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Concessions as a Modernizing Strategy in the Dominican Republic

Published online by Cambridge University Press:  14 April 2011

Cyrus Veeser
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In the late 1800s, Latin American modernizers faced major obstacles to economic growth. In the Dominican Republic, elites embraced concessions as a policy to attract foreign capital to infrastructure, industry, and cash-crop agriculture. In contrast to Mexico, where concessions were public and impersonal but failed to create viable firms, Dominican concessions were public, yet corrupt, formally opposed to monopoly, yet prone to convey exclusive privileges. Dominican modernizers recognized that concessions created “monopolies that are always a hateful tyranny,” yet found no better way to attract investment. Only after the United States took control of Dominican finances in 1905 were the “burdensome” contracts canceled as an “impediment to future progress.”

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Articles
Information
Business History Review , Volume 83 , Issue 4 , Winter 2009 , pp. 731 - 758
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Copyright © Harvard Business School 2009

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References

1 The classic articulation of Latin America's predicament is Coatsworth, John H., “Obstacles to Economic Growth in Nineteenth-Century Mexico,” American Historical Review 83 (Feb. 1978): 80–100.CrossRefGoogle Scholar

2 Led by Douglass C. North, historians of the “new institutional economics” have explored the ways that socially constructed environments raise or lower transaction costs and thus contribute to stubborn economic disparities among nations. Institutional structures in less developed nations, North observes, lock in patterns “that promote redistributive rather than productive activities, that create monopolies rather than competitive conditions, and that restrict opportunities rather than expand them.” The nature of institutions, elites, and polities in the developing world means that simply “transferring the formal political and economic rules of successful Western market economies to Third World … economies is not a sufficient condition for good economic performance.” North, Douglass C., Institutions, Institutional Change and Economic Performance (New York, 1990), 9, 54, 58CrossRefGoogle Scholar; “The New Institutional Economics and Third World Development,” in The New Institutional Economics and Third World Development, ed. Harriss, John et al. (New York, 1995), 25Google Scholar; and “Economic Performance Through Time,” American Economic Review 84 (June 1994): 366, 367.

3 Maurer, Noel, “Banks and Entrepreneurs in Porfirian Mexico: Inside Exploitation or Sound Business Strategy?” Journal of Latin American Studies 31 (May 1999): 331, 360–61.CrossRefGoogle Scholar

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10 Beatty observes that the Industrias Nuevas concession program created only one new firm every two years and thus “had little or no impact on the growth of industrial output in Mexico.” Beatty, , Institutions and Investment, 149.Google Scholar

11 Fomento “handled the contracts, concessions, and subsidies granted by the federal gov ernment” to promote economic development; “the awarding of contracts by the Department of Fomento was the chief area of official favoritism.” Coerver, Don M., “The Perils of Progress: The Mexican Department of Fomento during the Boom Years, 1880–1884,” Inter-American Economic Affairs 31 (Autumn 1977): 44, 58.Google Scholar See also Humberto Moreno, Morales, “Economic Elites and Political Power in Mexico, 1898–1910,” Bulletin of Latin American Research 15, no. 1 (1996): 111–19.CrossRefGoogle Scholar

12 “All of Mexico's new manufacturing enterprises with capitalization in excess of 100,000 pesos operated under some form of federal concession that gave them tax-exempt status…. If an entrepreneurial group was politically well connected and was important enough to the state, it could get the federal government to make it the sole concessionaire.” Haber, , Indus try and Underdevelopment, 91.Google Scholar

13 Beatty, , Institutions and Investment, 133,138.Google Scholar

14 Caja 3, exped. 6; caja 18, exped. 1; caja 9, exped. 1; caja 25, exp. 5, serie Industrias Nue vas, fondo Fomento y Obras Públicas, in the Archivo General de la Nación, Mexico, hereafter cited as Industrias Nuevas.

