bad for Cuba. The Gutierrez plan aimed at direct restriction of exports to the United States instead of indirect restriction through the medium of an export tax. In brief, it was to limit Cuban exports of sugar to the United States in 1931 to 2,800,000 tons on condition that producers in the United States and its insular possessions would make no increase in their output above the 1930 level. Provision was made for a gradual increase in exports and domestic production after 1931 according to a definite prearranged plan. Much the same comment may be made on this plan as was made on the Claret plan. Moreover, any formal limitation of output by American producers would presumably have been overruled by the courts as coming under the condemnation of the Sherman Anti-Trust Act. Meanwhile, the project of limiting world production had by no means been abandoned. In July, 1930, a committee of 24 United States and Cuban citizens was appointed under the chairmanship of Thomas L. Chadbourne, a prominent New York attorney. Mr. Chadbourne arranged for conferences with representatives of the leading sugar producing countries in the world, which conferences were held in Amsterdam, Brussels, and Berlin. Early in February, 1931, agreements were 92 THE CUBAN SITUATION made by the representatives of seven countries producing about 45 per cent of the sugar output of the world to restrict their exports for a period of five years. The countries entering into the agreement are Cuba, Java, Germany, Czechoslovakia, Poland, Belgium, and Hungary. The export quotas agreed on leave large surpluses to be held in storage the first year, which, however, are to be worked off gradually as parts of export quotas in succeeding years. In Cuba, for example, 1,040,000 tons of sugar were segregated from export the first year, but are to be included in the export quotas for the next four years at the rate of 260,000 tons per year. The plan, of course, involves crop restriction in order to prevent the accumulation of a new surplus. In Cuba the reduction the first year from the crop of 1929-30 was 1,549,000 long tons.6 Some provision is made in the plan for protecting the interests of the consumer, by providing an increase in the export quotas when the price rises above certain specified limits-an increase of 5 per cent when the price (f. o. b. Cuba) reaches 2 cents per pound and remains at or above that figure for 30 days, and a further increase of another 5 per cent when the price reaches and remains for a like period at or above 2.5 cents per pound. At an intermediate figure of 2.25 cents, an increase of 2.5 per cent may be made at the discretion of the Committee. To handle the surplus in Cuba, the National Sugar Export Corporation has been organized, the law author6 This figure would make the 1930-31 crop in Cuba 3,122,000 long tons. It was obtained from a statement issued by Lamborn and Company, sugar brokers, under date of April 14, 1931. It differs considerably from the figure given on page 50, derived from data supplied by the United States Tariff Commission. There, the crop for 1930-31 reduced to long tons would be 3,570,000, a reduction of 1,101,260 long tons from the preceding crop. THE SUGAR INDUSTRY SINCE 1921 93 izing its formation having passed on December 15, 1930. The chief function of the corporation is to dispose of the great surplus now held in storage in Cuba. Distress in Cuba was great in 1930 and was augmented by the American Tariff Act of that year. As was noted a few pages back the declining prices brought again as in 1921 a demand among American producers for a further increase in duty. And again, as in 1921, Congress complied with this demand by increasing the rate (in the Act which went into effect on June 17, 1930) from 1.76 to 2 cents per pound, thus further aggravating the unhappy condition of Cuba. Nor did the Act bring any immediate relief to domestic producers. History appears to be repeating itself, for again, as in 1921, the first effect of the duty appears to have been a depression of prices. At any rate, because of the desperate necessity of holders of the Cuban surplus to dispose of their stocks the price did continue to fall after the imposition of the tariff. It is probable that the tariff made a desperate condition more desperate. Some indication of what the situation was is afforded by the condition of some of the American companies which have been regarded as among the strongest on the Island. The Punta Alegre has passed a bond interest. This indicates that it is insolvent though it has not yet gone before the courts. The Cuban Dominican has gone into insolvency and has been forced to reorganize. Most impressive of all is the failure of Cuba Cane. This corporation, the largest sugar corporation in the world, having property and plant in Cuba estimated at $83,700,000 and operating 16 centrals with a joint capacity of 714,800 tons of sugar has been forced into bankruptcy and has reorganized. Its assets though valuable for sugar production were not such that bondholders could realize on. They were forced to accept 6 94 THE CUBAN SITUATION per cent cumulative preferred stock in exchange for 8 per cent bonds with the agreement that the bond status would be resumed after six years. The growth and disaster of the sugar industry in Cuba have affected profoundly her whole rural economy. The picture of the sugar situation is not complete without some reference to consequences on Cuban life and social organization. The factors to which especial attention will be directed are concentration of control, occupation of Cuban soil by absentee owners, and reduction of rural Cuba to a position bordering on serfdom. The development of the sugar industry has tended toward a comparatively small number of huge centrals operated by an even smaller number of corporations. During the greater part of the nineteenth century the sugar industry was carried on in numerous comparatively small factories. As the output increased so also did the number of factories. In 1827 there were about 1,000 such factories; by 1846 the number had increased to 1,442, and by 1860 to 2,000. In the meanwhile the output had increased from 163,213 short tons in 1841 to 293,480 short tons in 1859. During this period the physical difficulties of transportation precluded manufacture on a very large scale. With poor roads and wagons drawn by animals the expense of transporting cane over great distances made the cost of raw material so high that it was unprofitable to build mills of greater capacity than could be supplied by cane grown in the near vicinity. With the coming of railroads, however, and especially with the cheapening of steel rails as a result of the Bessemer and open-hearth processes, a movement towards concentration began, characterized by a decreased number of factories, an increase in total production, and a vast increase in the output per factory. THE SUGAR INDUSTRY SINCE 1921 95 This movement has been continued down to the present time. Factors contributing to it have been the wars for independence, 1868-1878 and 1895-1899; removal of trade restrictions imposed by Spain; the influx of American capital, accelerated by our treaty relations, and by the World War and the crash of 1921; and cutthroat competition in periods of declining prices giving a great advantage in the struggle for existence to mills equipped with the heaviest machinery and the most economical methods of production. This process has gone on until there are now in Cuba only some 180 centrals and many of these are under one management. As has already been pointed out the ownership of these centrals is largely American. Since the total output of sugar is some 5,000,000 tons, the average output per central is nearly 28,000 tons, and since the centrals are quite unequal the output of some of them is much greater. Central Manati, in the province of Oriente, for example, has a capacity of 211,500 tons. This gives some idea of the vastness of the scale of operations. The sugar estates now occupyJ some 20 per cent of the total area of Cuba and control about 40 per cent. Up to a certain point it has been the policy of the sugar companies to acquire land. This process has gone on until their holdings now constitute some 8,854 square miles or about 20 per cent of the entire area of Cuba. The table on page 96 shows the extent of these holdings by provinces. It is a fact of no small consequence that 20 per cent of Cuba's entire territory is devoted to sugar, especially when it is remembered that some 75 per cent of this territory is owned in the United States. Of greater significance is the concentration of ownership. This vast region of 8,839 square miles, about equal to the state of Massachusetts, supplies cane to only 185 96 THE CUBAN SITUATION factories and a much smaller number of corporations. The Cuban American Sugar Company controls six factories with 770 square miles of land; the Cuba Cane Sugar Company, twelve factories with 562 square miles of land; the General Sugar Company and its subsidiary companies nine factories with 465 square miles of land, and the United Fruit Company two factories with 444 square miles of land. That is, four companies own about 25 per cent of all the sugar land of Cuba. But even these figures by no means give a complete picture of the dominance of the sugar industry in HOLDINGS OF SUGAR COMPANIES IN CUBA " Province In Square Miles As Percentages of Area of Province Pinar del Rio............... 243 5 Havana..................... 436 14 Matanzas................... 908 28 Santa Clara................. 1,436 12 Camagiiey.................... 2,119 21 Oriente..................... 3,697 26 a Guerra y Sanchez, Ramiro, Azu'car y Poblacion en las Antillas, p. 72. (Square kilometers have been converted into square miles.) Cuba's economy or of the dominance by foreigners of Cuba's chief industry and of Cuba's land. It is to be remembered that large regions like the Zapata swamp, the Sierra Maestra, the mountainous masses of Sagua, of Tanamo and Baracoa, and other regions are not cultivable. Moreover, the centrals control much land by rental which they do not own, and finally land not owned or rented by the centrals but which is enclosed by such land is virtually controlled by them. The centrals have their own railroads and their own ports. Hence, private owners whose land lies in the midst of central territory have little or no freedom in the disposal of their crops. Taking all these facts into con THE SUGAR INDUSTRY SINCE 1921 97 sideration it has been estimated that about 40 per cent of the cultivable land of Cuba is under the domination of the sugar industry and of this vast control by far the greater part is foreign.7 The form taken by the development of the sugar industry has reduced rural Cuba to a condition bordering on serfdom. In the early days of the industry Cuban farmers built small, ineffective mills, ground their own cane, and sold their own sugar. As the industry developed along the lines set forth in a former paragraph the larger and more effective mills became too expensive for the farmers thus to own and operate. The custom grew of grinding the sugar on commission. That is the farmer took his cane to mill for grinding and manufacturing into sugar, received back the sugar derived from his cane less a percentage which went to the mill, and then sold his sugar. This custom still prevails in theory but in a very much altered form. The colono, as the farmer has come to be called, still takes his cane to the great central which has superseded the small mill, but instead of receiving back his sugar to dispose of as he pleases he is paid in money on the basis of so many arrobas of sugar to 100 arrobas of cane.8 The cane supplied by the colono who owns land or rents it from the company must compete with "administration" cane, that is, with cane grown by hired labor on land owned or rented by the central. It will be seen that though the colono is still in theory an independent cultivator of the soil he has in fact been reduced to a position of dependence. In regions where the railroads and ports are private property of the companies and no other available means of transportaGuerra y Sanchez, Ramiro, Azuicar y Poblacio'n en las Antillas, p. 73. 8An arroba is 25.3664 pounds. 98 THE CUBAN SITUATION tion exist, he has no option in the disposal of his cane. He must sell it to the company. He may raise other crops for his own use, if he owns his land, but he cannot market them. He must buy his supplies at the company store at a price set by the company. The price received for his cane is a function of two variables, the promedio price of sugar and the number of arrobas of sugar allowed for 100 arrobas of cane. When the price of sugar rises the price received by the colono for his cane ordinarily rises automatically. But in the regions just referred to, the owner has it in his power, if he wishes to reduce his costs of production, to diminish the quantity of sugar allowed for 100 arrobas of cane. This quantity in fact varies in different parts of the Island from four in regions where the companies are in control of the situation to seven in regions where, because of the existence of public railroads, the companies still compete with one another to secure their cane.9 9 When a central in need of cane could invade the zone which hitherto had been exclusively used by another, competition began manifesting itself in an increase in the quantity of sugar offered to the colono in exchange for grinding his cane. Competition among the factories showed itself in the greater quantity of sugar to the colono to such an extent that it is in fact possible today to point out the zones in which the factories still maintain competition, by the number of arrobas of sugar which the central offers to the cultivator for each 100 arrobas of cane delivered at the factory. In Havana, Matanzas, and Santa Clara, where the number of centrals is great and public railroads permit competition (the colono selling his cane freely to the highest bidder) they offer more than seven arrobas of sugar for each 100 arrobas of cane; in some places in Pinar del Rio, in Camagfiey, and in Oriente, they offer only four or five and a half arrobas at most. Guerra y Sanchez, Azucar y Poblaci6n, p. 60. (Translation.) The return to the colono for his labor, however, does not differ so greatly as is indicated by Guerra's figures. In a general way the regions in which the number of arrobas is the smallest, the land is most fertile. Hence with the same amount of labor the colono obtains more cane. THE SUGAR INDUSTRY SINCE 1921 99 The colono is also at a disadvantage if he wishes to sell his land and move to some other part of the Island. The companies in developing their vast sugar estates adopted the policy of buying land freely and of paying whatever was necessary for it, until they had enough to control the whole region, after which they refused to buy any more. And as to selling to other colonos, the very conditions which would make one colono want to get out, would make other colonos reluctant to buy.10 Finally, cane produced by the colonos must compete with "administration cane," that is, with cane produced by hired labor on company land. When the price of sugar is low the factories are reduced to great straits and use every means in their power to reduce costs of production. A means which they have resorted to under such conditions is to reduce the cost of administration cane by importing negro labor. Negroes are imported from Haiti and Jamaica during the busy season and at its close are shipped back.'1 10 In the purchase of land for the creation of a sugar "latifundium" two periods may be distinguished: an initial, in which, paying whatever price may be necessary even though very high, the company assures itself of a minimum area sufficient to warrant the existence of a factory; a later period in which the company, manifesting a certain disdain for the land which is offered (because of which the common expression "not interested" has arisen) when it does decide to acquire it, acquires it at a very low price. Ibid., p. 82. (Translation.) I The situation of the colono is thus vividly depicted by Guerra: Like travelers who lose their way in regions of quicksand they feel the soil sink under their feet, and with every effort which they make to escape their sad fate, they only succeed in descending some centimeters into the ditch which is to swallow them. If they support the importation of cheap labor they are paving the way to the sowing of administration cane, which is increasing day by day and is pointing to the disappearance of the colono system, and the inauguration of methods of cultivation identical in their essence with those which prevailed under slavery before the war of '68, when the colono did not exist and was not necessary. If they support crop 100 THE CUBAN SITUATION Such importation is considerable. It has been made illegal but is permitted in "emergencies" by presidential decree. "At the end of 1912 authorized by a decree of President Gomez, the United Fruit Company imported 1,400 Haitians. During the two terms of office of President Menocal, from May, 1913, to May, 1921, 81,000 Haitians and 75,000 Jamaicans entered Cuba." Data for the years 1921-1926 are given below.12 Of Year Haitians Jamaicans 1921........................... 12,438 12,469 1922........................... 639 4,455 1923......................... 11,088 5,844 1924........................... 21,013 5,086 1925........................... 18,750 4,747 1926........................... 12,346 2,508 the immigrants entering Cuba during the years 1921 -1925, 72,165 could not read or write. All of these laborers were imported by sugar companies. In all of this there is no thought of implying that the owners are inhumane or wantonly harsh in their dealings with the colonos. The reverse may well be the case. On occasions when the price of sugar has risen the colonos have shared in their prosperity. But they themselves are helpless in the face of a world situation -a situation for which our treaty relations and our restriction, it is their cane which will remain in the field, in proportion as they are more independent or less in debt to the factory, since the latter, naturally, has to grind first its own and that of the cultivators who are most in debt to the company. If they do not support restriction, they aid in over-production, in the fall of price, and in their own ruin. What road have they to follow, what way to take? Unless the state come to their aid with its sovereign power, there is really none. Ibid., p. 132. (Translation.) 2 The quotation and the data are from Guerra y Sanchez, Azucar y Poblacion en las Antillas, p. 134, except the figures for 1926, which are from Comercio Exterior de la Republica de Cuba, 1926, pp. 3, 24. THE SUGAR INDUSTRY SINCE 1921 101 tariff policy are in part responsible. When, as a result of world conditions of supply and demand or of hostile tariffs, the price of sugar goes down, they feel themselves, in their struggle for existence, under compulsion to reduce their production costs to a minimum. Their own desperate situation is thus passed on to the colonos. CHAPTER V CUBA'S OTHER INDUSTRIES AS AFFECTED BY THE SUGAR INDUSTRY AND BY OUR TREATY RELATIONS In previous chapters the enormous growth and present (1931) distress of the sugar industry have been described, and the part played by American investment and by our treaty relations has been discussed. In the present chapter we shall briefly present the status of Cuba's other principal industries and show how concentration on the sugar industry has affected their development. We shall also inquire to what extent they have benefited by the Reciprocity Treaty. Although Cuba has been called a one-crop country this description must not be taken too literally. Cuba has other industries, the products of each of which show a substantial export surplus. These industries are for the most part agricultural or at least extractive. Production data are scanty. Export data, however, are available and these afford some information as to the type of industry in which Cuba has a natural advantage and as to the measure of success which she has attained in them. Her chief exports, aside from sugar and its derived products, are tobacco, pineapples, grapefruit, oranges, certain vegetables, cattle hides, manganese ore, sponges, cordage, honey, and cabinet woods, all of which are dutiable at United States ports; and bananas, iron and copper ore, asphaltum, henequen, cacao beans, and beeswax, all of which are admitted free of duty. The latter of course receive no benefit from the Reciprocity Treaty,1 but all dutiable articles do receive 1 The Treaty provided that articles admitted free under the Act of 1897 should continue to be admitted free from Cuba even 102 CUBA'S OTHER INDUSTRIES 103 a concession and, on a priori grounds, we should expect imports of such articles into the United States to show a somewhat greater rate of increase when coming from Cuba than when coming from other countries. We should also expect Cuban exports of these articles to the United States to show an increasing proportion of her total exports of the same commodities to all countries. Later in the chapter we shall inquire whether there is any statistical evidence to warrant these deductions. We shall first, however, make some inquiry into what have been the facts in regard to the growth of Cuba's industries and to what extent American investment has been a factor in this growth. Especial attention will be given to the part which the sugar industry has played in influencing the growth of all other industries. I. CUBA'S INDUSTRIES AND AMERICAN INVESTMENT IN THEM Considering the area and population of Cuba as compared with the area and population of other Latin American countries, the mere magnitude of American investments in Cuban industries and the magnitude of her trade with the United States are impressive. This statement is warranted by the data in the table on page 104. Cuba with an area of 44,200 square miles and a population of 3,568,000 has absorbed American investments to the extent of $1,525,900,000, has shipped merchandise to the United States to the value of $255,200,000, and has imported merchandise from the if a duty, applying to other countries, were imposed in subsequent acts. This situation applies to several commodities, among them alligator pears, coconuts, and manganese ore. In these cases Cuban producers are of course benefited by what is virtually a remission of the whole duty instead of only 20 per cent of it. CUBAN FINANCIAL AND COMMERCIAL RELATIONS WITH THE UNITED STATES COMPARED WITH THOSE OF OTHER LATIN AMERICAN COUNTRIES a United States Exports to United States, Imports from United States, Area (In Investments, 1927 1927 Country thousands of Population 1929 (In square miles) (In thousands) millions of dollars) In Millions As Percentages In Millions As Percentages of Dollars of All Exports of Dollars of All Imports CUBA........................ 44.2 3,568.0 1,525.9 255.2 79.1 159.0 61.8 SOUTH AMERICA (TEN COUNTRIES)................... 7,387.1 78,798.0 2,294.2 525.4 25.2 465.7 26.8 Argentina.................. 