The Era of Direct Domination (1914-1932)

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The Confirmation of United States Supremacy in Latin America William R. Keylor: The Twentieth Century World, pp.197-219

The Era of Direct Domination (1914-1932)

The Caribbean Sea was transformed into a veritable American lake between the end of the Spanish-American War and the beginning of World War I. Through a combination of financial supervision, commercial penetration, diplomatic agreements regulating regulations with foreign nations, and the occasional application of military force, the United States had acquired effective control of the political and economic systems of some of the islands in the Caribbean and the mainland republics of Central America that had achieved independence from their European colonial masters in the course of the nine­teenth century. The European powers, particularly Great Britain, acquiesced in this extension of American hegemony because their national energies were ab­sorbed by their own colonial rivalries in Africa and Asia as well as by the power struggles in Europe that resulted in the First World War. It was the war itself that confirmed American supremacy in the Caribbean region and facilitated the ex­pansion of American economic power to the continent of South America as well, for reasons presently to be discussed.

Historians have often remarked upon the irony that Woodrow Wilson, cham­pion of national self-determination and critic of his Republican predecessor’s “dollar diplomacy” in Latin America, conducted more military and diplomatic interventions south of the border than any American president before or since. It is apparent from his private observations as well as his public declarations that Wilson had genuinely persuaded himself of the essential morality of his inter­ventionist policies in the Caribbean: A passionate proponent of good govern­ment, he cringed at the widespread corruption, inefficiency, autocracy, and social unrest that was conspicuously in evidence among America’s southern neighbours. Just as he had sought to cleanse the political institutions of New Jersey and then of Washington, this progressive idealist set out to impose order, honesty, and ef­ficiency on the Caribbean republics for their own good.

But beneath this disinterested idealistic position lay the same preoccupation that had prompted the interventionist policies of Roosevelt and Taft in the era of Republican supremacy: the fear that political revolution, social instability, and financial collapse in the Caribbean region would tempt the great powers of Europe to intervene to protect the lives and investments of their citizens. The prospect of European powers militarily ensconced, or- even financially engaged, in a region critical to the security of the Panama Canal, which had been opened in the sum­mer of 1914 as the war clouds appeared in Europe, was more than any American president could tolerate.

And so, behind a smokescreen of progressive rhetoric about America’s obliga­tion to foster good government in its own hemisphere, Woodrow Wilson re­sumed the Roosevelt-Taft policies of military intervention and dollar diplomacy in Latin America. The first beneficiary of this new form of American heavy-handedness couched in the language of Wilsonian benevolence was Nicaragua. The Bryan-Chamorro Treaty (signed on August 5, 1914, and ratified two years later) transferred supervisory authority over the finances of that nation from American private banking interests to a commission controlled directly from Washington. The United States government advanced funds to the financially strapped Nicaraguan regime to reduce its public debt in return for an exclusive concession to construct a trans-Isthmian canal and to establish naval bases at its two termina.

The object of this agreement was to protect the northern land approach to the Panama Canal, preclude any future European-constructed canal along the alter­native Nicaraguan route, and rehabilitate the finances of this perpetually insol­vent nation so as to remove any possible pretext for European intervention. The American marine contingent that had been landed in 1912 was retained and aug­mented to provide the requisite armed support for the policy of financial reorga­nization then undertaken.

Similar instances of social unrest and financial instability in the adjacent states of the Dominican Republic and Haiti on the island of Hispaniola elicited similar intimations of European intervention and, consequently, a similar pre-emptive re­sponse from Washington. A default on foreign loans by the Dominican government in 1904 had resulted in the establishment of a cus­toms receivership in the hands of an agent, appointed by the president of the United States, who was empowered to distribute the customs receipts of Domini­can ports to foreign creditors. As in so many of previous and subsequent in­stances of American financial intervention in the Caribbean, this policy was mo­tivated by the obsession with removing any pretext for intervention by European nations on behalf of their aggrieved bondholders.

The rapid breakdown of social order and the attendant possibility of financial collapse in the Dominican Repub­lic during Wilson’s first term once again raised the prospect of European inter­vention in that beleaguered country. To avert such a possibility, the United States undertook to supervise national elections in 1914 and then to dispatch marines in 1916 to preserve order and assure American financial control.

In the contiguous Republic of Haiti, the possibility that Germany would ex­ploit that nation’s perennial political unrest and financial difficulties by seizing control of its customs houses to ensure the service of its huge foreign debt in­spired great unease in Washington, So too did the prospect of German naval bases in Haiti that would command the passage between Hispaniola and Cuba to the Panama Canal. When revolutionary disorders continued to rage, Wilson re­solved to act unilaterally to pre-empt any such European involvement in Haitian affairs.