15 Caja 35, exped. 5; caja 25, exped. 5, Industrias Nuevas. Beatty finds that “Fomento's narrow definition of novelty limited the program's impact to a small number of potential firms.” Beatty, , Institutions and Investment, 149.Google Scholar

16 Beatty notes that Mexico's revised patent laws primarily rewarded foreign companies, while tariff policy allowed large-scale industries to undercut artisans and other small produc ers. Beatty, , Institutions and Investment, 130–31, 194.Google Scholar

17 Beatty, , Institutions and Investment, 69Google Scholar, 149–52, 156–57, 159. In the aftermath of the Mexican Revolution, Woodrow Wilson denounced “‘concessions’ to foreign capitalists in Latin America” in 1913. Wilson, “Address on Latin American Policy in Mobile, Alabama,” 27 Oct. 1913, in Collected Papers of Woodrow Wilson, ed. Link, Arthur S., vol. 28 (Princeton, 1978), 448–49.Google Scholar

18 Haber, , Razo, , and Maurer, , Politics of Property Rights, 35, 47.Google Scholar

19 As Douglass North put it, “How does one get the state to behave like an impartial third party?” North, , Institutions, 58.Google Scholar

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21 In imperial Brazil, foreigners worried that “their investment would be at risk of expro priation, if not through outright seizure, by the government reneging on its guarantees” or by injurious regulation. “Only when the government guaranteed [investors] a minimum return on their capital were funds forthcoming.” Summerhill, , Order against Progress, 41, 43, 173.Google Scholar

22 For elite views of the Dominican peasantry, see Turits, Richard Lee, Foundations of Despotism: Peasants, the Trujillo Regime, and Modernity in Dominican History (Stanford, 2003), esp. 25–79.Google Scholar

23 “The State has immense territories that have no value, while individuals own huge exten sions of land that lie without cultivation.” Gaceta Official 1214 (Santo Domingo, D.R.), Archivo General de la Nación, Santo Domingo, Dominican Republic (hereafter GO), 27 Nov. 1897, 2.

24 The University of Chicago was founded in 1891, and Laughlin left Cornell to chair the Economics Department there in 1892.

25 See the constitution of 1881 in Colección de Leyes, Decretos y Resoluciones, tomo 8 (Santo Domingo, 1929J,138,144.

26 Oiga (Santo Domingo), 14 July 1904, Archivo General de la Nación, Santo Domingo, Dominican Republic, hereafter AGN.

27 Priscilla Connolly analyzes how public works “made” the state, and vice versa, in her in troduction to Ferrocarriles y Obras Públicas, ed. Ficker, Sandra Kuntz and Connolly, Priscilla (Mexico, 1999), 141–64.Google Scholar

28 GO 558, 11 Apr. 1885, 1; GO 412, 6 May 1882, 3; and GO 508, 26 Apr. 1884, 3.

29 GO 518, 5 July 1884,3.

30 Of the hundreds of concessions granted from 1876 to 1899, only ten required that 50 percent or more of employees be Dominicans. The provision was included in only one con cession given after 1885. Author's database.

31 Haber, , Razo, , and Maurer, , Politics of Property Rights, 2Google Scholar; GO 1212, 13 Nov. 1897, 2.

32 GO 715, 5 May 1888,1.

33 GO 1212,13 Nov. 1897, 2.

34 GO 430, 9 Sept. 1882, 2.

35 See Beatty, , Institutions and Investment, 137–38.Google Scholar

36 Jacob Hollander to Paul M. Warburg, 3 Oct. 1912, box 7, Jacob Hollander Papers, U.S. National Archives, Washington, D.C. (hereafter Hollander Papers).

37 GO 649, 29 Jan. 1887, 2.

38 Edward Reed to Jacob Hollander, 9 May 1905, box 2, Hollander Papers.

39 GO 1380, 26 Jan. 1901, 3.

40 The most famous disputes, with the French-owned Banco Nacional and with the San Domingo Improvement Company of New York, led Paris and Washington to send in warships. See Veeser, Cyrus, A World Safe for Capitalism: Dollar Diplomacy and America's Rise to Global Power (New York, 2002), 85–87, 98–125.Google Scholar

41 Debate in GO 427, 19 Aug. 1882, 3; the revised law is Decreto 2035, 10 July 1882, in Colección de Leyes, Decretos y Resoluciones, tomo 8 (Santo Domingo, 1929), 274–75.