1,513.1 10,647.0 611.5 97.0 10.0 163.3 19.7 Bolivia.................... 605.4 2,890.0 133.4 3.7 8.4 6.6 28.8 Brazil..................... 3,219.0 42,000.0 476.0 199.4 46.2 111.2 28.7 Chile...................... 289.9 4,025.0 395.7 64.4 31.5 38.4 29.7 Colombia.................. 495.5 7,280.0 260.5 87.8 70.6 48.7 40.0 Ecuador................... 116.0 1,324.0 25.0 5.2 40.7 5.5 58.5 Paraguay.................. 157.0 1,000.0 15.2.1.6 2.1 18.6 Peru...................... 525.0 5,500.0 150.9 31.8 29.1 29.2 42.3 Uruguay................... 72.2 1,720.0 64.3 7.6 7.7 25.8 30.3 Venezuela.................. 394.0 2,412.0 161.6 28.6 37.6 34.7 45.9 MEXICO, CENTRAL AMERICA, AND WEST INDIES.......... 1,002.5 24,244.8 1,767.4 188.9 43.1 189.1 63.8 Costa Rica................. 23.0 471.5 35.7 5.9 32.9 8.2 50.3 Dominican Republic...... 19.3 1,022.5 23.9 10.0 32.2 18.5 66.5 Guatemala................. 48.4 2,454.0 38.2 14.5 42.6 10.0 44. 1 Haiti...................... 10.2 2,550.0 30.7 1.2 8.1 11.1 70.3 Honduras.................. 46.2 740.0 13.0 9.3 53.1 8.5 79.8 Mexico.................... 760.3 14,234.8 1,550.1 137.8 46.8 109.1 66.7 Nicaragua................. 49.5 650.0 24.0 5.0 55.6 6.8 66.4 Panama................... 32.4 442.0 36.4 3.5 91.0 10.0 69.0 Salvador................... 13.2 1,680.0 15.3 1.5 10.9 6.9 46.3 TOTAL EXCEPT CUBA....... 8,389.6 103,042.8 4,061.6 714.3 28.3 654.8 32.2 a Data on United States investments, exports to the United States, and imports from the United States are from Winkler, Max, Investments of United States Capital in Latin America (World Peace Foundation Pamphlet), 1928, pp. 276, 278. CUBA'S OTHER INDUSTRIES 105 United States to the value of $159,000,000. Brazil, on the other hand, with a population nearly twelve times that of Cuba and an area over seventy times as great has attracted less than a third of the capital investment, and is far below Cuba with respect to both import and export trade. Mexico, the only country in the list which exceeds Cuba with respect to investments-and the excess is insignificant-is much inferior with respect to both imports and exports. Yet Mexico enjoys a position of propinquity comparable to that of Cuba and shows a population more than three times as great, and an area more than seventeen times as great. Similar comparisons with other countries tell the same story: all except Mexico fall below Cuba with respect to investments; all except Argentina, with respect to imports; all without exception, with respect to exports. Of significance, also, are the columns of percentages. It will be noted that nearly four-fifths (79.1 per cent) of Cuba's total exports go to the United States and over three-fifths (61.8 per cent) of her imports are received from the United States. The percentage for exports is higher than that for any other country except Panama, which, lying on both sides of the Canal Zone, may be regarded as having intimate relations with the United States somewhat comparable with those of Cuba. The average for all the other countries is only 28.3 per cent-a little over a third of the percentage for Cuba. In the import column the figure for Cuba-61.8 per cent-is less impressive. It is greater than that for any South American country but is considerably exceeded by that for six out of the nine Gulf countries shown. The significance of this inferior showing with respect to import percentages is reserved for discussion in another chapter. Certainly the high figures shown for investments, for exports, for imports, and for percentages of exports, afford presumptive evidence 106 THE CUBAN SITUATION that the guaranty of the Platt Amendment and the concessions granted by the United States in the Reciprocity Treaty have been effective in encouraging American investment in Cuba, in encouraging Cuban industry, and in diverting a large share of the resulting export surplus to the United States. The evidence afforded by the magnitude of trade and investment figures may prove misleading. Other factors tend to the same result, and it is impossible to segregate the effect of each one of them. Among these may be mentioned the geographical position of Cuba; her climate, tropical, yet sufficiently moderate to be congenial to the white race; the fertility of her soil; her excellent harbors; and her mineral resources. All of these have constituted a standing inducement to American investment; all, granted reasonable tranquillity, would have tended to extensive trade relations with the United States even without the added inducement of the tariff concessions. Moreover, the table has to do with totals-total investment, total imports, total exports. Before pronouncing judgment it will be well to examine a little more in detail the make-up of these totals. What is the situation with respect to the separate items of which the totals are composed? If we deduct sugar from the totals Cuba's position becomes much less impressive. Of the $1,525,900,000 of American investment in Cuba no less than $800,000,000 (more than half) are in sugar properties, and of the $255,200,000 shown for exports to the United States, $207,600,000, or over four-fifths, are for sugar. The remainders, some $725,000,000 for investment and $47,600,000 for exports are still impressive for investment but much less so for exports. We have already discussed the bearing of our treaty relations on sugar and arrived at the conclusion that the Platt Amendment has probably exerted a great but CUBA'S OTHER INDUSTRIES 107 incalculable influence in attracting American investment and hence a like influence on the growth of the industry. It is probable that it has had somewhat the same influence on investment in other industries and consequently on their growth. In regard to the Reciprocity Treaty, however, the conclusion was that after a few years its effect on the development of the sugar industry had been inappreciable. Yet it is the sugar industry that has shown the most amazing growth relative to all of the industries of the Island. As we have just seen, in 1929 investments in sugar properties made up over half of our total investments, and of Cuba's total exports to the United States sugar exports constituted over fourfifths. On the other hand, in 1906 American investments in Cuba were estimated at $159,500,000 of which only $30,000,000, or less than one-fifth, were in sugar. As to exports, taking the years 1899 to 1902 the average annual value was, for sugar, $25,000,000; for tobacco, $24,500,000; and for all other commodities, $5,570,000. That is, sugar exports were less than half the total. It thus appears that at the time our treaty relations began, sugar though even then the most important single industry on the Island was far from occupying the position of overwhelming preponderance that it came to occupy in later years. If then, Cuba's greatest industry could make such enormous advances, both absolute and relative, with only minor aid, at best, from the Reciprocity Treaty, we must be cautious in attributing to it whatever growth may have taken place in other industries. First let us inquire how great that growth has been. No other class of Cuba's exports has shown a relative increase comparable with that of sugar. In publications of Cuba's Department of Commerce exports are classified under the following heads: raw sugar, re 108 THE CUBAN SITUATION GROWTH OF CUBAN EXPORT (Total exports and export groups in millions of dol Sugar and Total Except Tobacco in Total Vegetables, Derived Sugar and Leaf and Except Fruits, Products Derived Manu- Sugar and Cacao Year Products factured Tobacco Value Per Value Per Value Per Value Per Value Per Cent Cent Cent Cent Cent 1899...... 1900...... 1901...... 1902...... 1903...... 1904...... 1905...... 1906...... 1907...... 1908...... 1909...... 1910..... 1911...... 1912...... 1913...... 1914...... 1915...... 1916...... 1917...... 1918...... 1919...... 1920...... 1921...... 1922...... 1923...... 1924...... 1925...... 1926...... 1927...... 1928...... 1929...... 19.2 17.6 32.3 30.9 41.9 55.6 72.8 59.0 66.0 53.4 81.1 110.6 79.4 123.9 118.0 133.4 197.5 274.7 305.3 347.9 508.9 732.4 235.6 278.3 372.9 384.6 297.6 251.2 273.9 223.3 216.5 100 92 168 161 218 290 379 308 344 278 422 576 414 645 615 695 1,029 1,431 1,590 1,812 2,651 3,815 1,227 1,449 1,942 2,003 1,550 1,308 1,427 1,163 1,128 25.81 30.81 30.46 33.06 34.10 33.36 37.11 44.67 38.03 41.08 43.36 39.82 43.10 48.46 46.05 40.00 37.94 46.02 50.51 59.35 64.10 61.57 42.40 47.17 48.14 50.21 56.26 50.45 50.38 54.73 55.92 100 119 118 128 132 129 144 173 147 159 168 154 167 188 178 155 147 178 196 230 248 238 164 183 186 194 218 195 195 212 217 21.1 26.1 25.3 25.4 26.0 25.0 28.3 34.0 27.8 32.3 32.0 27.9 31.7 35.2 31.5 27.5 24.4 25.9 29.4 36.8 47.7 48.7 33.2 35.1 35.8 39.4 41.5 37.3 36.4 39.1 37.9 100 124 120 120 123 118 134 161 132 153 152 132 150 167 149 130 116 123 139 174 226 231 157 166 170 187 197 177 172 185 180 4.7 4.7 5.1 7.6 8.1 8.4 8.8 10.7 10.2 8.7 11.4 11.9 11.4 13.2 14.5 12.5 13.5 20.1 21.1 22.5 16.4 12.9 9.2 12.1 12.3 10.8 14.7 13.1 13.9 15.6 18.0 100 100 109 162 172 179 187 228 217 185 243 253 243 281 309 266 287 428 449 479 349 274 196 257 262 230 313 279 296 332 383.80 1.18 1.44 1.91 2.93 3.45 3.15 3.53 2.75 2.58 3.03 2.55 2.52 2.79 3.27 3.65 3.67 3.16 3.12 2.14 2.72 2.53 4.02 5.08 5.79 5.20 5.98 4.66 4.51 4.14 4.92 100 147 180 238 366 431 394 441 344 3822 378 319 315 349 408 456 459 392 390 268 340 316 502 635 723 650 748 582 564 517 615 a Anuario Estadlstico de la Repziblica de Cuba, 1914, pp. 120-21; Comercio Exterior the author by the Cuban Secretary of Agriculture, Commerce, and Labor. fined sugar, molasses, leaf tobacco, cigars (twisted tobacco), cigarettes, cut tobacco, cacao, fruits, vegetables, honey, wax, forest products, animals and animal prod CUBA'S OTHER INDUSTRIES 109 TRADE, 1899-1929 a lars and as percentages of respective 1899 values) Sponges Forest Animal Honey and Minerals and Other All Other Products Products Wax Marine Products Value Per Value Per Value Per Value Per Value Per Value Per Cent Cent Cent Cent Cent Cent I 1.06 1.26 1.36 1.87 2.53 1.85 1.48 2.13 1.95 1.48 1.59 1.70 2.11 2.28 1.98 1.54.84.93 1.80.91.91 1.47.96.56.87.73 1.02 1.63.92 1.16 1.31 100 119 128 176 239 175 140 200 184 140 150 160 199 215 187 145 79 88 170 86 86 139 91 53 82 69 96 154 87 110 124.30.30.31.46.40.39.55 1.15.97 1.02 1.59 2.02 1.79 2.04 2.64 2.54 3.12 3.36 3.29 2.64 3.22 1.43 1.05 1.79 1.56 1.51 2.15 1.64 1.95 2.75 2.13 100 100 103 153 133 130 183 383 323 340 530 673 597 680 880 847 1,040 1,120 1,097 880 1,073 477 350 597 520 503 717 547 650 917 710.25.42.46.68.76.71.74.66.67.74.99.70.76.87.90.64.60.70 1.20 2.14 1.56.83.32.50.50.61.80.67.65.75.81 100 168 184 272 304 284 296 264 268 296 396 280 304 348 360 256 240 280 480 856 624 332 128 200 200 244 320 268 260 300 324 I.52.66.95 1.78 1.69 1.36 2.31 2.37 2.74 2.25 3.51 4.36 3.60 4.56 4.98 3.48 4.26 11.40 11.03 13.88 7.34 5.87 2.39 3.30 2.56 1.59 2.13 2.62 2.81 3.22 4.83 100 126 183 342 325 261 444 456 527 433 675 839 692 877 958 669 819 2,193 2,122 2,670 I,412 1,129 460 635 492 306 410 504 540 619 929.43.49.53.47.48.38.39.39.46.33.34.39.30.35.37.22.21.26.23.20.36.36.24.51.68.68.72 100 114 123 109 112 88 91 91 107 77 79 91 70 81 86 51 49 60 53 46 84 84 56 119 158 158 168 207 235 298 242 1.41.40.11.49.31.22.19.44.69.38.31.20.32.37.41.43.84.31.44.64.29.38.22.33.38.49 1.96 1.04 2.08 2.34.94 100 28 8 35 22 16 13 51 49 27 22 14 23 26 29 30 60 22 31 45 21 27 16 23 27 35 139 74 147 166 208.89 1.01 1.28 1.04 I. _. I I s de la Republica de Cuba, 1926, p. IX.; 1927, 1928, and 1929 data were furnished to ucts, minerals, marine products, all other.2 We have 2Azuicar crudo, azucar refinado, miel de purga, tabaco en rama, tabaco torcido, cigarros, picadura, cacao, frutas, legum 110 THE CUBAN SITUATION just noted that, individually or collectively, exports of all the classes are relatively insignificant as compared with those of sugar, sugar alone constituting four-fifths CUBAN EXPORT TRADE, 1899-1929 -SUGAR - — TOBACCO - ALL OTHER of the total. The degree of this inferiority not only in absolute values but also in rate of growth is strikingly shown by the table on pages 108-9 and the charts on this page and pages 112-13.3 bres, miel de abejas, cera, productos forestales, productos de la ganaderia, productos mineros, pesqueria, los demas articulos. 8In the table several items in the Cuban classification are grouped under a single heading. CUBA'S OTHER INDUSTRIES ill The chart on page 110 shows year by year the value of Cuba's total exports of sugar, of tobacco, and of all commodities except sugar and tobacco. It will be noted that whereas in 1899 sugar exports were actually slightly less in value than tobacco exports and only about four times as great as total exports except sugar and tobacco (19.2: 4.7), by 1924 they had increased in value until they were nearly ten times as great as tobacco exports (384.6: 39.4) and over thirty-five times as great as all exports except sugar and tobacco (384.6: 10.8). Even five years later in 1929 when the value of sugar exports had shown a marked decline, they were still nearly six times as great as tobacco exports (216.5:37.9) and twelve times as great as all exports except sugar and tobacco. The chart just discussed shows absolute values. The chart on pages 112-13 shows the rate of growth, still expressed in money values, of the more important groups, regarding the exports of each of them in 1899 as unity. It will be seen that for several years some of the groups, notably the group made up of fruits, vegetables, and cacao, and the groups made up of minerals and of animal products, kept pace with and even exceeded the rate of growth of sugar values, but that by 1919 all had fallen behind and that even ten years earlier all except mineral and animal products had fallen behind. It is worthy of note, however, that in recent years all of the groups while remaining in absolute values individually and collectively insignificant as compared with sugar have nevertheless shown a marked upward trend, while, especially since 1920 the values of sugar exports have shown a marked tendency to decline. Hitherto we have been discussing exports in terms of values. This discussion while of the utmost importance from the standpoint of Cuba's purchasing power, 112 THE CUBAN SITUATION a subject which will be taken up in the next chapter, may be misleading when we are dealing with the growth of Cuba's industries. A large part of the decline in sugar exports in recent years, noted in the last paragraph, arises not from a decline in production but RELATIVE MOVEMENTS OF CUBAN EXPORTS BY INDEX NUMBERS 1904 /909 /9/14 /9/9 1924 - ANIMAL PRODUCrS - - - - TOBACCO........... MAR/Nr PRODUCTS -- - SUGAR from a decline in price. It will be more to the point for the purposes of the present discussion to attempt a comparison on a quantity basis. We will use for our comparison the year 1929 (the last year for which data are available), the three-year period 1923-1925 (during which Cuba's sugar exports reached a maximum), and the three-year period 1899 - CUBA'S OTHER INDUSTRIES 113 1901 (the last three years before our treaty relations went into effect). In the case of sugar we have production expressed in tons; for the other groups as a first rough approximation we will deflate values by means of index numbers. The average output of sugar SPECIFIED GROUPS, 1899-1929 (1899 - 100) /904 /909 /9/1 /9/9 /924 ---— HONEY AND WAX --- -VEGTABLES, FRUITS AND CACAO........... - ORES PRODUCr - *-MINERALS for the years 1899-1901 was 423,866 long tons; that for 1923-1925, 4,112,699 tons, and that for 1929, 5,156,278 tons. That is, the outputs for the periods specified are in the ratios of 1: 9.7: 11.17.4 It thus 'These figures are from Industria Azucarera, Zafra de 1930, pp. 108-09. They are for the total output, while the figures for all other commodities are for exports. If we deflate the export 114 THE CUBAN SITUATION appears that the apparent falling off in recent years, shown by the chart on page 112, does not arise from a decline in the physical magnitude of the industry, but from a decline in the price of sugar. Coming now to all commodities except sugar, and deflating by index numbers of the Bureau of Labor Statistics of the United States Department of Labor, we find that the quantities for the same periods are in the ratios 1: 0.9:1.02. If we take all commodities except sugar and tobacco, the ratios are 1: 1.32: 1.81.5 values, by using the average promedio price of sugar for the three periods, the exports reduced to a quantity basis are found to be in the ratios 1: 10.6: 12.6, thus: Average exports raw sugar (dollars) Average promedio price (cents).... Average exports (million pounds).. R atio.......................... 1899-1901 1923-1925 1929 22,076,000 341,049,000 188,636,000 2.63 3.70 1.72 872.6 9,218 10,965 1 10.57 12.57 These ratios are somewhat higher than those given in the text because in the earliest period the exports constituted a smaller part of total output. However, the agreement is close enough to warrant the statement that, in the case of sugar, exports afford a fairly good measure of the growth of the industry. 6 The computation follows-based on the values of specified exports (in millions of dollars): Year 1899............... 1900............... 1901............... 1899-1901 (Average) 1923............... 1924............... 1925............... 1923-1925 (Average) Index 75 81 79 *.. 154 150 159 *.. All Commodities except Sugar Actual Deflated 25.81 34.42 30.81 38.04 30.46 38.56 29.03 37.01 48.14 31.26 50.21 33.48 56.26 35.45 51.54 33.40 All Commodities except Sugar and Tobacco Actual Deflated 4.7 6.27 4.7 5.80 5.1 6.46 4.8 6.18 12.3 7.99 10.8 7.20 14.7 9.26 12.6 8.15 1929............... 148 55.92 37.90 18.0 11.20 Ratios: 37.01: 33.40: 37.90:: 1: 0.9: 1.02 6.18: 8.15: 11.20:: 1: 1.32: 1.81 CUBA'S OTHER INDUSTRIES 115 It thus appears that, from the beginning of the century until about 1925, while the sugar industry had been increasing about tenfold, other industries, as evidenced by their exports, had not quite held their own. Since 1925, the sugar industry has continued to increase in physical magnitude but the value of its exports has sharply fallen off, while other industries have slightly increased in physical magnitude. If we omit tobacco from the other industries this increase in recent years is even more pronounced. Results based on index numbers may be open to question; so, as a check upon the surprising results just obtained, we may take a few of the more important export commodities for which price data can be obtained and deflate values by actual prices instead of by index numbers. The table on page 116 shows the growth of some of the more important groups as evidenced by the principal commodities in each group. It will be seen that on a quantity basis exports of tobacco (Cuba's second industry) had actually fallen off in 1923-1925, and only a little more than held their own in 1929. The only exports that showed any considerable increase in either of these periods were fruits, animal products, and minerals, and in none of these cases was the increase comparable with that of sugar. Taken collectively and weighted in proportion to export values in 1923-1925 a slight increase is shown (1.03); if weighted in proportion to export values in 1899-1901, there would appear to be an actual decrease (0.88). It will be noted that these results (1.03 and 0.88) check fairly well with the result (0.9) obtained by the use of index numbers-surprisingly well, when we consider the uncertainty involved in using index numbers, and the small number of items for which actual price ratios were computed. TRENDS OF CERTAIN CUBAN INDUSTRIES AS EVIDENCED BY EXPORTS REDUCED TO A QUANTITY BASIS, 1899-1901, 1923-1925, 1929 a Export Ratios Average Value Average Price Value Ratios Price Ratios (Quantity basis, h, Commodity (In millions of dollars) (1899-1901 = 100) (1899-1901 = 100) 1899-1901 =100) j 1899- 1923- 1929 1899- 1923- 1929 1923- 1929 1923- 1929 1923- 1929 2 1901 1925 1901 1925 1925 1925 1925 C Tobacco (pounds)....... 24.17 38.90 37.90 $0.55 $1.093 $0.808 1.61 1.57 1.98 1.47.81 1.07 Fruits................. 1.14 5.66 4.92 b b b 4.96 4.32 3.08 2.08 1.61 2.08 Forest products (thou- tQ sands of feet)......... 1.23.87 1.31 61.769 87.865 68.01.71 1.06 1.42 1.10.50.96 i Animal products (pounds).30 1.74 2.13.084.108.126 5.80 7.10 1.29 1.50 4.50 4.73 Honey and wax (pounds).38.64.81 a e o 1.68 2.13 2.06 1.95.82 1.09 C Minerals (tons)..........71 2.09 4.83 1.421 3.937 3.643 2.94 6.80 2.77 2.56 1.06 2.66 a Values are as in the table on pages 108-9. Prices, when possible, were obtained by dividing value of imports into the United States by 0 quantity imported. b 1899-1901, Pineapples, 25.6 cents per cubic foot; bananas 28.7 cents per bunch; 1923-1925, pineapples, 82.9 cents per cubic foot, bananas, 54 cents per bunch; 1929, pineapples, 73.4 cents per cubic foot, bananas, 47.4 cents per bunch. The price ratios in the table were obtained by averaging the price ratios for pineapples and bananas, giving equal weights to each. 0 1899-1901, honey, 4.2 cents per pound, wax, 25.8 cents per pound; 1923-1925, honey, 9.6 cents per pound, wax, 29.2 cents per pound; 1929, honey, 8.9 cents per pound, wax, 33.3 cents per pound. The price ratios in the table were obtained by averaging the price ratios for honey and wax giving four times the weight to honey as compared with wax. CUBA'S OTHER INDUSTRIES 117 Hardly less striking than the slow rate of increase (in some cases an actual decrease) in quantity exports of all commodities except sugar, when compared with their exports at the beginning of the century, is the considerable rate of increase in their exports in 1929 as compared with their exports in 1923-1925. It will be seen that in every case the export ratio for 1929 is greater than for 1923-1925. This is significant in view of the efforts made by Cuba to diversify her industries under the pressure of the recent depression in her sugar industry. Collectively, this increase in exports of all commodities except sugar in 1929 as compared with 1923-1925 amounts to about 34 per cent. If we omit tobacco as well as sugar, it appears to be about the same, if we use the 1923-1925 weighting, but considerably greater, if we use the 1899-1901 weighting.6 On a per capita basis exports, except of sugar, have declined. During the period under discussion the popu6 The computations by which the conclusions of the text are arrived at are as follows: A. COMPARISON OF PRODUCTION IN 1923-1925 WITH PRODUCTION IN 1899-1901 Using 1899-1901 Values Using 1923-1925 Values as Weights as Weights Commodity Value ERport Product Value ERatiot Product Tobacco.......... 24.17.81 19.58 38.90.81 31.51 Fruits............ 1.14 1.61 1.83 5.66 1.61 9.11 Forest products... 1.23.50.61.87.50.43 Animal products...30 4.50 1.35 1.74 4.50 7.83 Honey and wax....38.82.31.64.82.52 Minerals..........71 1.06.75 2.09 1.06 2.21 Total.......... 