Marines were dispatched in 1915 to protect foreign lives and property, American banks were persuaded to lend funds to the Haitian government to en­able it to consolidate and refund its foreign debt, an American financial adviser assumed control of the national finances, an American receiver-general was in­stalled to supervise the collection of customs receipts, and American military of­ficers took charge of the Haitian police forces. A new constitution (drafted by Assistant Secretary of the Navy Franklin D. Roosevelt) transformed Haiti into an American protectorate. In the same year the Wilson administration reintroduced military forces into Cuba (from which they had been withdrawn in 1909) and purchased the Danish West Indies (renamed the Virgin Islands) from Denmark under the implied threat of seizure, all in the interest of keeping the European belligerents out of the “American lake.”

Wilson’s most spectacular intervention in Latin America ironically took place in a nation that had been relatively well disposed to the United States and was scarcely in danger of falling under the sway of the European powers. Of all the nations of Latin America, Mexico had retained the most cordial relations with the United States since the end of the American Civil War. Resentment at the ter­ritorial losses to its northern neighbour in the mid-nineteenth century had been eased by the American government’s decisive role in pressuring France to withdraw its military forces from Mexico in 1867. This led to the overthrow by Mexican nationalists of the French satellite empire headed by the Austrian arch­duke Maximilian.

Between 1876 and 1910 Mexican dictator Porfirio Diaz eagerly solicited American capital investment in Mexican land, natural resources, railroads, and public utilities. But the Mexican Revolution of 1910-11 that ousted Diaz had plunged the nation into a social and political up­heaval that seriously menaced these American properties and investments. The assumption of dictatorial power by President Victoriano Huerta in February 1913 offended the democratic sensibilities of President Wilson, who withheld diplomatic recognition and attempted to topple the new Mexican strongman by permitting American arms shipments to his “Constitutionalist” enemies, who controlled most of the northern sector of the country.

The arrest in April 1914 of American sailors on shore leave in the Caribbean port of Tampico, though in fact nothing more than a spontaneous indiscretion by an overly zealous subordinate, was viewed in Washington as a retaliatory action by the Mexican president that deserved and required punishment. Consequently, American naval units occu­pied the port of Vera Cruz and war between the two countries was narrowly averted before a compromise settlement facilitated their evacuation seven months later. In March 1916 one of the Constitutionalist leaders, Pancho Villa, eager to provoke American intervention in the Mexican civil war so that he could unite his divided country against the common enemy to the north, launched a raid on an American border town in New Mexico.

In retaliation, Wil­son dispatched a punitive military expedition under General John J. Pershing deep into the Mexican interior in pursuit of the “bandit” leader. The ostensible purpose of this quixotic adventure was to impress upon the Mexicans the neces­sity of establishing a democratic government capable of preserving social order. After angry protests from the Mexican government and clashes with Mexican military forces, the American troops were finally withdrawn on February 5, 1917, two days after Washington’s severance of diplomatic relations with Berlin over the issue of unrestricted submarine warfare, which foreordained America’s intervention in the European war.

The Wilson administration’s resumption of the Roosevelt-Taft policy of mili­tary intervention and financial supervision in the Caribbean occurred at a time when the United States was rapidly expanding its economic power to the conti­nent of South America. In the aftermath of the Spanish American War, United States commercial and financial involvement in Latin America was concentrated almost exclusively in the neighbouring Caribbean islands and the nations of Cen­tral America. Between 1898 and 1914, American investment south of the border had increased from $320 million to $1.7 billion, with Mexico and Cuba together accounting for almost a third of the total.

Despite the beginning of American economic activity in the larger nations of South America, the foreign trade and financial relations of those republics were still centred on Europe. At the turn of the century, Great Britain was still the prime source of foreign capital for Latin America as a whole, its direct and portfolio investments in the region totalling $2.5 billion. By 1914 total British investment in Latin America had increased to about $3.7 billion, with Argentina and Brazil receiving 60 percent of the total and Chile, Peru, Mexico, and Uruguay taking most of the remainder. France be­came a major investor in Latin America after 1880, increasing its total commit­ment in the region threefold between 1900 and 1914 to $1.2 billion. Approxi­mately $900 million of German foreign investment was in Latin America by 1914, principally in Argentina, Brazil, Chile, and Mexico. Thus, at the beginning of the First World War, the value of Britain’s investment in the region roughly equalled that of her three principal foreign competitors combined.

Collectively, the major European economic powers supplied the Latin Ameri­can republics with the largest proportion of their investment capital and manu­factured products while receiving in exchange the bulk of their agricultural and mineral exports. But World War I abruptly severed these financial and commer­cial connections between Latin America and the old world. The British blockade and the German submarine campaign, together with the diversion of European industrial production, capita] investment, and merchant shipping to war-related purposes, deprived Latin America of the foreign trade and financial assistance that had previously flowed across the Atlantic.