42 For an example of the elimination of exclusive privileges, see GO 805, 25 Jan. 1890,1.

43 Decreto 2225,10 May 1884, Colección de Leyes, tomo 8, 54–55.

44 In 1887 a committee criticized the “many and diverse” concessions granted by Con gress, “most of them onerous to the national interest and with no benefit to the development of industry or to consumers.” GO 658, 2 Apr. 1887, 3.

45 GO 817,19 Apr. 1890,1.

46 GO 713, 21 Apr. 1888, 4.

47 For discussion of the revised law, see sessions of 22 and 23 June 1891, in GO 895, 17 Oct. 1891, 2, and GO 896, 24 Oct. 1891,1–2.

48 Decreto 3060, 24 June 1891, Colección de Leyes, Decretos y Resoluciones, tomo 12 (Santo Domingo, 1929), 141–42.

49 For a nonexclusive concession, see Resolución 3010, 29 Apr. 1891; for an amended con cession with exclusive privilege restored, see Resolución 3168, 27 May 1892, both in Colec ción de Leyes, tomo 12, 74–75, 330–31. When they annulled the brewery's exclusive privilege in 1891, legislators noted that the provision violated the law of 1884; GO 879, 27 June 1891, 2.

50 On the reciprocity treaty of 1890, see Terrill, Tom E., The Tariff, Politics and American Foreign Policy (Westport, Conn., 1973).Google Scholar

51 Beatty, , Institutions and Investment, 135–36Google Scholar; GO 1212, 13 Nov. 1897, 2–3.

52 Another legislator warned against a concession that exempted a telegraph company from certain fees because “other companies that foment industries in the country will also want the same privileges, thus injuring the Fisc.” GO 436, 21 Oct. 1882, 1; GO 658, 2 Apr. 1887, 2.

53 GO 677, 13 Aug. 1887,3.

54 William Bass to Ulises Heureaux, 6 May 1898, Correspondencia Epistolar de Ulises Heureaux, May 1898, AGN.

55 Ulises Heureaux to William Clyde & Co., New York, 6 Feb. 1895, original in English, Co piadores de Ulises Heureaux, tomo 44, AGN.

56 Edward C. Reed to Ulises Heureaux, 21 Apr. 1896, Correspondencia Epistolar, Presidencia del General Ulises Heureaux, legajo 9, Marzo-Dic. 1896, AGN.

57 See memo titled “Conference with Captain Reed,” dated Macoris, 29 Apr. 1905, box 2, Hollander Papers.

58 See Veeser, , World Safe for Capitalism, 85–87.Google Scholar

59 William F. Powell to John Hay, 29 July 1899, in Foreign Relations of the United States, 1899 (Washington, D.C., 1901), 244, hereafter FRUS.

60 The economic reforms proposed by the Treasury minister were reviewed by a congres sional committee in the session of 2 Dec. 1899, in GO 1326, 20 Jan. 1900, 2–3.

61 GO 1355, 4 Aug. 1900, 2.

62 For examples, see Duin, Edgar Charles, “Dominican-American Diplomatic Relations, 1895–1907,” unpublished diss., Georgetown University, 1955.Google Scholar

63 William F. Powell to Juan F. Sanchez, Secretary of Foreign Affairs, 29 Nov. 1902, Des patches from U.S. Ministers to the Dominican Republic, vol. 7, Record Group 59, U.S. Na tional Archive, hereafter Despatches.

64 On the reduction of the soap tariff and the SDIC's objections to it, see GO 1331, 24 Feb. 1900, 2–3, and GO 1388, 23 Mar. 1901, 2.

65 In 1913, the U.S. customs receiver complained that the Dominican tariff schedule “prac tically prohibits the importation of … both bath and toilet soaps,” a policy that worked “to the detriment of American manufacturers particularly.” Sixth Annual Report, Dominican Customs Receivership, 1 Aug. 1912–31 July 1913, Office of the General Receiver of Dominican Customs, Santo Domingo, 1913, 21.