27.93 24.43 49.90 51.61 Ratio 1923-1925 to 1899-1901 (24.43 27.93) =.88 (51.61-49.90) = 1.03 118 THE CUBAN SITUATION lation of Cuba has increased from 1,572,797 to 3,568,552 or in the ratio of 2.269 to 1. Taken collectively, even using the 1923-1925 weighting (the weighting most favorable for showing an increase in production) it will be seen that on a per capita basis exports are distinctly less both in 1929 and in 1923-1925 than they were in 1899-1901. And even by individual groups, the only groups which show an increase are animal B. COMPARISON OF PRODUCTION IN 1929 WITH PRODUCTION IN 1899-1901 Using 1899-1901 Values Using 1923-1925 Values as Weights as Weights Commodity Value ERpto Product Value ERptot Product Tobacco.......... 24.17 1.07 25.86 38.90 1.07 41.60 Fruits........... 1.14 2.08 2.37 5.66 2.08 11.77 Forest products... 1.23.96 1.18.87.96.83 Animal products...30 4.73 1.42 1.74 4.73 8.23 Honey and wax....38 1.09.41.64 1.09.70 Minerals...........71 2.66 1.89 2.09 2.66 5.56 Total......... 27.93 33.13 49.90 68.69 Ratio 1929 to 1899-1901 (33.13 27.93) = 1.19 (68.69 * 49.90) = 1.38 C. COMPARISON OF PRODUCTION IN 1929 WITH PRODUCTION IN 1923-1925 Using 1899-1901 weighting, 1.19-.88=1.35 Using 1923-1925 weighting, 1.38 -.1.03=1.34 D. COMPARISONS, OMITTING TOBACCO AS WELL AS SUGAR FROM EXPORTS Production in 1923-1925 compared with production in 1899-1901 Using 1899-1901 weighting, (24.43-19.58). (27.93-24.17) =1.28 Using 1923-1925 weighting, (51.61-31.51) (49.90-38.90) =1.83 Production in 1929 compared with production in 1899-1901 Using 1899-1901 weighting, (33.13-25.86). (27.93-24.17) =1.93 Using 1923-1925 weighting, (68.69-41.60) * (49.90-38.90) =2.46 Production in 1929 compared with production in 1923-1925 Using 1899-1901 weighting, 1.93-1.28=1.50 Using 1923-1925 weighting, 2.46-1.83=1.34 CUBA'S OTHER INDUSTRIES 119 products in both 1923-1925 and 1929; and minerals in 1929.7 The decline in exports of forest products was due in part to destruction of the forests. One item shown in the tables calls for special mention. Even on the basis of the higher prices prevailing in the later period exports of forest products had declined, and when allowance is made for the change in prices the decline is very marked. This result is not without direct connection with the growth of the sugar industry. Cuba was abundantly supplied with forests of valuable timber, including such woods as mahogany and Spanish cedar. In recent years the principal development of the sugar industry has been in the eastern provinces. To make way for cane these forests were ruthlessly sacrificed. The trees were cut and burned and cane was planted between the stumps. In Cuba, exports are to some extent an index of the growth of industry. In the foregoing discussion export figures have been used. Production figures are not in general available. Yet from a Cuban standpoint the important matter for consideration is not so much the effect of our treaty relations in developing exports as in developing Cuban industries. In some cases, however, export figures afford a fairly good measure of industrial growth. This is true of sugar and molasses. Compared with exports, domestic consumption is unimportant. The same may be said of iron ore and perhaps of some other items. But it is by no means true 7Taken collectively, the increase of 1923-1925 above 1899 -1901 is 1.03, and that of 1929 is 1.38. If we divide either of these figures by the population ratio (2.269) the result will be less than unity. It will thus be shown that per capita exports of all commodities except sugar were only about 45 per cent as great in 1923-1925 as in 1899-1901, and only 50 per cent as great even in 1929. Sugar exports, on the other hand, even on a per capita basis, were over four times as great in 1923-1925 as in 1899-1901, and over five times as great in 1929. 120 THE CUBAN SITUATION of all. It is estimated that more than half of Cuba's tobacco crop is consumed on the Island.8 Hence, if it may be assumed that the increase in domestic consumption has kept pace with the growth of population, the decline which our figures would show in per capita tobacco exports since the beginning of the century9 falls far short of doing justice to the growth of the tobacco industry. Allowing for domestic consumption, AMERICAN INVESTMENTS IN CUBA ' Millions of Percentage Dollars of Total Producing for export: Sugar industry.......... 800 53.1 Industrials............. 50 3.3 Tobacco................ 50 3.3 Mines................. 35 2.3 Miscellaneous........... 15 950 1.0 63 Primarily serving Cuba: Real estate............. 150 10.0 Railroads.............. 120 8.0 Government bonds...... 110 7.3 Public utilities.......... 110 7.3 Commercial enterprises.. 40 2.7 Banking................ 25 555 1.7 37 Total................ 1,505 100 Data are estimates of Cuban-American Chamber of Commerce quoted from Winkler, Investments of United States Capital in Latin America, pp. 183-84. production would appear even on a per capita basis to have more than held its own. The same could probably be said of fruits, vegetables, and some other products. To get a complete picture of the part which American capital has played in Cuban development, industries which do not show in export trade must be taken into account. Under this head are real estate, railroads, 8 Jenks, Our Cuban Colony, p. 60. Quantity exports (1.07) - population ratio (2.269) =.42. CUBA'S OTHER INDUSTRIES 121 government bonds, public utilities, commercial enterprises, and banks. Such fields of activity have absorbed a large part of the American capital invested in Cuba and doubtless our treaty relations-particularly the Permanent Treaty-have influenced such investment. The extent of such investments and their relative importance are shown by the table on page 120. It will be seen that $950,000,000, or 63 per cent of all American capital in Cuba is invested in industries whose products may appear as exports, while $555,000,000, or 37 per cent, represents investments whose products do not so appear. Great, therefore, as is the investment in Cuban sugar properties (plant and real estate), and strong as has been the tide in the direction of a one-crop industry, this term in the case of Cuba must not be taken too literally. It would appear from the table that $705,000,000 of American capital is invested in other forms of industry. Besides, foreign capital estimated at $250,000,000 from countries other than the United States,10 and a large amount of domestic capital, only a part of which is in sugar, are contributing to Cuban industry, and afford encouraging evidence of large possibilities in a program of crop diversification. To summarize briefly the conclusions so far reached in this chapter, it appears that the enormous growth of the sugar industry in Cuba described in former chapters has taken place in part at the expense of other industries. That is to say, sugar has been absorbing capital (especially American capital), Cuban agricultural labor, and Cuban land so voraciously that other industries have languished; and this in spite of the fact that whatever benefit may be derived from our treaty 10 Winkler, Max, Investments of United States Capital in Latin America, p. 183. 122 THE CUBAN SITUATION relations is open to all Cuba's industries, and not merely to sugar. However, it has also been shown that in UNITED STATES IMPORTS FROM CUBA, FROM SOUTH AMERICA, AND FROM NORTH AMERICA LESS CUBA (Sugar from Cuba in quantity and value, all others in value) MILLIONS OF DOLLARS TOUSANS OF SHORT TONS A -- -FROM CUBA LESS SUGAR 4 LESS CUBA - SUGAR FROM CUBA -- — SUGAR FROM CUBA (N SHORT TONS spite of this absorptive power of sugar Cuba is still far from being in a literal sense a one-crop country. CUBA'S OTHER INDUSTRIES 123 II. EFFECT OF TREATY RELATIONS IN PROMOTING CUBAN INDUSTRY AND IN DIVERTING TRADE TO THE UNITED STATES Earlier in the chapter it was stated that, because of the concession granted to the products of the soil and IMPORTS INTO THE UNITED STATES FROM CUBA, FROM SOUTH AMERICA, AND FROM ALL NORTH AMERICAN COUNTRIES EXCEPT CUBA (Value in millions of dollars) From Cuba From From North Sugar Total value South America Period less Sugar America except Total Cuba Value (Value) Thousands Ac- De- (Value) Value of Short tual flated Tons Years Ending June 30: 1903........... 63 43 1,198 20 23 107 127 1904........... 77 57 1,410 20 23 120 122 1905........... 86 64 1,029 22 26 151 141 1906........... 85 60 1,391 25 28 140 150 1907........... 97 71 1,618 26 28 160 167 1908........... 83 58 1,155 25 28 125 156 1909........... 97 69 1,431 28 29 164 157 1910........... 123 94 1,755 29 29 196 184 1911........... 110 82 1,674 28 30 183 195 1912........... 120 91 1,593 29 29 215 214 1913........... 126 94 2,156 32 32 218 236 1914........... 131 98 2,436 33 34 223 296 1915........... 186 156 2,392 30 30 261 287 1916........... 229 193 2,575 36 28 392 363 1917........... 253 205 2,335 48 27 542 513 Calendar Years: 1918........... 279 231 2,280 48 25 611 696 1919........... 419 374 3,343 45 22 688 739 1920........... 722 669 2,881 53 23 761 941 1921........... 230 194 2,590 36 24 296 525 1922........... 268 297 4,527 41 28 359 554 1923........... 376 332 3,426 44 29 467 626 1924........... 362 313 3,692 49 33 466 634 1925........... 262 200 3,923 62 39 519 719 1926........... 251 199 4,280 52 34 568 761 1927........... 257 208 3,650 49 34 518 728 1928........... 203 157 3,249 46 31 569 758 1929. 207 158 4,149 49 33 640 775 industry of Cuba under the Reciprocity Treaty, we should expect, on a priori grounds, a somewhat greater rate of increase in imports to the United States from 124 THE CUBAN SITUATION Cuba than from other countries and we should also expect an increasing proportion of Cuba's total exports to have the United States as their destination. We will now subject this deduction to a statistical analysis. Imports from Cuba have increased, but not (to any appreciable extent) more rapidly than from other countries. That Cuba's export trade with the United States has developed to enormous proportions relatively to her area and population has already been shown (see pages 103 and 106.) If this growth were a result of our tariff concessions some indication of that fact should be shown by a comparison of the rate of growth of our imports from Cuba with that of our imports from countries not receiving the benefit of such concessions. The table on page 123 and the chart on page 122 will be helpful in forming a judgment on this point. The imports are expressed in millions of dollars and the imports from Cuba have also been reduced to a quantity basis, the imports of sugar being expressed as short tons and the imports of items other than sugar being deflated by means of index numbers."1 By means of such deflation the rise and fall of values is made roughly proportional to the rise and fall in physical quantities. Observation of the chart and table suggest the following inferences: (1) Imports of sugar from Cuba even from the beginning have exceeded imports of all other commodities combined and have tended to increase more rapidly and this applies whether the comparison is made on a value basis or a quantity basis, but with this difference: when the comparison is made on a quantity basis the trend of sugar imports has been steadily upward while the trend of other imports has been nearly horizontal, that is, imports of other com1 Bureau of Labor Statistics of the U. S. Department of Labor index numbers for all commodities, 1913 base, were used. CUBA'S OTHER INDUSTRIES 125 modities have shown hardly any tendency to increase; when the comparison is made on a value basis the trend of sugar imports is upward through 1920-this upward trend being extremely rapid during the war and immediate post-war years (1914-1920), but since 1920 the trend has been downward-the downward trend, however, being broken by a temporary rise in 1923 and 1924. As to the "other imports" the value trend has been slightly upward since 1915. (2) So nearly uniform from year to year have been the "other imports," and so insignificant have they been compared with sugar imports that the line representing total imports follows with remarkable fidelity the line representing sugar imports (values) not only in general trends but even in minor fluctuations. In every year the sugar imports constitute from nearly 70 to over 90 per cent of the total imports, the average being 79 per cent. The ratios of sugar imports to all imports into the United States from Cuba for the years 1903-1929 are as follows: Years Ending June 30 Calendar Years 1903...............68 1918...............83 1904...............74 1919...............89 1905..............75 1920...............93 1906...............71 1921...............84 1907...............73 1922...............85 1908..............70 1923...............88 1909...............71 1924...............86 1910...............76 1925...............76 1911............... 75 1926...............79 1912...............76 1927...............81 1913...............75 1928...............77 1914...............75 1929...............76 1915...............84 1916...............84 1917...............81 126 THE CUBAN SITUATION (3) The most striking comparison to be made from the chart is that between imports from Cuba (values) whether sugar or total and imports from other counRATIO OF UNITED STATES IMPORTS FROM CUBA (EXCLUDING SUGAR) TO IMPORTS FROM SPECIFIED REGIONS, 1903-1929 North South America Central M * West Period America Except America Mexlco Indies Cuba Years ending June 30: 1903................19.16 3.33.47.50 1904................17.16 2.50.43.44 1905................15.16 1.57.48.39 1906................18.17 1.09.43.37 1907................16.16.96.39.38 1908................20.16.93.45.36 1909................17.18 1.12.56.42 1910................15.16.97.50.38 1911................15.14.85.46.33 1912................13.14.78.55.32 1913................15.14.80.59.32 1914................15.11.85.85.34 1915................11.10.88.88.30 1916................09.10.86.75.22 1917................09.09.91.61.21 Calendar Years: 1918................08.07 1.12.49.17 1919................07.06.76.34.13 1920................07.06.59.25.08 1921................12.07.65.16.14 1922.................11.07.91.37.23 1923................09.07.79.37.18 1924................10.08.75.36.19 1925................12.09.85.43.24 1926................09.07.69.39.24 1927................09.07.64.45.22 1928................08.06.56.40.23 1929................08.06.54.37.23 tries in the Western Hemisphere. It will be seen that up to 1923 imports from Cuba and imports from the other regions shown on the chart follow a similar course. Up to 1920 all are increasing and, if anything, imports from other regions are increasing more CUBA'S OTHER INDUSTRIES 127 rapidly than those from Cuba. In 1921 all suffer a slump and all recover up to 1923. After that year, however, imports from Cuba sharply decline while those from other regions almost as sharply rise. RELATION OF UNITED STATES IMPORTS FROM CUBA (EXCLUDING SUGAR) TO IMPORTS FROM SPECIFIED REGIONS, 1903-1929 ---— NORTH AMER/CA EXCEPT CUBA -— W --- EST /NDIES................... SOUTH AMERICA............MEXICO -- CENTRAL AMERICA Evidence of any dominating influence of the Reciprocity Treaty in affecting imports to the United States is certainly negative! However, before pronouncing judgment we will carry the investigation further. The evidence derived from absolute values is inconclusive. The regions compared with Cuba are so much larger than Cuba both in area and population, that even if the rate of increase were lower the absolute increase might well be greater. We must study ratios rather than absolute 128 THE CUBAN SITUATION values. A table and a chart for such a study are shown on pages 126 and 127. It has already been shown (Chapter III) that after about 1909 (the year in which Cuba began to show substantial exports of sugar to countries other than the United States) her sugar industry received very little benefit from the Reciprocity Treaty. It can hardly have been an important factor in attracting sugar imports into the United States. Before that date the industry did receive considerable benefit from the Treaty and undoubtedly it was a factor in expanding the industry and increasing sugar imports. In comparing imports from Cuba with imports from other regions we shall therefore consider the influence of the Treaty on the sugar industry as already disposed of and confine our comparisons to imports other than sugar. Referring now to the chart on page 127 it will be seen that for all of the regions with which comparison is made-Central America, Mexico, the West Indies, South America, and all of North America except Cuba -the ratios of the imports other than sugar from Cuba to all imports from each of these regions show a downward trend. If a straight line were fitted to each of the broken lines it would trend downward. It is true that during periods of years of greater or less duration included within the whole period the trend is upward. Mexico shows an upward trend from 1907 to 1915 and again from 1921 to 1927, and the West Indies show an upward trend from 1920 to 1926, but taking the period as a whole the trend is in all cases downward. What is more surprising, the trend is consistently downward in all cases during the early years of the period under consideration when the Reciprocity Treaty supposedly would have had its greatest effect. CUBA'S OTHER INDUSTRIES 129 These downward trends by no means show that the Reciprocity Treaty has had no effect. But for it, the trends might have been more sharply downward. What is shown is that it has not been a dominating factor. Other influences have tended to neutralize whatever effect the Reciprocity Treaty may have had in attracting imports of articles other than sugar to the United States. What the chief of these other influences is, is pretty clearly indicated by the results of our investigation up to this point. It is sugar itself. The sugar industry, which as we have seen received little benefit from the Reciprocity Treaty after the first few years, has in its growth so absorbed the energy and resources of Cuba that other industries have languished, and this in spite of the stimulus which the Reciprocity Treaty might otherwise have afforded. When Cuba still has an export surplus of a commodity beyond her exports to the United States, the magnitude of the concession is of little consequence to her but the magnitude of the duty is of great consequence. We may generalize somewhat from the results of our study of sugar in preceding chapters. So long as any product of Cuba is exported exclusively to the United States, while the latter country in order to supply its needs imports a part of its supply from other countries, the Reciprocity Treaty is of real benefit to Cuban producers. It gives them a price better than the world price, and hence stimulates production and exports to the United States. When, however, conditions are reversed, when Cuba has attained so large an output that she must seek other markets for a part of it while the United States imports from no other country, then the price which Cuba receives is the world price and she gets no further price benefit from the concession in duty under the Treaty. The only benefit she receives is assurance of the American mar 130 THE CUBAN SITUATION ket as against any foreign competitor. Whatever price benefit arises from the Treaty goes to the American consumer. This latter situation applies not only to sugar but to other Cuban products and is another factor to be reckoned with in accounting for the failure of Cuban imports into the United States to show the gain relative to imports from other countries which they might have been expected to show because of the Reciprocity Treaty. While, then, under the conditions last named the magnitude of the concession is of little importance to Cuba, (provided it is large enough to assure her a monopoly of the American market as against foreign competitors) the magnitude of the duty is of importance. An increase or decrease in the American duty, especially in the sugar duty, is, indeed, of vital importance. In the Act of 1913 the full duty on sugar was 1.256 cents per pound and the Cuban duty 1.0048; in 1921 the respective rates were 2 cents per pound and 1.6 cents; in 1922, 2.206 and 1.7648; and in 1930, 2.5 and 2. With each increase in duty, it will be observed, the magnitude of the concession was increased, but this was a mockery. The essential thing was that the duty on Cuban sugar was raised and entrance to the American market was made harder for Cuban producers, with the results shown in a previous chapter. (See discussion beginning on page 83.) What is said here of sugar applies to other commodities and is a third factor accounting for their failure to show substantial gains in imports into the United States as compared with imports from other regions. In the case of some commodities the increase in duties affected Cuba and the other countries in about the same way, but in the case of others, and especially of sugar, it affected Cuba alone, because the United States was not importing sugar from other countries. CUBA'S OTHER INDUSTRIES 131 The apparent falling off in total imports from Cuba in recent years is due chiefly to a slump in the price of sugar. Referring to the chart on page 122 it will be seen that both total imports and sugar imports from Cuba, when expressed in dollars, have sharply declined since 1923, while imports from both South and North America have rapidly increased. The appearance here is somewhat misleading. During the period under consideration while the imports of commodities other than sugar from Cuba and the total imports from North and South America have been based on price levels comparable with price index numbers of all commodities (which index numbers have remained fairly stable), sugar prices have fallen precipitantly.12 On a quantity basis imports from Cuba have shown no great falling off. Imports other than sugar have held their own, and, except for the falling off in 1927 and 1928 because of restriction, the same may be said of sugar imports. However, the price of sugar has so fallen that on a value basis, sugar imports have sharply declined, and sugar constitutes so large a proportion of all imports that the latter appear also to have declined. We have so far lumped together "commodities other than sugar" in treating of the bearing of the Reciprocity Treaty on exports of such commodities to the United States. It will throw further light on the subject if we consider them more in detail. The concession on tobacco, like the concession on sugar, has little effect in attracting imports. Tobacco growing and manufacture rank second among Cuba's industries. As in the case of sugar she produces an export surplus in excess of American requirements. 12 The Bureau of Labor index numbers for all commodities for these years are: 1923, 154; 1924, 150; 1925, 159; 1926, 151; 1927, 145; 1928, 149; 1929, 148. For the promedio prices which Cuba receives for her sugar see page 154. 132 THE CUBAN SITUATION PRINCIPAL CUBAN EXPORTS, 1926, SHOWING PERCENTAGES TO THE UNITED STATES AND AMERICAN DUTIES a Toal Exports to Total United States Full Duty Exports _____Untetae Commodity (Cuban duty 20 per (In thou- In Thou- As Percent less) sands of sands of centages dollars) Dollars of Total Sugar: Raw........... Refined......... Molasses........ Candy......... Tobacco: Filler........... Wrapper........ Cigars, cigarettes Fruits: Pineapples...... Bananas........ Oranges........ Ores and minerals: Iron............ Copper......... Manganese...... Asphaltum...... Cattle hides....... Vegetables........ Sponges.......... Henequen......... Woods: Mahogany...... Cedar.......... Other.......... Cordage.......... Cacao beans...... Honey............ Beeswax.......... Total........ 2.206 cents per pound 2.39 cents per pound 1/6 cent per gallon 40 per cent 35-50 cents per pound $2.10-$2.75 per pound $4.50 per pound plus 25 per cent 4 cent each Free 1 cent per pound Free Free 1 cent per pound Free Free Y2-1 cent per pound 15 per cent Free {10 per cent logs 15 per cent boards {10 per cent logs 15 per cent boards {l0 per cent logs 15 per cent boards 34-21/2 cents per pound Free 3 cents per pound Free 237,202.1 4,976.0 7,904.4 128.1 194,648.9 4,335.8 7,885.6 36.7 16,000.4 15,270.5 11,253.5 6,838.1 10,091.7 3,345.5 1,763.1 1,324.4 329.8 1,609.6 659.7 177.9 115.0 1,543.7 940.0 842.5 641.3 382.9 114.0 48.7 269.5 212.7 503.6 169.8 299,104.4 1,761.2 1,321.2 324.9 1,609.6 559.7 177.9 115.0 372.0 929.1 673.3 641.3 104.9 46.0 41.5 183.4 206.8 13.2 163.8 241,605.9 82.0 87.2 99.7 28.6 95.4 60.8 33.2 99.9 99.8 98.5 100.0 100.0 100.0 100.0 24.0 98.8 79.9 100.0 27.4 40.3 85.2 68.1 97.2 2.6 96.5 80.8 a Comercio Exterior de la Republica de Cuba. The items in the table include all commodities of which exports are in excess of $100,000. It would have been possible to present data for a more recent year than 1926. However, it was believed that 1926 represents more normal conditions than more recent years, during which the sugar industry has been depressed. CUBA'S OTHER INDUSTRIES 133 Hence she gets little or no price benefit from the Reciprocity Treaty. Whatever benefit there is goes to the American consumer. Cuban tobacco is of a distinct quality, prized by connoisseurs. It competes with other tobaccos on a different price level. Smokers in the United States can, of course, get other tobaccos from other regions, but they can get "Cuban tobacco" only from Cuba. The case, therefore, is very much like that of sugar. In both, Cuba has to accept the world price: in both American consumption, insofar as it is derived from foreign sources, is derived from Cuba; in both the American consumer gets his product at a less price than he would have to pay if it were subject to the full duty; and in both while the magnitude of the concession is of little importance to Cuba the magnitude of the duty is of great importance and bears heavily on the industry. Luxury smokers will buy Cuban tobacco even at a higher price than other tobaccos, but doubtless more smokers would be induced to come into the luxury class if the price were lower. Our tobacco duties are among the highest in our tariff. On Cuban tobacco, when reduced to an ad valorem basis, they range from 49 to 98 per cent. Finally, in recent years the tendency among smokers has been to supplant the cigar, for which Cuban tobacco is peculiarly adapted, with the cigarette. These facts are sufficient to account for the great falling off relative to sugar of Cuba's tobacco exports. If the concession rather than the rate of duty were of importance to Cuba, one would expect that the higher the duty the higher the percentage of exports going to the United States because the higher the duty the greater the concession. The table on page 132 throws light on this question. The concession exerts no visible influence in directing Cuban exports to the United States rather than to 134 THE CUBAN SITUATION other countries. Of the exports enumerated in the table on page 132 (constituting 99.2 per cent of Cuba's total exports of $301,708,000 in 1926), 80.8 per cent went to the United States. If the Reciprocity Treaty were terminated and the present full duty were made to apply to Cuba, her exports to the United States would doubtless fall off. But if in terminating the Treaty the present Cuban rate were made the full duty, there is little evidence that the course of trade would be greatly affected. We have already shown that in the cases of sugar and tobacco it is the magnitude of the duty rather than the magnitude of the concession that is of concern to Cuba. If the duty on each of these commodities were doubled the concession would also be doubled, but Cuba would certainly ship less sugar and probably less tobacco to the United States than at present. On the other hand, if the duty were halved, though the concession would also be halved, she would ship more. Sugar and tobacco together constitute 92.6 per cent of Cuba's total exports. To what extent does the Reciprocity Treaty tend to attract the remaining exports of $22,184,300 to the United States? Of this total, exports to the amount of $6,176,200 are on the United States free list and hence are in no wise affected by the Reciprocity Treaty. There remains for discussion only $16,008,100 or 5.3 per cent of Cuba's total exports. Of this $7,904,400 are accounted for by molasses. Molasses when imported for purposes other than human food is subject to a duty of 0.03 of a cent per pound. Cuba's molasses exports consist chiefly of "black strap," used in the manufacture of industrial alcohol and as an ingredient in cattle feed. The rate of 0.03 of a cent per pound is equivalent to about 5 per cent ad valorem. The Cuban preference is therefore about 1 per cent. So far as it goes this concession may CUBA'S OTHER INDUSTRIES 135 be of some benefit to Cuba, but it is so small and the inducement to export to the United States arising from propinquity and trade connections is so great that it is doubtful if it appreciably affects the proportion of molasses exports going to that country. As it is, Cuba exports 99.7 per cent of her molasses to the United States. Even if reciprocity were abandoned and the full duty retained it is doubtful if this percentage would be appreciably changed. Deducting molasses we now have exports amounting to $8,093,700 to account for. It would be possible to examine all of the items in the table on page 132 and to arrive at an independent judgment for each of them as to the effect of the Reciprocity Treaty in attracting Cuban trade to the United States, but the amount is so small that at best the effect cannot be other than insignificant as compared with her trade as a whole. This opinion is fortified by comparing the percentages of exports going to the United States in the case of dutiable commodities, which may be affected by the Reciprocity Treaty, with those applying to commodities admitted free of duty, which, of course, are not affected by the Treaty. Such a comparison is made in the table on page 136. Certainly there is nothing in the table to indicate that the concessions under the Reciprocity Treaty have tended to divert trade to the United States. The percentages where there is no concession tend to run fully as high as those where there is a concession. The table does suggest, however, that when the rate of duty is high (and hence the concession is also high), the duty does tend to divert trade from the United States in spite of the concession. For example, the full duty on honey is 3 cents per pound and hence the Cuban duty is 2.4 cents per pound. This is equivalent to a rate of 35 per cent on the Cuban price of honey. This rate was 136 THE CUBAN SITUATION sufficient to divert all but 2.6 per cent of Cuba's honey exports to countries other than the United States. It is significant that beeswax, which is a joint product with honey but which is admitted free of duty, was exported almost exclusively to the United States, only 3.5 per cent going elsewhere. The principal points brought out by this chapter are the following: (1) Cuba is not in a literal sense a one-crop country. She has other considerable industries of which PRINCIPAL FREE AND DUTIABLE GOODS EXPORTED FROM CUBA TO THE UNITED STATES AS PERCENTAGES OF RESPECTIVE EXPORT TOTALS, 1926 Duty-free Per Dutiable Per Commodities Cent Commodities Rate of Duty Cent Bananas.... 99.8 Pineapples.. 3/4 cent each 99.9 Iron ore.... 100.0 Oranges.... 1 cent per pound 98.5 Copper ore.. 100.0 Manganese.. 1 cent per pound 100.0 Asphaltum.. 100.0 Vegetables.. 1/2-1 cent per pound 98.8 Cattle hides. 24.0 Sponges.... 15 per cent 79.9 Henequen... 100.0 Mahogany.. {15 per cent logs 27.4 {15 per cent boards Cacao beans. 97.2 Cedar...... 10 per cent logs 15 per cent boards Beeswax.... 96.5 Otherwoods. 10 per cent logs 85.2.15 per cent boards Cordage.... 3/-21/2 cents per pound 68.1 Honey...... 3 cents per pound 2.6 the most important is the tobacco industry. They are all small, however, relatively to sugar. This remains true even when it is conceded that exports are not in all cases a fair measure of production. In some cases the production for domestic consumption doubtless equals or exceeds the exports. (2) As compared with other countries of the Western Hemisphere, Cuba has absorbed American investment and has built up a trade with the United States disproportionate to her population and area. CUBA'S OTHER INDUSTRIES 137 (3) The a priori surmise that this is a result of our treaty relations may be in part true (to an indefinable extent) as regards the Permanent Treaty but is made doubtful, so far as the Reciprocity Treaty is concerned, by the fact that so large a part of the investment and exports are connected directly with the sugar industry and the further fact that the sugar industry after the first few years has not been appreciably aided by that Treaty. Yet sugar has absorbed more than half of the American investment and constitutes more than threefourths of the exports to the United States. (4) The Reciprocity Treaty cannot have had a dominating influence in the development of other industries. While, on a value basis, exports of sugar even at the low prices prevailing in 1930 have increased some eleven-fold, exports of other commodities have only a little more than doubled. On a quantity basis exports of sugar have increased about twelve-fold while exports of other commodities have barely held their own. Moreover, exports of other commodities to the United States have declined relatively to total exports from other countries in the Western Hemisphere to the same destination, and finally exports of dutiable goods to the United States show no higher proportion of all exports of the same goods than do exports of goods which are admitted into the United States free of duty. Yet the tariff concession gives an advantage to Cuban products in the former case and no advantage in the latter. (5) Three reasons were discovered why the Reciprocity Treaty has had so little effect in stimulating industry in Cuba and in attracting her trade to the United States. (a) So great have been the inducements to capital and labor offered by the sugar industry that this industry, although itself little benefited by the Reciprocity Treaty, has expanded at the expense 138 THE CUBAN SITUATION of all the others, absorbing land and capital and labor from industries which might have been benefited by the Reciprocity Treaty. (b) Some of the other industries were in the same situation as sugar with respect to the Treaty, that is, they showed an export surplus beyond what could be shipped to the United States and hence received no price benefit from the Treaty. (c) When industries had reached the stage just referred to the magnitude of the concession was of little or no importance. The magnitude of the duty, however, was of great importance, and in some of Cuba's most important products, especially her second major crop, tobacco, it was so high as to discourage exports. We have seen in this chapter how sugar has dominated Cuban industry and Cuban export trade. In the next chapter we will study its relation to the import trade. CHAPTER VI BEARING OF OUR TREATY RELATIONS AND OF SUGAR ON CUBAN IMPORTS In the last three chapters we have traced the growth of Cuba's sugar industry to its present huge proportions. We have shown how it was aided in this growth by the Permanent Treaty and for a few years by the Reciprocity Treaty. We have seen how in its ever swelling dimensions it has tended to thrust other industries into the background and in so doing has minimized the bracing effect which the Reciprocity Treaty might otherwise have had upon them. It remains to consider the joint effect of the sugar industry and of our treaty relations on Cuba's import trade. On a priori grounds it would appear that the Permanent Treaty, by encouraging American investment in Cuba, should have promoted the growth of Cuba's industries and thereby have increased her purchasing power with which to buy imports; and that because of the concession in Cuba's tariff provided for in the Reciprocity Treaty, these imports would have tended to come more and more from the United States. The Treaty should thus have been of benefit to Cuban consumers in lowering the price of products from the United States and also to American producers in widening the Cuban market for their goods. Let us examine the facts. Cuba is among the foremost of the Latin American countries in our export trade. The table on page 104 shows that Cuban imports from the United States in 1927 were valued at $159,000,000 and that this sum 1This figure differs slightly from the American data on exports given in the table on p. 142. 139 140 THE CUBAN SITUATION exceeded the imports from the United States into any other Latin American country except Argentina ($163,000,000), and furthermore, that her imports from the United States amounted to 61.8 per cent of her total imports. This figure (61.8 per cent) exceeds the percentage set down for any South American country, but is exceeded by that for several of the countries bordering on the Gulf. Considering Cuba's relative area and population these figures are striking and, as in the case of her exports, suggest the influence of our treaty relations. To the extent that the Permanent Treaty has promoted the growth of Cuba's industries there is no reason for doubting that it has been a factor in augmenting Cuba's imports. Just how great a factor, there seems to be no statistical means of finding out. Much the same thing may be said about the Reciprocity Treaty. It has probably had some effect in attracting imports from the United States-some effect in making them larger both absolutely and relatively to Cuba's total imports than they would otherwise have been. The question still remains, however, whether they have been dominating influences, or whether other factors may not have had a greater influence in shaping the course of our export trade with Cuba. Two lines of inquiry are open: (1) Have our exports to Cuba increased more rapidly than our exports to other countries somewhat similarly situated? (2) Have our exports to Cuba constituted an increasing percentage of her total imports? In seeking to market its exports in any given country the United States necessarily competes with all other countries having similar products to offer. In shipping to countries other than Cuba it competes on CUBAN IMPORTS 141 even terms.2 In shipping to Cuba, however, it has an advantage over its competitors. We should, therefore, expect the ratio of shipments to Cuba to shipments to other countries to show an upward trend. We should also expect our exports to Cuba to show an increasing proportion of her total imports. Obviously these effects should be most in evidence during the early years of the Reciprocity Treaty, and as trade conditions became adjusted to the tariff concessions they should have tapered off. However, if treaty relations were a dominating influence we should not expect downward trends. What are the facts? (1) The ratio of our exports to Cuba to our exports to other countries of the Western Hemisphere has, except in the early years and the war years, shown a downward tendency. This conclusion is drawn from the data shown in the table on page 142 and the chart on page 143. In the table are shown our exports to Cuba and also their ratio to our exports to several regions in the Western Hemisphere-South America, North America except Cuba, Central America, Mexico, and the West Indies and Bermuda. It will be seen that some of the ratios show violent fluctuations from year to year which tend to obscure the general trends. Yet if these fluctuations are smoothed out, all of the lines shown in the chart are seen to have some features in common. All show a distinct upward trend from 1903 to about 1906. This is entirely consistent with the theory that our treaty relations were promoting our export trade to Cuba. From about 1906 to about 1914 all of the trends except that for Central America slope downward.3 This appears to indicate that whatever 2 This is not strictly true. Some countries in the British Empire, for example, grant an imperial preference which tends to put the United States at some disadvantage. 8 The statement in the text is fairly obvious to the eye, but was tested by fitting straight-line trends to the data. The initial 142 THE CUBAN SITUATION COMPARISON OF AMERICAN EXPORTS TO CUBA AND TO THE OTHER REGIONS SPECIFIED, 1903-1929 Ratio of Exports to Cuba to Exports Exports to Exports to Cuba Period (In mil- North West lions of South America Central Indies dollars) America except America Mexico and Cuba Bermudas Year Ending June 30: 1903........ 22.54.11 2.20.54.27 1904........ 27.53.13 2.45.61.30 1905........ 38.67.17 2.92.83.37 1906........ 48.64.18 3.69.94.48 1907........ 49.60.16 3.27.86.42 1908........ 47.56.17 3.92 1.00.46 1909........ 44.57.17 3.67.92.39 1910........ 53.57.16 4.42.90.38 1911........ 61.56.15 3.81 1.07.48 1912........ 62.47.14 3.65.94.44 1913........ 77.49.13 4.44.91.49 1914........ 69.55.15 3.83.74.45 1915........ 76.77.19 3.60.97.36 1916........ 127.71.21 4.88 1.30.48 1917........ 178.69.18 4.94 1.59.61 Calendar Year: 1918........ 227.75.21 4.83 1.43.73 1919......... 278.63.27 6.04 1.86.60 1920........ 515.82.36 7.36 2.88.65 1921........ 188.69.20 5.70 1.58.71 1922......... 128.57.16 4.13.67.44 1923........ 192.71.21 5.21 1.37.47 1924........ 200.64.22 5.41 1.20.51 1925......... 199.49.21 4.63 1.11.66 1926........ 160.36.16 3.27.95.52 1927........ 155.35.14 3.87 1.12.48 1928......... 128.27.11 2.84 1.02.43 1929........ 129.24.10 2.87 1.09.42 point was in all cases taken at 1906; the terminal point at 1914 for Mexico, South America, and North America, and 1915 for Central America and the West Indies. In all cases except Central America the slope of the fitted line was found to be negative. The choice of the terminal points for this period is conceded to be somewhat arbitrary. The downswing in the case CUBAN IMPORTS 143 influence our treaty relations may have had in promoting our export trade with Cuba, it had about spent its force, or at least had been obscured by other influences, by the beginning of the Great War. During the war and immediate post-war years exports to Cuba, relative to those to the other regions shown, advanced sharply, reaching a peak in 1920 RATIO OF UNITED STATES EXPORTS TO CUBA TO UNITED STATES EXPORTS TO REcIONS SPECIFIED a -----— NORTH AMERICA EXCEPT CUBA -WEST /ES... —SOUTH AMERICA *..*-"*...MEXICO -- CENTRAL AMERICA a The curve for Central America is drawn to a scale one-fifth of the true ratio. Obviously such a change in scale does not affect the trend. (1921 for the West Indies). This peak was followed in all cases by a slump and a partial recovery. No change had been made in our treaty relations. If, as is suggested in the last paragraph, they had about spent their force by 1914, they can hardly be held accountable for the striking rise or the following slump. The most surprising thing, in view of the stimulating effects which of South America appears to have been ended as early as 1912 and that for North America in 1913. 144 THE CUBAN SITUATION our treaty relations are supposed to afford to exports, is the evident downward trend during the last four or five years for all the regions shown on the chart. Evidently other factors were at work. CUBAN IMPORTS FROM THE UNITED STATES COMPARED WITH TOTAL IMPORTS, 1903-1928 Total Imports Imports from the United States Year (In millions of dollars) In Millions of As Percentage Dollars of Total Imports Fiscal: 1903................ 62.6 25.7 41 1904................ 74.5 29.5 40 1905................ 93.0 37.8 41 Calendar: 1906................ 106.5 49.4 46 1907................ 104.5 51.3 49 1908................ 85.2 41.6 49 1909................ 91.4 46.3 51 1910................ 103.7 54.6 53 1911................ 113.0 60.0 53 1912................ 123.2 64.6 52 1913................ 140.1 75.3 54 1914................ 118.2 68.6 58 1915................ 140.9 90.5 64 1916................ 216.0 153.0 71 1917................ 256.1 189.9 74 1918................ 294.6 219.3 74 1919................ 356.6 271.5 76 1920................ 557.0 404.4 73 1921................ 354.4 263.5 74 1922................ 180.3 120.3 67 1923................ 268.8 181.6 68 1924................ 289.8 191.6 66 1925................ 297.3 187.2 63 1926................ 260.8 160.0 61 1927................ 257.4 159.0 62 1928................ 212.8 129.3 61 Before searching for other factors affecting our export trade with Cuba, we will follow up our second line of inquiry. Have Cuban imports from the United States shown an increasing proportion of her total imports? (2) The ratio of Cuba's imports from the United CUBAN IMPORTS 145 States to her total imports increased until about 1919, but has since declined. This statement is based on a study of the table on page 144 and the chart on page 145. It will be seen that while in absolute values imports from the United States and total imports have RELATION OF IMPORTS FROM THE UNITED STATES TO TOTAL CUBAN IMPORTS, 1903-1928 - TOTAL IMPORS -- - -IMPORTS FRaO UNITED STArES -— /MPORTS FROM UNITED STATES AS PERCENTAGE OF TOTAL followed a good deal the same course, the ratio between them showed a marked tendency to increase until 1918, then fluctuated slightly for a few years, but since 1921, it has shown a marked tendency to decline. The increase is, of course, in harmony with the result to be expected from the concession, but the decline indicates that whatever effect the concession may have had was 146 THE CUBAN SITUATION more than counteracted by other and more powerful forces. The ratio of imports from the United States to imports from all countries has declined not only as a whole but also by classes. In reports of the Cuban Secretary of Commerce imports are classified under the following heads: foodstuffs; textiles; machinery, apparatus and instruments; metals and manufactures of metals; chemicals and allied products; animals and animal products; stone, earths, and ceramic ware; wood and manufactures of wood; paper and manufactures of paper; miscellaneous; and free goods. It is significant that while the percentage of all these classes derived from the United States tended to increase up to about 1920, since that date there has been a marked tendency to decline. This is clearly shown by the table on page 147 and the chart on page 148. It will be seen by referring to the chart that following the period 1919-1921 the trend to 1928 has been consistently downward for nearly all the groups. This applies to foodstuffs, textiles, machinery, metals, chemicals, wood, paper, and free goods, these groups constituting, in 1928, 83 per cent of all imports. Of the remaining groups "animals and animal products" has shown a steady increase; "stone, earths, and ceramic ware" decreased sharply between 1919-1921 and 1922 -1924, but since the latter period has nearly regained the status of 1919-1921; and the "miscellaneous" group increased somewhat between 1919-1921 and 1922 -1924, but since the latter period has declined. Up to and including 1919-1921 the tendency of all the groups had been to increase and in many cases the increase had been striking. "Textiles" had increased from 6.9 to 63.6 per cent; "paper" from 23.8 to 87.3; "metals" from 45.1 to 92.9. These gains were quite consistent with the interpretation that they were due to the Reci PRINCIPAL CUBAN IMPORTS FROM THE UNITED STATES, 1902-1928 a (Averages for specified periods, in millions of dollars and as percentages of respective import totals) 1902-1903 1904-1909 1910-1914 1915-1918 1919-1921 1922-1924 1928 Classification Value Per Value Per Value Per Value Per Value Per Value Per Value Per Cent Cent Cent Cent Cent Cent Cent Foodstuffs........................ 