66 Memoria del Secretario de Estado de Relaciones Exteriores, GO 1335, 24 Mar. 1900, 4.

67 In his first official meeting with President Jimenes, U.S. diplomat W. F. Powell noted that “he spoke of the misrule in the Santo Domingo Improvement Company and the desire of the people of the Republic to cancel the concession given them.” Powell to John Hay, 18 Jan. 1900, FRUS, 1900 (Washington, D.C., 1902), 427.

68 On Ros concession, see Jacob Hollander, “Report on the Debt of Santo Domingo,” 59th Congress, 1st Sess., Executive Document No. 1.4, Washington, D.C., Exhibit F, 173.

69 William F. Powell to Secretary of State John Hay, 7 Feb. 1903, Despatches, vol. 7.

70 GO 1359,1 Sept. 1900,1.

71 William F. Powell to Juan F. Sánchez, secretary of foreign relations, 29 Nov. 1902, Despatches, vol. 7; Frank Schaffer to Thomas C. Dawson, 13 Sept. 1904, enclosure, Despatches, vol. 12.

72 Thomas Dawson to Secretary of State John Hay, 24 Sept. 1904, Despatches, vol. 12.

73 GO 1513,3 Oct. 1903, 3.

74 GO 1366, 20 Oct. 1900, 3.

75 GO 1334 Bis., 22 1900. 1900, 2.

76 Especially in the years 1904–05, the government rejected many applications for con cessions and canceled others whose terms had never been fulfilled by concessionaires. See GO 1560, 24 Sept. 1904,1, and GO 1589,15 Apr. 1905, 2.

77 Hollander, , “Report,” 46.Google Scholar

78 Hollander, , “Report,” 169–84.Google Scholar

79 On Hollander's ongoing role in Dominican finances, see Welles, Sumner, Naboth's Vineyard, vol. 2 (New York, 1928), 647–62.Google Scholar

80 Jacob Hollander to Secretary of State Robert Bacon, 30 Jan. 1909, box 6, Hollander Papers.

81 Third Annual Report, Dominican Customs Receivership, 1 Aug. 1909–31 July 1910, Bu reau of Insular Affairs, War Dept., Washington, D.C., 1910, 25.

82 W. E. PuHiam, general receiver of Dominican customs, “Final Report of the Transactions of the Dominican Customs Receivership under the Modus Vivendi, Covering the twenty-eight months, April l, 1905, to July 31, 1907,” in FRUS, 1907, Part 1 (Washington, D.C., 1910), 328.

83 Fenton R McCreery to Secretary of State, 8 July 1908, in FRUS, 1908 (Washington, D.C., 1912), 256, 263, 265.

84 Indeed, the Dominican constitution ratified in 1966 still included the traditional clauses permitting concessionary contracts. See Raymundo Guzman, Amaro, Constitución Dominicana 1966 (Santo Domingo, 1988), 16Google Scholar (Título IV, Sección V, Art. 37, No. 19) and 20 (Título V, Sección I, Art. 54, No. 10).

85 Third Annual Report, 25.

86 According to Acting Secretary of State Frank L. Polk in September 1915. See FRUS, 1915 (Washington, D.C., 1924), 324. For annual revenue, see Sixth Annual Report, 21.

87 Third Annual Report, 26.

88 The law was published in GO 2207, 8 July 1911, 1–3.

89 Fourth Annual Report, Dominican Customs Receivership, 1 Aug. 1910–31 July 1911, Bureau of Insular Affairs, War Dept. (Washington, D.C., 1911), 22–23.

90 Third Annual Report, 25–26.

91 “American officials justified the U.S. occupation on the grounds that the Dominican government had “violated” the Dominican-American Treaty of 1907 by increasing its internal debt. See FRUS, 1916 (Washington, D.C., 1925), 247.

92 Members of the Dominican Congress agreed to pay a dubious indemnization to the French-owned telegraph company in order to avoid damage to the country's reputation in Europe; GO 658, 2 Apr. 1887, 2.