11.1 48.7 16.2 49.9 23.5 52.5 49.8 63.6 94.2 63.5 53.2 57.3 38.5 46.6 Textiles............................7 6.9 1.7 11.8 3.1 18.5 12.5 43.9 38.7 63.6 20.1 57.4 5.3 16.1 Machinery, apparatus, instruments... 2.4 70.4 5.6 70.7 9.4 72.2 30.1 96. 7 63.1 95.9 27.3 92.2 17.4 82.5 Metals and Manufactures of metals.. 1.7 45.1 3.7 53.8 5.9 70.0 13.4 92.9 28.0 92.9 13.9 85.3 8.9 73.0 Chemicals and allied products....... 1.0 35.3 1.9 48.2 3.9 54.8 10.7 75.1 19.2 77.6 11.5 71.8 8.7 58.0 Animals and animal products........ 2.1 25.7 4.0 49.3 4.5 75.8 8.8 86.5 17.2 87.2 10.2 92.1 6.0 92.3 Stone, earths, ceramic ware......... 1.0 51.2 1.8 48.9 2.8 57.7 7.4 84.0 16.8 79.4 8.8 55.6 13.5 74.1 Wood and manufactures of wood......9 60.8 1.7 68.7 2.3 70.9 4.7 84.3 8.2 87.5 4.1 79.3 3.7 78.7 Paper and manufactures of paper.....3 23.8.6 8.6.9 44.9 3.0 81.4 6.3 87.3 2.8 68.0 4.0 63.5 Miscellaneous......................9 47.4 1.9 56.3 1.6 47.0 3.3 49.5 7.4 49.1 5.1 56.9 5.4 50.9 Free goods........................ 3.5 78. 5.6 8.2 7.3 87.0 12.3 92.0 18.6 91.9 9.9 85.5 1.0 35.7 a The figures through 1924 are from U. S. Tariff Commission, Effects of the Cuban Reciprocity Treaty, p. 234; the figures for 1928 from Comercio Exterior, 1928, p. 11. C3 tu 0 t4 CLASSIFIED IMPORTS INTO CUBA FROM THE UNITED STATES EXPRESSED AS PERCENTAGES OF TOTALS (Averages for specified years) MACHINERY. APPARAFOODSTUFFS TEXTILES Tru INSTRUMENTS o s o l o I I ll 1111111 N~i0A AN ANIMAL!~6~0~ ~0~0;0 ^!!! METALS AND MANUFAC/00r URtS OF o STONES EARTHS CERA0 MIC WARE k 7s 5 50 IIJ h Z NoII * 0, Jr4 010101, CHEMICALS AND ALLIED PRODUCTS O h O 1 4! WOOD AND MANUFACTURES OF i01II ANIMALS AND ANIMAL PRODUCTS /00 PAPER AND MANUfACE.1,o| 50 PAPER AND MA NUFACTURES OF /00 50 0 %0, 010 4! I00 MISCELLANEOUS FREE GOODS 00 75 - 75 $ ^0 a"1111wlr l XIIIIIIto lIJZ........................tog CUBAN IMPORTS 149 procity Treaty, but the subsequent losses were so inconsistent with this interpretation and so suggestive that other agencies were affecting our exports to Cuba, that they raised the question whether it is safe to attribute even the gains to this factor alone. Are there not other forces more important both in increasing and in decreasing our exports to Cuba than the Reciprocity Treaty? The factor that suggests itself as most worthy of study in this connection is Cuba's purchasing power as evidenced by her exports. A country may temporarily import from the proceeds of loans, but to continue importing indefinitely it must receive a continuous stream of incoming resources. Such resources are ordinarily derived chiefly from its exports, though they may come in part from certain so-called "invisible" items of trade, such as tourist travel within the country. The mainstay, however, is exports and, in the case of Cuba, sugar exports. Cuba's total exports, sugar exports,4 total imports, and imports from the United States have closely paralleled one another. This statement is clearly warranted by the table on page 150 and the chart on page 151. It will be seen that while these curves differ somewhat in their minor fluctuations, the parallelism of their major trends is very striking. All of them show a moderate upward trend to about 1914, then a steep upward trend to 1920. This is followed by a steep downward trend reaching its low for total and sugar exports in 1921 and its low for total imports and imports from the United States in 1922. A steep upward trend follows, reaching its high for total and sugar exports and for imports from the United States in 1924, and for total imports 'In this discussion the term "sugar exports" includes the derived products. 150 THE CUBAN SITUATION in 1925. Since these years the trends of all the curves have been downward. RELATION BETWEEN CUBAN IMPORTS AND EXPORTS, 1903-1929 a (Value figures in millions of dollars) Exports of Sugar and Imports from Derived United States Im- Im- Products Total Total port- ports Ex- Im- Export Less Year ports ports Ratio Ex- As As (Value) (Value) (In per- ports As Per- Percent- (Value) Per- cent- centages) Value cent- Value age of age of age of Total Total Total In- Exports ports 1903...... 1904...... 1905...... 1906...... 1907...... 1908...... 1909...... 1910...... 1911...... 1912...... 1913...... 1914...... 1915...... 1916...... 1917...... 1918...... 1919...... 1920...... 1921...... 1922...... 1923...... 1924...... 1925...... 1926...... 1927...... 1928...... 1929...... 77.2 89.0 110.1 104.0 104.2 94.6 124.7 150.8 122.9 173.0 164.6 174.0 236.2 321.8 356.4 407.3 573.0 794.0 278.1 325.5 421.0 434.9 354.0 301.7 324.4 278.1 272.4 63.4 77.0 95.0 98.0 104.5 85.2 91.4 103.7 113.1 123.2 140.1 118.2 140.9 216.0 256.1 294.6 356.6 557.0 354.4 180.3 268.8 289.8 297.3 260.8 257.4 212.8 216.2 82.1 86.5 86.3 94.2 100.3 90.1 73.3 68.8 92.0 71.2 85.1 67.9 59.7 67.1 71.8 72.3 62.2 70.1 127.4 55.4 63.8 66.6 84.0 86.4 79.8 76.5 79.4 13.8 12.0 15.1 6.0 -.3 9.4 33.3 47.1 9.8 49.8 24.5 55.8 95.3 105.8 100.3 112.7 216.4 237.0 -76.3 145.2 152.2 145.1 56.7 40.9 64.3 66.2 56.2 41.9 55.6 72.8 59.0 66.0 53.4 81.1 110.7 79.4 123.9 118.0 133.4 197.5 274.7 305.3 347.9 508.9 732.4 235.6 278.3 372.9 384.6 297.6 251.2 273.9 223.3 216.5 54.3 62.5 66.1 56.7 63.3 56.4 65.0 73.4 64.6 71.6 71.7 76.7 83.6 85.4 85.6 85.4 88.8 92.2 84.7 85.5 88.6 88.4 84.1 83.1 84.4 80.3 79.5 27.6b 32.9 43.3 47.6 51.3 41.6 46.3 54.6 60.0 64.6 75.3 68.6 90.5 153.0 190.0 219.3 271.5 404.4 263.5 120.3 181.6 191.6 187.2 160.0 159.1 129.3 127.0 43.50 42.70 45.60 48.60 49.10 48.80 50.60 52.70 53.00 52.40 53.70 58.00 64.20 70.80 74.20 74.40 76.20 72.60 74.30 66.70 67.66 66.16 63.06 61.36 61.86 60.76 58.74 35.7 37.0 39.4 45.8 49.2 44.0 37.1 36.2 48.8 37.3 45.7 39.4 38.3 47.5 53.5 53.8 47.3 50.9 94.7 37.0 43.1 44.1 52.8 53.0 49.3 46.5 46.6 * Comercio Exterior, p. XI; Anuario Estadistico, pp. 120-23. b Averaging 1902-03 and 1903-04. Anuario Estadistico, p. 120. The close parallelism of all these curves and a knowledge of Cuba's industrial situation lead to the conclusion that conditions in the sugar industry are the main factor in shaping the course of Cuba's imports. CUBAN IMPORTS 151 (1) The parallelism between total exports and total imports affords strong confirmation of the conclusion reached by general economic reasoning that a country pays for its imports with its exports. We conclude that, whatever direct influence the Reciprocity Treaty PARALLEL MOVEMENTS IN CUBAN FOREIGN TRADE, 1903-1929 MILLIONS OF DOL ARS MILLIONS OF DOLLARS 800.... 800 600 ' 600 400 -- -- --------- — r 400 20000 jI\._. / i 1 ~ L i Wi JJ L WIW!W ii i i L!! Lii /900 1905 19/0 TOTAL EXPORTS -— TOTAL IMPORTS /9/5 /920 /925 E-XPORTS OF SUGAR - - /-IMPORTS FROM UNITED STATES 1/93 may have had, the main factor affecting the ups and downs of Cuba's import trade has been her exports. The extent to which the Treaty affected exports, and, hence, indirectly, imports, has been discussed in previous chapters. (2) The fact that sugar exports constitute the great bulk of Cuba's exports, and the further fact that their 152 THE CUBAN SITUATION course follows that of total exports even more closely than does the course of imports, suggests that we shall make little error in attributing the upward and downward tendencies in imports to causes affecting the sugar industry, and that this intimate relation of conditions in the sugar industry to imports has increased rather than decreased. The last statement is borne out by the following chart, in which is shown graphically the percentage of total exports accounted for by sugar and its by-products. RELATION OF SUGAR EXPORTS TO ALL EXPORTS FROM CUBA, 1903-1929 PER CENT. PER CEN_ 5O0 -- - -- -- ------------------ 50 /-905 /9/0 /9/5 /920 /925 1 It will be seen that sugar exports have increased from around 60 per cent of total exports in the early years of the Republic to over 90 per cent since 1920.5 While in a general way, as has just been noted, imports have followed the course of exports, rising when exports rise and falling when exports fall, the parallelism has not been exact. In some years imports have constituted a much greater percentage of exports than in others. We will now seek the cause of these fluctuations of imports relative to exports and in the light of 6The ratios are on a value basis, which is, of course, the basis desired when the purchasing power derived from sugar exports is in question. If the ratios had been expressed on a quantity basis, they would have been even higher in recent years because of the abnormally low price of sugar. CUBAN IMPORTS 153 what has just been said we will first endeavor to find out what changing conditions in the sugar industry have had to do with them. Foreign ownership of the sugar industry and the price of sugar have been important factors in shaping the relation between imports and exports. (1) The proceeds derived from exports of sugar are received in the first instance by the owners of. the industry and are disbursed (a) in paying for labor, materials, and other costs of production, and (b) as dividends and interest on bonds. Obviously to the extent that the owners and bondholders are foreigners the part of the income that goes to them will not ordinarily constitute a demand for imports. Only that part of the gross income which remains in Cuba either in the form of money or exchange constitutes such a demand. Hence as foreign ownership increases, assuming that the price of sugar remains constant, we should expect to see an increasing ratio of exports to imports. (2) Ordinarily the loss, or at least the decrease in income resulting from falling prices, is felt primarily by the owners. Later, they may shift it in part to their employees by reducing wages or laying off men. Under the colono system which prevails in Cuba this burden is automatically shared between the owners and the colonos. The pay of the colonos is nominally so many arrobas (25.36 pounds) of sugar for each hundred arrobas of cane furnished. Practically the pay is the money value of this sugar at the price of sugar delivered at a Cuban port. This price, known as the promedio or average, is established every two weeks by taking the average New York price c. and f. and deducting transportation costs. Under this plan a rise in the price of sugar increases, and a fall in the price of sugar reduces, the income per pound of sugar for both the owner and the colono. However, there is a subsis 154 THE CUBAN SITUATION tence level below which the income of the colonos can not fall. Moreover there are other costs which can not be reduced. Hence, in years of low prices the portion of the gross receipts which goes to the owners tends to be relatively smaller, the proportion of purchasing power remaining in Cuba tends to increase, and imports also tend to increase relatively to exports. In years of high prices, of course, the reverse of these conditions is to be expected. To summarize: we should expect that in years of low prices the portion of the gross receipts which go to the owners would be relatively smaller, and hence that imports would approach relatively nearer to exports. In years of high prices, of course, the reverse of this is to be expected. Let us see if the experience of Cuba tallies with the reasoning in the last paragraphs. The table on page 150 and the two charts on page 156 will serve as a test. In one chart are shown total imports, total exports, the import-export ratio, and the difference between imports and exports during 1903-1929. In the other is shown the promedio prices of sugar from 1903 through 1930.6 Throughout the time under consideration both of the factors mentioned were operating, sometimes in the same and sometimes in opposite directions. A year of high prices accompanied by increased foreign ownership tended to augment the difference between imports 6 The promedio prices on which this chart is based are taken from Industria Azucarera, Zafra de 1930, p. 109. They are given in tabular form below. The 1930 figure is for the first six months only. Year Price Year Price Year Price Year Price 1903...1.96 1910...2.72 1917...4.62 1924...3.82 1904...2.61 1911...3.02 1918...4.24 1925...2.24 1905...2.79 1912...2.61 1919...5.06 1926...2.22 1906...2.12 1913...1.95 1920..11.95 1927...2.64 1907...2.23 1914...2.64 1921... 3.10 1928...2.18 1908...2.56 1915...3.31 1922...2.80 1929...1.72 1909...2.52 1916...4.37 1923...5.03 1930...1.41 CUBAN IMPORTS 155 and exports, while a year of low prices, even though foreign ownership increased, might reduce this difference. Looking, now, at the curve showing the difference between imports and exports, it is obvious that from 1903 to 1920 the trend is upward, especially after 1913. From 1913 to 1920 American ownership of the sugar industry was increasing and prices also were increasing; hence, these two factors were co-operating in increasing the part of the proceeds of exports which went out of the Island and constituted no demand for imports. During the period under discussion the line showing ratio of imports to exports has a downward trend. This is to be expected. When the portion of the receipts going out of the Island is small the ratio of imports to exports should be great and vice versa. In 1920, the promedto price reached the unprecedented figure of 11.95 cents per pound. The value of exports and imports also reached unprecedented figures-$794,000,000 and $557,000,000 respectively. The difference between imports and exports, however, reached a third unprecedented figure, $237,000,000. That is, while the purchasing power derived from the prosperity of the sugar industry enabled Cuba to enjoy commodity imports from foreign countries to a greater extent than in any year before or since, an unprecedentedly large portion of this purchasing power never entered Cuba but remained lodged with the foreign owners. This is shown by the high point on the line showing the difference between imports and exports and the comparatively low point on the line showing the ratio of imports to exports. The following year, 1921, was the year of crisis. In this year imports actually exceeded exports. Though both exports and imports fell precipitately, the fall in exports was the more extreme. The price of sugar fell from 11.95 to 3.10 cents per pound. Sugar factories 156 THE CUBAN SITUATION far from having dividends to send to foreign owners were going into bankruptcy. On the other hand some RELATION BETWEEN CUBAN IMPORTS AND EXPORTS, 1903-1929 MILLIONS Of DOLLARS PER CENT 800, ---- - --- 1 - 60 600 -- - +. ________ _= _ ______ _ -- '20 /zoo40:'i /900 /905 1910 /195 /920 925 930 ------ TOAL EXPORTS -.- -- EXPORTS LESS /MPORTS ---— TOTAL AIPORTS R..............RA OF/ MORrS TO EXPORTS COURSE OF Promedio PRICES, 1903-1930 CENTS PER POUND rfretC OpD tnwn I/ -- _ ---- ----- -----— _i --- j --— _I______ - _ _ 1X I I1 ' - - 1 A000 /905 /910 /9/5 /920 19 / CUBAN IMPORTS 157 remnants of the prosperity of the preceding year still remained diffused among the Cuban people. The price of sugar remained fairly good during the early months of the year, and as it was on the basis of these prices that the colonos were paid their income was not seriously reduced. It was not until the crop was harvested that the price fell to ruinous figures. Hence, the fall in price chiefly affected the owners. Moreover, as we have seen (page 56), 1921 was a year marked by a vast transfer of Cuban sugar properties to American hands and this transfer brought some purchasing power into the Island. Therefore, while, as was noted, imports fell off greatly, the fall did not come up to that of exports. In 1922 the average price of sugar was slightly lower than the average for 1921, but taken by months the situation was the exact reverse. The low prices on the basis of which the colonos were paid occurred in the early part of the year. From June on, prices rose and the year closed with prices at a profitable figure. Hence though the output of sugar was somewhat smaller the price was so much better that the value of exports actually increased. Because of the reduced purchasing power of Cuba, however, imports continued to decline. The result was a large excess of exports over imports. During 1923 and 1924 prices were generally good, yielding satisfactory profits to the owners. The value of exports increased sharply, but as by this time some 75 per cent of the industry was American owned, a large part of the gross receipts from these exports went out of the country. Hence, though during these years imports also increased they did not increase to the same extent, and therefore the excess of exports over imports continued large-about the same as in 1922. 158 THE CUBAN SITUATION Since 1924 there has been a succession of years of low and gradually declining prices. A record low was reached in 1930. During some of these years, also, the output was reduced by voluntary restriction (see page 87). These have been years of disaster to the Cuban sugar industry culminating in the bankruptcy of several American companies, among them the greatest of RATIOS: (I) TOTAL IMPORTS TO TOTAL EXPORTS; (II) IMPORTS FROM THE UNITED STATES TO TOTAL EXPORTS; (III) IMPORTS FROM THE UNITED STATES TO TOTAL IMPORTS PECENT _____________________________PERCENT 50i ________ - -- - -50 /5^ \ /~ l /S 01,/900 /905 /9/0 /9/5 /920 /925 /930 RAT/IO OF /IPORTS TO EXPORTS IMPORTS FROM UNITED STATES AS PERCENTAGE OF TOTAL - -EXPORTS -I/MPORrS all, the Cuba Cane (see page 93). Exports have greatly declined. Imports have also declined, but not so much as exports, the reason being that since the pay to the colonos had already been reduced nearly to a subsistence level it could not be reduced much further, the loss fell on the owners, and therefore the portion of the gross receipts for exports which went out of the Island was reduced. We have so far dealt with the relation between the total imports and total exports of Cuba. No less instruc CUBAN IMPORTS 159 tive is the relation between Cuban exports and Cuban imports from the United States. This relation may be studied by means of the chart on page 158. It shows the following ratios: (I) total imports to total exports, (II) imports from the United States to total exports, (III) imports from the United States to total imports (the ratio of curve II to curve I). It will be seen that curves I and II tend to converge until about 1919 and thereafter to separate. This is quite visible to the eye, but the extent of the approach and subsequent departure is made even more evident by curve III which shows for each year the ratio of the lower curve to the upper curve. How is this rather striking phenomenon to be accounted for? Where so many factors are operating it is rash to assert categorically that any one factor which happens to antedate or to synchronize with the phenomenon in question is the cause of it. It may well be that the phenomenon occurred in spite of that factor instead of because of it. Bearing this caution in mind it may yet be said that convergence and divergence of the curves shown in the diagram are consistent with the following interpretation. The convergence of curves I and II until about 1919 may be fairly attributed, in part at least, to the Reciprocity Treaty. The general downward trend of curve I to about 1919 has already been interpreted as a result of the increasing volume of foreign investment, especially American investment in the sugar industry. The subsequent fluctuations of this curve have also been explained in terms of phenomena connected with the sugar industry. It will be noted that curve II, during the first period, while subject to fluctuations very similar to those of curve I, does not on the whole show a downward trend. If anything, its trend is up 160 THE CUBAN SITUATION ward. That is while the increasing portion of the purchasing power derived from exports, which went out of the country, tended to reduce the ratio of total imports to total exports, it did not diminish the ratio of imports from the United States to total exports. This preferred position for imports from the United States may fairly be attributed, in part at least, to the concessions allowed by Cuba under the Reciprocity Treaty. Why in subsequent years did the convergence change to divergence? The Reciprocity Treaty was still in force. Why, beginning with the early twenties, should Cubans have shown an increasing tendency to obtain a greater proportion of their imports from countries other than the United States? The bearing of the sugar situation on imports during these years has already been discussed (see page 153). It was shown there to have a very definite relation to the course of imports, but nothing was there stated to show why it should affect imports from the United States differently from other imports. The high tariffs of 1921 and 1922 were responsible, in part at least, for the relative falling off of Cuban imports from the United States in recent years. The most notable events separating the two periods were the Tariff Acts of 1921 and 1922. Now it will be noted that while the high point in the ratio of imports from the United States to total imports occurred in 1919 and was followed by a slight falling off in 1920, there was a recovery in 1921. The real downward trend hardly set in till 1922. It is significant that the beginning of the downward trend was practically coincident with the great increase in duties in the Act of that year. There is an obvious connection. The normal effect of a duty is to raise prices in the country imposing the duty and to depress them in the countries from which it im CUBAN IMPORTS 161 ports. Hence on a priori grounds the increased duties in 1921 and 1922 should have tended to raise prices in the United States relatively to prices in the principal commercial countries from which Cuba draws her imports. This tendency should have manifested itself in relatively decreased imports from the United States as compared with other countries. Is there any evidence that these a priori conclusions are warranted by facts? The question finds an answer COMPARISON OF BRITISH AND AMERICAN INDEX NUMBERS, 1920-1929 British U. S. Ratio of Board Average Deflated Department Deflated Year of Trade Rate of Board of Labor Brited (1913 Exchange of Trade Wholesale British to base) (1913 base) American 1920.307 $3.6643 231.1 226.0 102.3 1921.197 3.8491 155.8 147.0 106.0 1922.159 4.4292 144.8 149.0 96.8 1923.159 4.5748 149.5 154.0 97.1 1924.166 4.4171 150.7 150.0 100.5 1925.159 4.8289 157.8 158.7 99.4 1926.148 4.8582 147.8 151.0 97.9 1927.142 4.8610 141.8 145.0 97.8 1928.140 4.8662 140.0 148.6 94.2 1929.137 4.8569 136.7 147.6 92.6 in the data shown in the table on page 161 and the chart on page 162, wherein British index numbers after being adjusted for the depreciated value of the pound, are compared with American index numbers. It will be seen that in 1920 and 1921 the British index numbers are higher than the American, by ratios of 102.3 and 106 respectively. Beginning with 1922 they are consistently lower except in 1924 when they are slightly higher. It thus appears that in spite of the concession afforded by the Cuban tariff Cuban importers found it increasingly for their interest to purchase in countries other than the United States, because 162 THE CUBAN SITUATION of higher prices in the United States resulting from the American tariff..Sugar and the tariff are the dominating, but not the sole, factors in our export trade with Cuba. It has been shown in this chapter that the volume of Cuba's total imports is determined primarily by her purchasing COURSE OF WHOLESALE PRICES, 1920-1929 (1913 = 100) INDELX NUBSERS INDfX NAIIlRFRC 250 250 20 200 /50 ----- 1/50 /00.,00 50 50 0..... /920 1921 1922 /923 /924 1925 /926 1927 192 1929 1930 - BOARD OF TRADE (OLD BASIS) -- U. DEPARTrNT OF LABOR power, and that her purchasing power is in turn determined mainly by the value of her sugar crop. It has further been shown that a major influence in determining what part of her total imports shall come from the United States is found in the height of the American tariff. CUBAN IMPORTS 163 It must, however, again be emphasized that this must not be understood as meaning that other factors play no part. Cuba has other exports than sugar and the income from these exports also constituted purchasing power with which to buy imports. Then there are items of "invisible trade"-tourist expenditures, foreign investment in Cuba affecting purchasing power both at the time the investment is made and afterwards, when interest or dividends must be paid as a result of the investments. In the same category with investments are foreign loans. Finally, mention must be made of our treaty relations. The obvious inference from the present study is that the effects of our treaty relations, particularly of the Reciprocity Treaty, may be easily exaggerated; but this does not mean that the Reciprocity Treaty has had no effect. Doubtless if we went into detail, commodity by commodity, we could find evidence that because of our concession to Cuban products, Cuba exports more to us in individual cases than she would if reciprocity were abandoned. This is certainly true if by abandonment of reciprocity we mean retention of the present full duty. Such a policy might well prove the coup de grace to Cuba's sugar industry in its present precarious position. Doubtless also because of the concessions in the Cuban tariff we export more wheat and textiles and manufactures of wood and metals to Cuba than we would without these concessions. There is no disposition to minimize the importance of the concession. What we have endeavored to make clear is that in many important cases, and particularly in the most important case of all, namely, sugar, the magnitude of the concession is far less important than the magnitude of the duty. Furthermore, we have endeavored to bring out one fact of supreme importance to Cuba's future, to which one more paragraph will be given. 164 THE CUBAN SITUATION Cuban "prosperity" hangs on the price of sugar. Our whole analysis has pointed to a serious weakness in Cuba's economic position. A large part of her foodstuffs and other necessities of life are imported. Her ability to import depends chiefly upon her receipts from her exports, and by far the greater part of her exports are sugar. Hence, money to buy the necessities of life for her people depends in no' small measure upon the value of her sugar exports. But the value of the exports is a product of the quantity by the price. It is in her own power to regulate the quantity but the price is a result of world conditions-world output, world demand, foreign tariffs-over which she has no control.7 When as a result of these world conditions the price of sugar is high Cuba is prosperous: when the price is low she is reduced to misery. More than is the case with most countries Cuba's well-being is independent of her own acts or her own volition. 7 This statement must be qualified to the extent that in regulating her own output she, to that extent, affects the world output. CHAPTER VII SUMMARY AND CONCLUSIONS I It has been shown that Cuba's geographical position at the entrance of the Gulf of Mexico and -her many excellent harbors made her status and her affairs matters of vital political concern to the United States. Opinion was divided as to whether from an American standpoint it was most desirable that Cuba should remain with Spain, secure her independence, or be annexed to the United States. On the other hand, opinion was united that Cuba should not fall into the hands of England or France. American statesmen agreed that such an outcome would constitute a distinct menace. Again, Cuba's natural resources, her climate, and her propinquity created an economic interest in her future hardly second to the political interest just referred to. American capitalists saw in Cuba an enormous field for profitable exploitation. Accordingly when Cuba, after several unsuccessful attempts, finally won her independence with the aid of the United States, steps were taken to cover both of these interests-the economic as well as the political. When the war closed an American army was on Cuban soil and an American military governor in control. Cuba had been brought to a condition of complete exhaustion by the ruthless conduct of the war and was in -no position to resist any demand which the United States might make. The United States exacted the right of intervention and granted reciprocity. The demands in fact were moderate. Cuba was to be granted independence and 165 166 THE CUBAN SITUATION sovereignty, with the proviso that the United States should have the right to intervene in Cuban affairs to protect that independence from foreign aggression and also to protect life and property on the Island should they be menaced by domestic violence. There were minor provisions but these were the major items. This abridgment of sovereignty, though seemingly not serious, was resented by Cubans, and was finally adopted as a part of their constitution and later in the form of a permanent treaty only because they knew that until it was accepted the Island would remain under military control. However, acceptance was made easier for them by the promise of a commercial treaty. This treaty granted reciprocal tariff concessions in the rates of duty on imports but in no wise interfered with the freedom of either country to raise or lower the duties on which the concession was granted. The chief argument advanced by the administration for granting reciprocity was that it would be of assistance to Cuba in recovering from her desolation and that an obligation rested upon the United States to afford such aid. The treaty was, however, quite as much in line with some domestic interests. It would benefit American export industries by improving the Cuban market for their products. It can also be looked upon as a recognition of the great economic interest referred to in a preceding paragraph. Through it and through the Permanent Treaty American investors were virtually given a guaranty of protection for such properties as they might acquire in Cuba and also a preferred market in the United States for such articles as they might produce on Cuban soil.. The Reciprocity Treaty, however, was not at all in the interest of American sugar producers. It reduced the duty on sugar imported from Cuba and, it was feared, would thus reduce the domestic price. Domestic SUMMARY AND CONCLUSIONS 167 sugar producers resisted it strenuously and it was only by the exercise of considerable executive pressure that the Treaty was finally adopted. The Reciprocity Treaty was of distinct benefit to Cuba in its early years. So long as the needs of the United States called for substantial imports of sugar from countries other than Cuba and so long as practically the entire output went to the United States, the price in New York tended to be fixed by the world price plus the full duty and hence Cubans were able to obtain a price better than the world price by the amount of the concessions. However, this New York price prevailed only at times when imports from other countries were actually coming in. As Cuban output increased, imports from other countries fell off, and the number of months in which Cuba received a price benefit from the concession also declined until about 1910, when practically all of our needs for foreign sugar were supplied by Cuba, while Cuba, on the other hand, was obliged to seek other markets for her ever increasing surplus. From that time, whatever benefit was derived from the concession was enjoyed by American consumers. The New York price then became the world price plus, not the full duty, but the Cuban duty. In its early years the Reciprocity Treaty increased the proportion of Cuban imports which came from the United States; in recent years the proportion has decreased because of the high level of American tariffs. At least, this seems to be a reasonable inference from the course which trade has taken. From the time of the Reciprocity Treaty up to about 1921 the proportion of Cuban imports which came from the United States increased; since that date it has declined. The earlier increase must be attributable at least in part to the Reciprocity Treaty. A reasonable explanation of the recent decrease is found in the Tariff Acts of 1921 and 168 THE CUBAN SITUATION 1922. The increased duties have raised prices in the United States relatively to prices in other countries. Consequently, a Cuban importer has often found it more to his advantage to buy in some country other than the United States and pay the full duty rather than to buy in the United States and get the benefit of the concession. So far as sugar is concerned the Reciprocity Treaty is now little more than a nominal concession. There was nothing in the Treaty to prevent Congress from fixing the sugar duty at whatever figure it pleased with reference to protection for the domestic industry. Certainly as early as the Act of 1913 and in all subsequent acts Congress thought only of Cuba as a source of sugar imports and of the Cuban duty as the duty on sugar. The full duty was, so to speak, only tacked on in order to make the sugar schedule conform to the Treaty. While, therefore, looked at in this way, the concession has become a matter of small concern to either the Cuban or the domestic industry, the rate of duty on sugar is a matter of deep concern to both. Aside from its bearing on the sugar industry, the benefits of the Reciprocity Treaty while probably real are hypothetical. Certainly on a priori grounds it would seem that the Reciprocity Treaty must have promoted trade in many commodities, both exports from the United States to Cuba and imports from Cuba to the United States. If we accept the economic doctrine that a fair trade is beneficial to both the buyer and the seller, the Treaty must have been of benefit to buyers and sellers in both countries. Without, even by implication, denying that such benefits may have accrued, other factors have been shown to be so much more important in shaping the course of trade between Cuba and the United States, that it is extremely difficult, if SUMMARY AND CONCLUSIONS 169 not impossible, to demonstrate by statistical methods either their nature or extent. The Permanent Treaty has operated to draw American capital to Cuba and to preserve order. Turning now to the Permanent Treaty, or as it is popularly called, the Platt Amendment, its effects also are difficult to measure by statistical methods. Yet that it has had effects in shaping the evolution of Cuban history there can be no doubt. Its virtual guaranty of security to life and property was undoubtedly a factor in augmenting the flow of American investment to Cuba. Nor has the treaty pledge been by any means a dead letter. Presidential elections and other political issues have been accompanied by violence and insurrection and on three occasions at least the United States has formally intervened under the provisions of the Treaty to preserve order. On other occasions the intimation that it would intervene, if order were not preserved, has prevented uprisings or has made them short lived. It can be fairly said for the Treaty that because of it life and property on the Island have been more secure, and the profits of American investors in Cuban enterprises have been enhanced. On the other hand, the need for a treaty to forestall the political menace of foreign occupation of the Island has steadily diminished. Cuba is now a full member of the League of Nations and this fact combined with the present military strength of the United States and the mutual jealousy of the Great Powers makes the likelihood of any attack on the liberties of Cuba by one of them so remote, that if this were the sole reason for maintaining the Treaty it might well be repealed. It is probable that the main argument for its retention at the present time is economic rather than political. American investors feel in it a safeguard to their Cuban properties, and these investors have great politi 170 THE CUBAN SITUATION cal influence. In its diplomatic correspondence the United States has shown its willingness to exercise its powers under the Treaty to protect their interests and there is every reason to believe that it will maintain this attitude in the future. Our treaty relations derive their chief importance from their bearing on the sugar industry. The Treaties, as we have just seen, contributed to American investment in industries; and the exceptionally favorable conditions of soil and climate directed such investment preponderantly to the sugar industry. Undoubtedly, there would have been a great sugar industry had there been no special treaty relations. But they made the problem more serious than it would otherwise have been. In this lies their chief significance. The problems of vital importance are those connected with an overgrown, foreign-owned industry. Hence after devoting some space to the origin and effects of the treaty relations, the chief emphasis in our discussion was directed to the sugar industry, its growth, its foreign ownership, and its bearing on Cuban trade, Cuban industry, and Cuban social conditions. The growth of the sugar industry has tended to paralyze growth in other industries. The sugar industry has been great not only absolutely but also relatively. Its growth has been to some extent at the expense of other industries. Exports of tobacco, Cuba's second industry, have, when reduced to a per capita quantity basis, greatly fallen off, and with few exceptions the same is true of all of Cuba's other export industries. Sugar alone has shown a notable increase. Step by step with the phenomenal growth of the sugar industry American investment in it has also grown until, at the present writing, some 75 or 80 per cent of the industry is under American control. SUMMARY AND CONCLUSIONS 171 The magnitude of the sugar industry has been the main factor in determining Cuba's purchasing power and hence her import trade. It has been shown that Cuba's imports have risen and fallen with remarkable fidelity in proportion to her purchasing power as evidenced by total exports, and that her total exports, and hence her purchasing power, have also followed with surprising fidelity the ups and downs in the value of her sugar exports. While, however, imports, looked at broadly, have tended in their fluctuations to follow the course of total exports they have followed this course at a lower level, that is, the value of imports, with two exceptions, has every year been less than the value of exports. Cuba has thus had the empty satisfaction of consistently maintaining a "favorable balance of trade." This excess of exports over imports is in large measure due to the heavy foreign investment in Cuban industries, particularly the sugar industry. A considerable part of the purchasing power derived from exports goes in the form of interest and dividends to foreign owners and hence is no longer available for purchasing imports. The all-absorptive growth of the sugar industry has entailed serious social consequences for the Cuban people. Twenty per cent of the area of the entire Island is devoted to sugar. Practically, the control extends to a much larger percentage, perhaps forty per cent of the cultivable land. Large tracts in the Island are unsuitable for cultivation. Moreover, each great central, because of private ports and private railroads, is free from all competition in buying cane from the colonos within its vast domains. Lands privately owned by colonos are, so to speak, islands within this domain. Colonos have no option. Even when they are land-owners they must 172 THE CUBAN SITUATION grow cane, for they can market no other crop, and the cane that they grow they must market to the central in whose territory their land lies, because they have no means of transporting it to other centrals. Finally, it must be remembered, that in bargaining for the sale of their cane they are bargaining with foreign owners, who are interested in the Island chiefly for purposes of exploitation. This does not necessarily mean that the treatment accorded to either wage earners or colonos by the American "sugar barons" has been wantonly harsh or brutal, nor does it mean that wages paid to hired labor, or the prices paid to colonos for their cane, have been low. Until recently, at least, wages paid to hired labor as compared with those in other Latin American countries have been high, and as the payment made to the colonos for their cane is based on the price of sugar, it also may be adequate in favorable years. It does mean, however, that a large part of the population of Cuba is living under an economic despotism. The colonos who constitute the great mass of the population of rural Cuba are not free and independent cultivators of the soil. Economically, even if not politically, their status is little better than serfdom. The owzners are not altogether free agents, they also are in the grip of economic forces over which they have no control.' The price which they get for their sugar depends upon world conditions of supply and demand. Prominent among these conditions, so far as Cuba is concerned, is the American tariff. The tendency in recent years has been for world supply to increase too rapidly to admit of its being taken off the market save at a reduction of price. Since 1924 1 The restriction of output and the Tarafa mission to Europe were attempts at such control. A more promising attempt is the Chadbourne plan. See pp. 87-93. SUMMARY AND CONCLUSIONS 173 the trend of prices has been distinctly downward. By the summer of 1930 the price was lower than at any previous period of American history. The low price affects domestic as well as Cuban producers. Domestic producers, however, may temporarily improve their position by an increase in the tariff-a resource not available to Cuba. The position of the Cuban colono is therefore desperate. It is not merely that he is helpless, that his livelihood is dependent on the patriarchal spirit of the foreign owners of the sugar industry, but it is also that world forces over which they have no control hold these same owners in their clutch and may prevent their paying higher prices for their labor or for their cane, even if they would. They also have become desperate and in their efforts to save themselves have resorted to the importation of Haitians and Jamaicans, who will consent to work at wages lower than those customarily paid to Cubans. By the aid of such labor they are increasing the growth of "administration cane." By such competition the lot of the Cuban colono is made still harder. II Such was the situation in Cuba at the close of the year 1930. It was sufficiently black. The narrative of all the preceding pages is well summarized in the statement made in the third chapter: "In sugar, then, has been found the basis of Cuba's prosperity and resiliency from disaster; in sugar is also found her Achilles heel." Inasmuch as our treaty relations have been shown to be at least contributory factors in reducing her to her present straits, and inasmuch as because of this fact her welfare is a matter of rather special concern to the American people, we will first inquire whether the situation indicates the advisability of change in these Treaties-their modification or repeal. 174 THE CUBAN SITUATION The Reciprocity Treaty is of less importance as a factor in Cuban prosperity than might be supposed. The evidence submitted in regard to the effectiveness of the Reciprocity Treaty as being of benefit either to Cuba or the United States was for the most part of a rather negative character. It showed, it is true, that Cuban producers benefited by it for some years and that up to about 1921 the ratio of Cuba's imports from the United States to her total imports tended to increase. On the other hand, it was shown that after about 1909 the Treaty ceased to afford any price advantage to Cuban sugar producers. It benefited them merely to the extent of excluding other foreign sugars from the American market. The evidence adduced as to the Treaty's influence in stimulating the growth of Cuba's other export industries was entirely of a negative character. Moreover, a comparison of our Cuban trade with our trade with other countries of the Western Hemisphere failed to show any increase, such as might have been expected had the Treaty been an important factor. Indeed, in recent years these ratios have shown a marked tendency to decline. Finally, since 1921, the share of Cuba's imports coming from the United States has shown a decided tendency to decline relatively to her total imports. No strong economic reason is afforded by the evidence for the repeal of the Reciprocity Treaty at this time. All our evidence goes to show that the abandonment of reciprocity, provided it were accompanied by such modification of our full rates of duty as that change in policy would call for, would not be a matter of very serious concern either to Cuba or the United States. It does not show that such a change would be beneficial to either country. SUMMARY AND CONCLUSIONS 175 On the other hand, no statistical evidence has been advanced to show that the Treaty is injurious to either country. With respect to articles which one country imports exclusively or almost exclusively from the other, the argument would be similar to that advanced in the case of sugar. But when dutiable imports are derived from other foreign countries, the Treaty may still be effective in affording some benefit to producers in Cuba when exporting to the United States, or to producers in the United States when exporting to Cuba. It is highly probable on a priori grounds, in spite of the lack of statistical evidence, that our trade with Cuba has been greater than it would have been without the Treaty. It has probably been of some benefit to both Cuban and American producers in widening the market for their goods, and of some benefit to both Cuban and American consumers in reducing the prices paid. While as was shown in Chapters V and VI the volume of trade on which such benefit is received cannot be great as compared with the total trade, nevertheless, there is little doubt that specific instances could be found if a more detailed study were made. It is certain that the section in the Treaty, providing that articles of the soil and industry of either country which were admitted free into the other country at the time the Treaty went into effect, should continue to be admitted free of duty, so long as the Treaty continued, is of some present benefit and considerable potential benefit to Cuba. The banana is one of Cuba's most important fruit crops. Under this provision it would still continue to be admitted free of duty from Cuba even though it became dutiable when imported from other countries. On the whole the balance would seem to tip in favor of retaining the Treaty. It is doing no harm and may be doing some good. Certainly it would seem that in the 176 THE CUBAN SITUATION present distressed condition of Cuba, agitation for change would be unwise. This conclusion is based on economic, not political considerations, and takes no account of the interests of countries other than Cuba and the United States. Whether as an item in the general foreign policy of the United States it is wise to accord a different tariff treatment to one country from that accorded to others is a fair question for debate. This, however, lies beyond the scope of the present study. Judgment as to the continuance of the Permanent Treaty rests mainly on an appraisal of spiritual values. It has been shown that the Permanent Treaty has been a factor contributing to American investment in Cuba, especially in sugar properties, and hence has been a factor contributing to the growth of the sugar industry. Whether in the light of the present situation the enormous growth of that industry and its domination by foreign, absentee owners are benefits to Cuba may be questioned; but that the Permanent Treaty contributed to these results can hardly be doubted. Reasons for the repeal of the Treaty are stronger than any that can be advanced for the repeal of the Reciprocity Treaty. It is resented in Cuba and the political reasons which seemed in the eyes of American statesmen at the beginning of the century to make some such arrangement necessary have now little weight. No European power is going to attempt to gain a foothold in Cuba. And in regard to protecting life and property on the Island it may be argued that if the United States conceives it to be a part of its mission to exercise a sort of unofficial mandate over countries in the Caribbean area, it would seem to be only a decent concession to Cuban sensitiveness to include them all in a general Caribbean policy, rather than to single out Cuba for special supervision. Finally, the SUMMARY AND CONCLUSIONS 177 existence of the Permanent Treaty and the American policy of automatically backing constituted authority against revolution, are at present placing the United States in a somewhat embarrassing position. They make Washington appear to be the "power behind the throne" in Cuba and to be upholding or at least condoning the autocratic methods by which Cuba's President is generally believed to be maintaining his position. Not all of the arguments, however, are in favor of abrogating the Permanent Treaty. The situation is at the present writing so tense in Cuba that, if the United States were to withdraw, revolution would almost certainly be attempted. Judging by precedent, whatever the success or failure of the first uprising another would occur at every subsequent presidential election. Judging also by precedent, the properties that would be most vulnerable in these uprisings are the sugar properties. And since these properties are mainly owned by Americans, strong pressure would be brought to bear on the United States government to intervene in their behalf, whether the Treaty were in effect or not. It might turn out, therefore, that even if the Permanent Treaty were terminated, the United States would find itself forced to intervene to restore order. Moreover, American interests are not the only foreign interests involved. As was shown in a preceding chapter2 heavy investments have been made in Cuba by the nationals of other countries. In the event of violence, they and their governments would probably look to the United States to restore peace. If it should turn out that, treaty or no treaty, the United States is likely to be called on to act, the question may be fairly raised whether the United States is not in a stronger ' Page 121. 178 THE CUBAN SITUATION international position, because it has the unquestionable right to intervene under a duly ratified treaty. It is a weighing of spiritual values. The one course, from a Cuban standpoint, offers a consciousness of complete national sovereignty, a sense of freedom from foreign intermeddling, and perhaps a greater consciousness of individual dignity, at the cost of probable periods of bloodshed and destruction of property. The other course guarantees peace, or at least a minimum of disorder, but with the sense of living under a foreign supported dictatorship. It is not the province of this study to choose between these alternatives. From a coldly economic standpoint the latter alternative would probably tip the scales, but most of the values are emotional rather than economic. However, if this study has any value at all it is to make clear that Cuba's most pressing problem is not to be found in either the maintenance or the abrogation of our treaty relations. It is to be found in the situation of the sugar industry. Historically, this situation is in no small measure due to the treaties, but the abrogation of the treaties would not now resolve the situation. There are only two possible solutions for Cuba's problem. Either relief must come from an improvement and stabilization of the price of sugar, or other more satisfactory uses for her resources must be developed. Since the price she receives for her sugar depends upon world conditions of supply and demand, improvement of the sugar market could be hoped for only from a comprehensive plan of adjustment of world supply and world demand. The nature of the efforts which have been made in the direction of regulating supply has been described in an earlier chapter. The most ambitious of these attempts, the Chadbourne plan, became an accomplished SUMMARY AND CONCLUSIONS 179 fact early in 1931. So considerable is the crop restriction and the withdrawal of holdover stocks-involving production and stocks in the seven great sugar producing countries of Cuba, Java, Germany, Czechoslovakia, Poland, Belgium, and Hungary-and so effective, apparently, are the methods for enforcing the agreement, that it seems probable that the plan will bring at least temporary relief to sugar -producers throughout the world by enhancing the price of sugar. Whether the benefit will be permanent is more questionable. Fifty-five per cent of the sugar output of the world comes from regions not yet in the agreement, and, what is of especial concern to Cuba, these regions include the United States, her principal customer. Any increase in the price of sugar which may result from the agreement will be an inducement to producers in all these regions to increase their output. Such an increase is likely in a few years again to bring about an era of world "over-production" and falling prices. When prices fall it may be confidently predicted that American producers will again clamor for an increase in the tariff and they will then have a new argument in their favor, in the alleged danger to domestic consumers from a "wicked" world combine organized to hold up the price of sugar. The temporary rise in the price of sugar will be transmitted automatically to the colonos in the form of a higher price for their cane. But whether the increased price for cane will be sufficient to compensate for the diminished output is something of a question. Should the price of sugar subsequently decline, this decline also will be transmitted to the colonos as a lower price for their cane. It is quite within the range of possibility that as a result of the plan the last state of the Cuban people may be worse than the first. 180 THE CUBAN SITUATION The persons for whom benefit from the plan may be predicted with most confidence are the holders of securities in Cuban sugar properties, who succeed in unloading while the price of sugar and the consequent value of their securities remain high. If this is the underlying purpose of the plan it offers considerable promise of success. But unless a much greater proportion of the world output can be brought under control, it will hardly prove a final solution of Cuba's economic problems. One permanent benefit it does promise. The restriction in output is quite likely to divert labor and capital in Cuba to other channels than sugar and such a diversification of industry, as we shall presently see, appears to be Cuba's greatest hope. There is also a possibility of improving the price of sugar through a strengthening of demand as well as through a limitation of supply, and when we note the great disparity of per capita consumption throughout the world, ranging from 5 pounds in China to 119 pounds in the United States, and reflect that the human organism in its capacity to assimilate foodstuffs is not markedly different as between country and country, and race and race, the possibilities in this direction seem almost unlimited. But the creation of this increased demand would be at best a slow process, and the increase in output might well keep pace with it. A general reduction of sugar duties throughout the world would also strengthen the demand for Cuban sugar, and tend to improve its price. Such a reduction, however, while benefiting consumers would be at the expense of domestic producers in the several countries imposing the duties, and judging by the spirit displayed by tariff making bodies throughout the world in recent years, the prospect of such reduction is remote-too SUMMARY AND CONCLUSIONS 181 remote to afford a prospect on which Cuba might safely base her policy. In this connection, however, a word ought to be said in regard to the duty imposed on Cuban sugar by the United States. The Reciprocity Treaty was put through explicitly for the purpose of aiding Cuba and of furthering "ties of peculiar intimacy" between Cuba and the United States. Implicitly it was an invitation to American capitalists to invest in Cuban industries. The Permanent Treaty was framed and ratified under the stimulus of motives, in part, at least, similar. Under these treaties, and in part because of them, the Cuban sugar industry has grown to its present dimensions and now finds itself confronted by its present problems. The United States undoubtedly had the right to raise the duty on Cuban sugar, as it did in the Acts of 1921, 1922, and 1930. The question may be raised, however, whether in negotiating the Reciprocity Treaty it assumed any moral responsibility, after Cubans and Americans had acted on the implied promise and the explicit purpose announced in framing the Treaty, not to make it a mockery by increasing the duty. This question becomes the more pertinent in the light of the fact that a majority of the United States Tariff Commission, as a result of an investigation under the flexible provision of the tariff, found that a duty of 1.25 cents per pound was adequate to protect effective domestic producers. Yet in the face of this finding the duty was raised from 1.76 cents per pound, the rate assessed in 1922, to 2 cents per pound in 1930. It is also a question whether the rates on Cuban tobacco are not unnecessarily high. So long as Cuba remains a one-crop country her economic position will be precarious. This is recognized by Cubans themselves and efforts are being put forth to escape from this menace. Through its Department of 182 THE CUBAN SITUATION Agriculture the Cuban government is experimenting with crops, studying soils, and making the results of its research available to farmers. Agricultural schools and colleges have been established. A successful program of diversification must probably involve a greater degree of self-dependence for Cuba, rather than a mere substitution of other exports for sugar exports. In exporting products besides sugar which Cuba is well fitted to produce, she must face the hostile tariffs of other countries. This is particularly true of tobacco, which otherwise might have shown much greater progress relative to sugar than has been the case. Many of her fruits and vegetables are also subject to high duties, particularly in the United States, which but for the tariff would afford a favorable market. The chief products which are not dutiable are bananas, cacao beans, and beeswax. So long as the Reciprocity Treaty continues in effect, these must remain on the free list. Cuba herself could furnish a market for a greatly increased output of food. For many years it is probable that Cuba must rely chiefly on imports for many things-machinery, textiles, and other manufactured goods. Development of industry along these lines would necessitate a tariff too burdensome to consumers. But an easy computation from the table on page 147 shows that foodstuffs constitute by far the greatest single item in Cuba's imports, being, in fact, nearly 38 per cent of the total. Textiles are a poor second, 14.2 per cent; and machinery is third, 12 per cent. It would seem that such an exceptionally fertile agricultural country might, without any considerable burden on consumers, replace a large part of these imports with domestic products. It appears that Cuba is unsuited to the production of bread grains and must continue to import such grains and their products, but she annually imports large quantities of jerked beef, dairy SUMMARY AND CONCLUSIONS 183 products, eggs, rice, corn, beans, and other vegetables. In 1928 imports of such foodstuffs amounted to over $35,000,000. In replacing these imports with domestic products there is surely a considerable field for domestic agriculture. Moreover, in 1928, in spite of hostile tariffs Cuba exported agricultural and forest products to the value of over $47,000,000. Doubtless with even a fraction of the energy that has been put into the development of the sugar industry these exports could be greatly increased. In the long run the result of a substitution of home production of semi-tropical foods for imports might well be an economy to consumers. It would appear to be a favorable case for the application of what economists call the "young industries" argument for protection. Cuba has, indeed, recognized the wisdom of this policy and has adopted the principle of reserving the domestic markets for domestic agricultural products when they are produced in sufficient quantities to satisfy the needs of consumers. This policy is made effective by raising the duty when there is a good prospect that such aid will lead to the requisite production of any agricultural crop.3 Coffee is a concrete case. Cuba is well adapted to the growing of this crop, especially the provinces of Santa Clara, Pinar del Rio, and Oriente. Coffee growing has been encouraged by the Department of Agriculture and plantations have rapidly increased. By the fall of 1930 it appeared that the domestic output could without serious burden to consumers be made to satisfy domestic needs. Hence by decree of President Machado, issued on September Temporary authority so to raise the duty was conferred on the President by the Act of Feb. 9, 1926, and continued by the Act of March 8, 1929. 184 THE CUBAN SITUATION 3 of that year, the general tariff 4 was increased from $23.40 to $32 per 100 kilograms. Another government enterprise which has been prominent during the Machado administration, though not on the surface so directly contributory to the diversification program, is, in reality, indispensable to it. This is the great paved trunk highway from Havana to Santiago. If the farmers throughout the country are to supply the Cuban cities with food they must have access to them. At present, isolated as islands surrounded by sugar estates, they have not that access. When this main trunk-line is supplemented by tributaries to all parts of the Island the problem of moving the crops will be simplified. Moreover, the construction of good roads throughout the Island would directly promote one of Cuba's principal industries. No small part of her purchasing power is derived from American and other tourists. Good automobile roads would add greatly to the attractiveness of the Island to this class. In what has been said as to the wisdom of Cuba's diversifying her industries and becoming more nearly self-sufficing no inference is to be drawn as to the merits of protection and free trade as general principles. It is quite conceivable that in a free-trade world Cuba would be better off to concentrate on the production of sugar and exchange her sugar exports for the products of other countries. Such would be the teaching of the classical school of economists. But in a world so generally committed to protection, likely at any time without warning to raise the duties on Cuban sugar, Cuba relying to so great an extent on sugar ex'The Cuban tariff provides for three rates on each commodity, a maximum tariff, a general tariff, and a tariff applying to goods imported from the United States. The general tariff is half the maximum tariff. SUMMARY AND CONCLUSIONS 185 ports for the livelihood of her people is, as has already been noted, in a precarious position. The main conclusion of this study is that whatever may be said for or against the continuance of our treaty relations, this is not now Cuba's most important problem. The real problem relates to sugar. Until the sugar industry is put on a safe and sound basis, or until Cuba ceases to be dependent for her very life on the prosperity of that single industry, reciprocity and complete sovereignty are minor issues. APPENDICES APPENDIX A AMERICAN POLICY WITH RESPECT TO CUBA AS DEFINED BY SECRETARY ROOT (Extracts from a letter dated February 9, 1901, from Secretary Root to General Wood summing up the political interest which the United States has in the independence of Cuba, and affording the basis for a requirement in the Cuban constitution of a section which would give the United States the right to intervene to protect Cuban independence against any foreign power.) It seems to me that no one familiar with the traditional and established policy of this country in respect to Cuba can find cause for doubt as to our remaining duty. It would be hard to find any single statement of public policy which has been so often officially declared by so great an array of distingushed Americans authorized to speak for the government of the United States, as the proposition stated, in varying but always uncompromising and unmistakable terms, that the United States would not under any circumstances permit any foreign power other than Spain to acquire possession of the Island of Cuba. Jefferson and Monroe and John Quincy Adams and Jackson and Van Buren and Grant and Clay and Webster and Buchanan and Everett have all agreed in regarding this as essential to the interests and the protection of the United States. The United States has, and will always have, the most vital interest in the preservation of the independence which she has secured for Cuba, and in preserving the people of that Island from the domination and control of any foreign power whatever. The preservation of that independence by a country so small as Cuba, so incapable as she must always be, to contend by force against the great powers of the world, must depend upon her strict performance of international obligations, upon her giving due pro189 190 THE CUBAN SITUATION tection to the lives and property of the citizens of all other countries within her borders, and upon her never contracting any public debt which in the hands of the citizens of foreign powers shall constitute an obligation she is unable to meet. The United States has, therefore, not merely a moral obligation arising from her destruction of Spanish authority in Cuba and the obligations of the Treaty of Paris for the establishment of a stable and adequate government in Cuba, but it has a substantial interest in the maintenance of such a government. We are placed in a position where, for our own protection, we have, by reason of expelling Spain from Cuba, become the guarantors of Cuban independence and the guarantors of a stable and orderly government protecting life and property in that Island. Fortunately the condition which we deem essential for our own interests is the condition for which Cuba has been struggling, and which the duty we have assumed toward Cuba on Cuban grounds and for Cuban interests requires. It would be a most lame and impotent conclusion if, after all the expenditure of blood and treasure by the people of the United States for the freedom of Cuba and by the people of Cuba for the same object, we should, through the constitution of the new government, by inadvertence or otherwise, be placed in a worse condition in regard to our own vital interests than we were while Spain was in possession, and the people of Cuba should be deprived of that protection and aid from the United States which is necessary to the maintenance of their independence. APPENDIX B THE PLATT AMENDMENT (The text of this Amendment was embodied in the Cuban constitution on June 12, 1901, and was also made the basis of the Permanent Treaty between Cuba and the United States.) Provided, further, that in fulfillment of the declaration contained in the joint resolution approved April twentieth, eighteen hundred and ninety-eight, entitled "For the Recognition of the Independence of the People of Cuba, Demanding that the Government of Spain Relinquish Its Authority and Government in the Island of Cuba, and Withdraw Its Land and Naval Forces from Cuba and Cuban Waters, and Directing the President of the United States to Use the Land and Naval Forces of the United States to Carry These Resolutions into Effect," the President is hereby authorized to "leave the government and control of the Island of Cuba to its people" so soon as the government shall have established in said Island under a constitution which, either as a part thereof or in an ordinance appended thereto, shall define the future relations of the United States with Cuba, substantially as follows: I. That the government of Cuba shall never enter into any treaty or other compact with any foreign power or powers which will impair or tend to impair the independence of Cuba, nor in any manner authorize or permit any foreign power or powers to obtain by colonization or for military or naval purposes or otherwise, lodgment in or control over any portion of the Island. II. That said government shall not assume or contract any public debt, to pay the interest upon which, and to make reasonable sinking fund provision for the ultimate discharge of which the ordinary revenues of 191 192 THE CUBAN SITUATION the Island, after defraying the current expenses of government, shall be inadequate. III. That the government of Cuba consents that the United States may exercise the right to intervene for the preservation of Cuban independence, the maintenance of a government adequate for the protection of life, property, and individual liberty, and for discharging the obligations with respect to Cuba imposed by the Treaty of Paris on the United States, now to be assumed and undertaken by the government of Cuba. IV. That all acts of the United States in Cuba during its military occupancy thereof are ratified and validated, and all lawful rights acquired thereunder shall be maintained and protected. V. That the government of Cuba will execute, and, as far as necessary, extend the plans already devised or other plans to be mutually agreed upon, for the sanitation of the cities of the Island, to the end that a recurrence of epidemic and infectious diseases may be prevented, thereby assuring protection to the people and commerce of Cuba, as well as to the commerce of the southern ports of the United States and the people residing therein. 'VI. The Isle of Pines shall be omitted from the proposed constitutional boundaries of Cuba, the title thereto being left to future adjustment by treaty.' VII. That to enable the United States to maintain the independence of Cuba, and to protect the people thereof, as well as for its own defense, the government of Cuba will sell or lease to the United States lands necessary for coaling or naval stations at certain specified points to be agreed upon with the President of the United States. VIII. That by way of further assurance the government of Cuba will embody the foregoing provisions in a permanent treaty with the United States. 1 In accordance with a treaty signed March 2, 1904, the United States gave up to Cuba sovereignty to the Isle of Pines. The treaty was not ratified by the Senate until 1925. APPENDIX C RECIPROCITY CONVENTION BETWEEN THE UNITED STATES AND CUBA' The President of the United States of America and the President of the Republic of Cuba, animated by the desire to strengthen the bonds of friendship between the two countries. and to facilitate their commercial intercourse by improving the conditions of trade between them, have resolved to enter into a convention for that purpose, and have appointed their respective plenipotentiaries, to wit: The President of the United States of America, the Honorable General Tasker H. Bliss: The President of the Republic of Cuba, the Honorable Carlos de Zaldo y Beurmann, secretary of state and justice, and the Honorable Jose M. Garcia y Montes, secretary of the treasury; who, after an exchange of their full powers found to be in good and due form, have, in consideration of and in compensation for the respective concessions and engagements made by each to the other as hereinafter recited, agreed and do hereby agree upon the following articles for the regulation and government of their reciprocal trade, namely: ARTICLE I During the term of this Convention, all articles of merchandise being the product of the soil or industry of the United States which are now imported into the Republic of Cuba free of duty, and all articles of merchandise being the product of the soil or industry of the Republic of Cuba which are now imported into the United States free of duty, shall continue to be admitted by the respective countries free of duty. 1U. S. Statutes at Large, 58th Congress, 1903-1905, Vol. 33, pt. 2, pp. 2136-44. 193 194 THE CUBAN SITUATION ARTICLE II During the term of this Convention, all articles of merchandise not included in the foregoing Article I and being the product of the soil or industry of the Republic of Cuba imported into the United States shall be admitted at a reduction of 20 per cent of the rates of duty thereon as provided by the Tariff Act of the United States approved July 24, 1897, or as may be provided by any tariff law of the United States subsequently enacted. ARTICLE III During the term of this Convention, all articles of merchandise not included in the foregoing Article I and not hereinafter enumerated, being the product of the soil or industry of the United States, imported into the Republic of Cuba shall be admitted at a reduction of 20 per cent of the rates of duty thereon as now provided or as may hereafter be provided in the customs tariff of said Republic of Cuba. ARTICLE IV During the term of this Convention, the following articles of merchandise as enumerated and described in the existing customs tariff of the Republic of Cuba, being the product of the soil or industry of the United States imported into Cuba shall be admitted at the following respective reductions of the rates of duty thereon as now provided or as may hereafter be provided in the customs tariff of the Republic of Cuba: Schedule A To be admitted at a reduction of twenty-five (25) per centum: Machinery and apparatus of copper or its alloys or machines and apparatus in which copper or its alloys enter as the component of chief value; cast iron, wrought iron and steel, and manufactures thereof; articles of crystal and glass, except window glass; ships THE RECIPROCITY CONVENTION 195 and water-borne vessels of all kinds, of iron or steel; An whiskies and brandies; fish, salted, pickled, smoked or marinated; fish or shell-fish, preserved in oil or otherwise in tins; articles of pottery or earthenware now classified under Paragraphs 21 and 22 of the customs tariff of the Republic of Cuba. Schedule B To be admitted at a reduction of thirty (30) per centum: Butter; flour of wheat; corn, flour of corn or corn meal; chemical and pharmaceutical products and simple drugs; malt liquors in bottles; non-alcholic beverages; cider; mineral waters; colors and dyes; window glass; complete or partly made up articles of hemp, flax, pita, jute, henequen, ramie, and other vegetable fibres now classified under the paragraphs of Group 2, Class V, of the customs tariff of the Republic of Cuba; musical instruments; writing and printing paper, except for newspapers; cotton and manufactures thereof, except knitted goods (see Schedule C); all articles of cutlery; boots, shoes and slippers, now classified under Paragraphs 197 and 198 of the customs tariff of the Republic of Cuba; gold and silver plated ware, drawings, photographs, engravings, lithographs, chromolithographs, oleographs, etc., printed from stone, zinc, aluminum, or other material, used as labels, flaps, bands and wrappers for tobacco or other purposes, and all the other papers (except paper for cigarettes, and excepting maps and charts), pasteboard and manufactures thereof, now classified under Paragraphs 157 to 164, inclusive, of the customs tariff of the Republic of Cuba; common or ordinary soaps, now classified under Paragraph 105, letters "A" and "B," of the customs tariff of the Republic of Cuba; vegetables, pickled or preserved in any manner; all wines, except those now classified under Paragraph 279 (a) of the customs tariff of the Republic of Cuba. 196 THE CUBAN SITUATION Schedule C To be admitted at a reduction of forty (40) per centum: Manufactures of cotton, knitted, and all manufactures of cotton not included in the preceding schedules; cheese; fruits, preserved; paper pulp; perfumery and essences; articles of pottery and earthenware now classified under Paragraph 20 of the customs tariff of the Republic of Cuba; porcelain; soaps, other than common, now classified under Paragraph 105 of the customs tariff of the Republic of Cuba; umbrellas and parasols; dextrine and glucose; watches; wool and manufactures thereof; silk and manufactures thereof; rice; cattle. ARTICLE V It is understood and agreed that the laws and regulations adopted, or that may be adopted, by the United States and by the Republic of Cuba, to protect their revenues and prevent fraud in the declarations and proofs that the articles of merchandise to which this Convention may apply are the product or manufacture of the United States and the Republic of Cuba, respectively, shall not impose any additional charge or fees therefor on the articles imported, excepting the consular fees established, or which may be established, by either of the two countries for issuing shipping documents, which fees shall not be higher than those charged on the shipments of similar merchandise from any other nation whatsoever. ARTICLE VI It is agreed that the tobacco, in any form, of the United States or of any of its insular possessions, shall not enjoy the benefit of any concession or rebate of duty when imported into the Republic of Cuba. ARTICLE VII It is agreed that similar articles of both countries shall receive equal treatment on their importation into THE RECIPROCITY CONVENTION 197 the ports of the United States and of the Republic of Cuba, respectively. ARTICLE VIII The rates of duty herein granted by the United States to the Republic of Cuba are and shall continue during the term of this Convention preferential in respect to all like imports from other countries, and in return for said preferential rates of duty granted to the Republic of Cuba by the United States, it is agreed that the concession herein granted on the part of the said Republic of Cuba to the products of the United States shall likewise be, and shall continue, during the term of this convention, preferential in respect to all like imports from other countries. [Provided, That while this Convention is in force, no sugar imported from the Republic of Cuba, and being the product of the soil or industry of the Republic of Cuba, shall be admitted into the United States at a reduction of duty greater than 20 per cent of the rates of duty thereon as provided by the Tariff Act of the United States approved July 24, 1897, and no sugar, the product of any other foreign country, shall be admitted by treaty or convention into the United States, while this Convention is in force, at a lower rate of duty than that provided by the Tariff Act of the United States approved July 24, 1897.] 2 ARTICLE IX In order to maintain the mutual advantages granted in the present Convention by the United States to the Republic of Cuba and by the Republic of Cuba to the United States, it is understood and agreed that any tax or charge that may be imposed by the national or local authorities of either of the two countries upon the articles of merchandise embraced in the provisions of this Convention, subsequent to importation and prior 2 The Congress of the United States by Section IV, Paragraph B of the Tariff Act of Oct. 3, 1913, abrogated and repealed the proviso here set forth within brackets. 198 THE CUBAN SITUATION to their entering into consumption in the respective countries, shall be imposed and collected without discrimination upon like articles whencesoever imported. ARTICLE X It is hereby understood and agreed that in case of changes in the tariff of either country which deprive the other of the advantage which is represented by the percentages herein agreed upon, on the actual rates of the tariffs now in force, the country so deprived of this protection reserves the right to terminate its obligations under this Convention after six months' notice to the other of its intention to arrest the operations thereof. And it is further understood and agreed that if, at any time, during the term of this Convention, after the expiration of the first year, the protection herein granted to the products and manufactures of the United States on the basis of the actual rates of the tariff of the Republic of Cuba now in force, should appear to the government of the said Republic to be excessive in view of a new tariff law that may be adopted by it after this Convention becomes operative, then the said Republic of Cuba may reopen negotiations with a view to securing such modifications as may appear proper to both contracting parties. ARTICLE XI The present Convention shall be ratified by the appropriate authorities of the respective countries, and the ratifications shall be exchanged at Washington, District of Columbia, United States of America, as soon as may be before the thirty-first day of January, 1903, and the Convention shall go into effect on the tenth day after the exchange of ratifications, and shall continue in force for the term of five (5) years from date of going into effect, and from year to year thereafter until the expiration of one year from the day when THE RECIPROCITY CONVENTION 199 either of the contracting parties shall give notice to the other of its intention to terminate the same. This Convention shall not take effect until the same shall have been approved by the Congress. In witness whereof we, the respective plenipotentiaries, have signed the same in duplicate, in English and Spanish, and have affixed our respective seals, at Havana, Cuba, this eleventh day of December, in the year one thousand nine hundred and two. (SEALS) INDEX INDEX Annexation by United States, American attitude toward, 6, 15, 16 Cuban attitude toward, 10 expectations in regard to, 15 favored in South, 9 Philippine Islands and Porto Rico, 15 Antilla Sugar Company, 57 Atkins, E., 53, 55 Area, compared with other Latin American countries, 103-5 Bank failures, 1, 41, 56 Beet sugar, industry in Europe, 70-71, 82 production of in United States, 74 Blanco, Ramon, 14 Botellas, 41 British and American price indexes compared, 161 Brook, John R., 16 Business fluctuations in Cuba, 1 Campos, Martinez, 13 Capitalists, Cuban interests of American, 9 Chadbourne plan, 4, 91, 92, 178-80 Chadbourne, Thomas L., 91 Claret plan, 4, 88-91 Claret, Santiago, 88 Climate of Cuba, 49 Collapse of 1920, 41, 56 Colono, basis of payment to, 98, 153 helpless condition of, 97-100, 172-73 Commercial treaty, promise of, 22 "Comparative advantage" in sugar, 52 Conclusions, 173-85 Consumers' interests, 29 Constitution, Cuban, American demands accepted, 22 clause regarding relation to United States, 18 drafting of, 17 government under, s u p - ported by United States, 38 opposition to American demands, 21 provisions of, 21 Crop limitation, Cuban, 87 world, 179 Crops, 49 Crowder, Enoch H., 39 Crowder mission, 39-42 Cuba Cane Company, 54, 56, 93 Cuba Libre, 17, 18, 136 Cuban Dominican Company, 93 Cuban problem, bearing of American tariff on, 181 possible solutions of, 178-80 prosperity hangs on price of sugar, 164 situation in 1930, 173, 181 Cut-throat competition, 56 Czarnikow-Rionda Company, 54 "Dance of the Millions," 1 Dewey, George, 14 203 204 INDEX Diversification of industry, 4, 182-84 Domestic producers opposed to reciprocity, 28 Economic interest in Cuba, more important than political, 45 reasons for American, 7-10 European sugar duties, 84 Exports, Cuban, chief export products, 102, 132 free and dutiable goods to United States, 136 growth of, 108-9, 117 per capita, decline of, 117 production indicated by, 119 products other than sugar, 107-17, 136, 152 sugar, 107-17, 114, 125, 152 Exports, United States, rates of to Cuba, 141-44 Farm bloc, 75 Ferrara, Orestes, 44, 58 "Fighting Cabinet," 31 Florida, cession of, 6 Foreign capital in Cuba, 20, 107, 121 Foreign ownership of sugar industry causes "favorable balance of trade," 153-58 Foreign trade. See Exports and Imports Forest products declining, 119 France, Cuba not to fall into hands of, 7 Free trade, relation of, to Cuban situation, 184 with Cuba, recommended by General Wilson, 23 Garcia, Calixto, 37 General Sugar Company, 57 Germany, sugar cartel in, 84 G6mez, Jose Miguel, 1, 6, 32-40 G6mez, M&ximo, 15, 37 Gonzales, William Elliott, 37 Gonzales "notes," 36-38 Graft, 10, 41, 42, 45 Great Britain, Cuba not to fall into hands of, 7 Gulf, control of, 5 Gutierrez, Viriato, 88 Gutierrez plan, 4, 88, 91 Highway, great central, 44 Hamburg parity, 65-67 "Honest cabinet," 42 Imports, Cuban, classification of, 146 from United States, 144-49, 159-60 relation to exports, 149-53 Imports, United States from Cuba, 122-29, 145 Independence, sympathy with Cuban desire for, 6 Insular possessions fare better than continental United States, 78-81 Insurrection, in Cuba, bearing on American policy, 12, 45 of 1868, 11 under L6pez, 11 Intervention, American, 2, 19, 21 in 1898, reasons for, 5-12, 165 in 1906, 31-33 in 1912, negro uprising, 34, 35 in 1912, Veteranist movement, 33 in 1917, the Gonzales "notes," 36-39 in 1921, General Crowder's mission, 39-43 INDEX 205 Investments, foreign, in Cuba, American, 20-21, 52-58, 103 -6, 120, 136 non-American, 1, 21 Investors' interest in reciprocity, 27 Invisible trade, 163 Irrigation, 49 Isle of Pines, 23 Java, compared with Cuba, 49 Junta, Cuban, 13 Knox, Philander Chase, 33 Lansing, Robert, 37 Latin America, financial and commercial relations with United States, 104 Latin Americans, proneness to revolution of, 62 Liberals, 32-40 Limestone sub-soil in Cuba, 51 Loans to Cuba, 42-43 Louisiana sugar production, decline of, 74 Machado, Gerardo, administration of, 43-45 decree of Sept. 3, 1930, 183 -84 Magoon, Charles Edward, 32 -33 Maine, sinking of, 13-15, 18 Marti, Jose, 13, 18 McKinley, William, 18, 19, 20 Menocal, Mario Garcia, 35-41 Military rule, American, 16 -17, 22 Mill capacity, increase in, 57 Moratorium of 1920, 1, 42 Morris amendment, 26 Moria law, 34, 35 Nationalistic policies, effect of on Cuban sugar industry, 85 National Sugar Export Corporation, 4, 92 Natural resources, 8, 48 Negro labor importation, 99 -100 Negro uprising, 34 One-crop country, 2, 8, 136, 181 Palma, Tomas Estrada, 13, 18, 31, 32, 36, 43 Pearl of the Antilles, 7, 48 Permanent Treaty, 2. See also Platt Amendment drew American investments to Cuba, 169 present reasons for, 169 reasons for repeal, 176 reasons for retention, 177 resented by Cuba, 3, 44 Philippine Islands, 14 Platt Amendment, 18, 20, 23, 70, 73. See also Permanent Treaty American investment fostered by, 62-63 bearing of on sugar industry, 61, 63 business adjusted to, 3 helpful to Machado, 45 interventions under, 31 provisions of, 22, 166, 191 -92 resented by Cuba, 3, 44 Political basis for American interest in Cuba, 5-7, 45 Population, compared with other Latin American countries, 103-5 Porto Rico, 14 Press, American, and Weyler atrocities, 14 Price index numbers, British and American, 160-61 Prices. See under Sugar Products of Cuba, 49 206 INDEX Protection of life and property, reason for Platt Amendment, 20 Punta Alegre Sugar Company, 93 Rainfall in Cuba, 50 Ratooning, 8 Reciprocity bill in Congress, 26 conceded in return for Platt Amendment, 22, 23, 165 recommended, 24 Reciprocity Treaty, 2, 23, 26, 28, 165 a priori inferences as to effects of, 139-41 benefits of, 24, 65, 68-70, 107, 131, 167-68, 175 concession under, now nominal, 68-70, 107, 168 Cuba asks revision of, 3 effect of, 69, 133, 134, 135, 137, 138 abandoning, 163 depends on trade conditions, 63 on American business interests, 166 on exports to United States, 131-35 on imports from United States, 167 on prices, 63-64 excludes other foreign sugars from United States, 69 importance of less than supposed, 127, 137, 174 impotence, reasons for comparative, 137-38 magnitude of concession less important than magnitude of duty, 129-30 passage of, 29 provisions of, 30, 193 repeal, no strong reason for, 174-76 Reconcentrado camps, 13, 14 Recovery of economic prosperity, 49, 178-85 Refiners' interest in reciprocity, 27 Revolution of 1895, 12 Rionda, Manuel, 54 Roosevelt, Theodore, 14, 25, 32 advocates reciprocity, 25 Root, Elihu, 21, 27 advocates reciprocity, 24 letter to General Wood, 189 -90 statement of American policy, 19 Rural population, condition of, 1, 97-100, 172-73 Slavery, abolition of, 11 South hopes to extend into Cuba, 9 Soil, fertility of, 49, 51 Spanish rule, conditions under, 10, 20 Sugar, area under cultivation, 95-96 basis of prosperity and Achilles' heel, 52, 173 boom period of 1920, 54 exports of to United States, 60 export trade in, 58. See also Exports prices, fall of, following Acts of 1921 and 1930, 75, 93 promedio, 54, 71, 72, 76 -78, 154, 156 refined granulated, 77-78 rise of, following Acts of 1922, 75, 76 trend of, 1923-1930, 76, 77 production of, 8, 50, 52-53, 78-81. See also Sugar industry Sugar industry, adapted to mass production, 63 INDEX 207 American investment in and control of, 4, 20-21, 52-58, 73, 103-6, 120 collapse of in 1920, 1, 73, 74 concentration of, 95-96 early position of, 107 economic life determined by 2, 150-60, 171 effects on other Cuban industries, 102, 121, 170 foreign trade dominated by, 4, 150-60, 171 growth of, 52, 61, 73-101, 107, 121 integration of, 55, 94 negro labor imported, 99 rural population and, 1, 4, 94-100, 172-73 treaty relations and, 4, 46 vital factor in Cuban problem, 185 world conditions, and, 100 world war and, 4 Sugar estates, prices paid for, 55 owners' difficulties, 172 Sugar trust, 29 Summary, 165-73 Taft, William H., 32 Tarafa, Jose Miguel, 88 Tariff, normal effect of, 86 Tariff Commission, study of Cuban and German sugar prices, 65-68 Tariff legislation in Europe, 84 Tariff legislation in United States, Act of 1921, 55, 75, 85, 160 -62 Act of 1922, 75, 82-83, 85, 160-62 Act of 1930, 93 bearing on Cuban problem, 181 Temperature in Cuba, 49 Tense position of Cuba in 1931, 46 "Ties of peculiar intimacy," 2 Tobacco, producers' attitude toward reciprocity, 28, 29 imports into Cuba not subject to Reciprocity Treaty, 30, 196 Treaty relations. See Platt Amendment and Reciprocity Treaty bearing on sugar industry. 170 effects of, 137, 163 United States, attitude toward intervention, 45 attitude toward permanent treaty, 45-46 threat of seizing Cuba, 7 United States Tariff. See Tariff legislation in United States. Veteranist movement, 33 Walling, William English, 43 Warner Sugar Company, 55 War of Independence, termination of, 15 Weyler, Valeriano, 13, 16, 18 Wholesale price index numbers, 1920-1929, 160-61 Wilson, Woodrow, 38, 41 Wood, Leonard, 16, 19, 21, 24, 27 World control of sugar industry, 4, 88, 91, 92, 178-80 World demand, 4, 180 World War, benefited American beetsugar producers, 74 effect on Cuban sugar industry, 70, 72 Zayas, Alfredo, 35, 36, 39, 40; 42 PUBLICATIONS OF THE BROOKINGS INSTITUTION * INSTITUTE OF ECONOMICS SERIES ( 1.) GERMANY'S CAPACITY TO PAY. By Harold G. Moulton and Constantine E. McGuire. 384 pp. 1923. $2.50. (2.) RUSSIAN DEBTS AND RUSSIAN RECONSTRUCTION. By Leo Pasvolsky and Harold G. 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