Into the economic vacuum in Latin America produced by the reduction of Eu­ropean trade and investment during the war stepped the powerful, prosperous, neutral state from the north. American manufacturers captured markets previ­ously dominated by European exporters. American agricultural, mining, and pe­troleum interests wrested control of Latin American land and subsoil resources from British, French, and German firms. When Great Britain and France were forced to curtail their investments in Latin America in order to finance their war effort and German holdings in the region were either sold or confiscated, Ameri­can lenders promptly replaced their European competitors as the prime source of investment capital. During the war the dollar value of American investments in the region increased by about 50 percent. By the end of the war, the inflow of American capital had paved the way for the spectacular expansion of United States investment in and trade with Latin America during the 1920s as the Euro­pean powers found it impossible to regain their pre-war position as bankers and trading partners of the region.

The spurt of American investment in the economies of the Latin American re­publics after the war was facilitated by the passage in 1919 of the Edge Act, which authorized for the first time the establishment of foreign branches of American banking institutions. This legislation afforded American investors, who had previously been required to conduct their financial operations through the British banking system and its vast network of international affiliates, direct access to the money markets of the various Latin American states. Wall Street banks lent ever-increasing sums to national and municipal governments, as well as to private corporations, whose securities could no longer find a market in a Europe struggling to satisfy its own substantial capital requirements in the period of post-war reconstruction. During the second half of the 1920s Latin America absorbed 24 percent of the new capital issues floated for foreign account.

Accompanying this notable increase in United States portfolio investment in Latin American countries was a spectacular upsurge in direct investment. Channelled principally into electrical utilities, railroads, mining, petroleum, and tropi­cal plantation agriculture, American direct investment in Latin America in­creased almost threefold between 1914 and 1929. By the latter date it had come to represent 44 percent of total United States direct investment abroad. The com­bined total nominal value of American direct and portfolio investment in Latin America had more than doubled in the decade after 1919, while British invest­ments in the region remained roughly unchanged and those of France and Ger­many declined dramatically.

This strong investment position enabled the American financial community to acquire a large measure of control over the fiscal and monetary policies of the re­cipient nations. The effects of this economic power were naturally felt most di­rectly in those countries, such as Nicaragua, Haiti, and the Dominican Republic, whose financial institutions had come under direct American supervisory con­trol. But even such nominally independent states as Cuba, Brazil, Chile, and Venezuela became so dependent on American investment that most of their tax revenues were generated from economic activities directed by American banks and corporations. Decisions taken in the boardrooms of these American-based institutions often had an immediate and decisive impact on the budgetary poli­cies of Latin American governments (and therefore on the distribution of na­tional wealth).

The sharp increase of American capital investment in Latin America during the First World War transpired amid a remarkable expansion of inter-American trade. The three years of American neutrality hastened the process whereby the United States replaced Britain as the region’s principal trading partner for the reasons sketched above. After the war, operating under the provisions of the Webb-Pomerene Act (which exempted firms engaged in the export trade from the application of antitrust laws), American conglomerates con­tinued to supplant weaker European export firms in the Latin American market. United States exports to Latin America tripled in value from 1914 to 1929, and by the latter year accounted for almost 40 percent of the region’s total imports. In exchange for its sales of manufactured goods, the United States became the major customer for Latin America’s primary products (principally subsoil miner­als and tropical foodstuffs), taking almost a third of Latin America’s total ex­ports by the end of the 1920s.

In different circumstances this inter-American commercial relationship might have matured into a mutually beneficial exchange of surplus products between complementary economic systems. Instead, it degenerated into a neo-colonial re­lationship from which one party derived extensive benefits while the other be­came locked into a system of abject dependence. The unequal nature of inter-American trading patterns that emerged in the post-war period can be traced to several sources.

The first of these was the tendency of American firms and their financial backers to acquire through direct investment a controlling interest in the principal export industries of many Latin American nations. Examples of this overwhelming domination abound. American capital came to represent 92 per­cent of the total investment in Chilean copper mines. American oil companies, after forcing out their European competitors, acquired control of over half of Venezuela’s petroleum production. Two-thirds of the Cuban sugar crop was owned by American producing and refining corporations. Two American firms, the United Fruit Company and the Standard Fruit Company, together enjoyed a monopoly of the banana plantations of Guatemala, Honduras, Nicaragua, and Panama. This extraordinary degree of foreign ownership resulted in the repatria­tion of profits generated from the exploitation of these national resources rather than reinvestment in the infrastructure of the host country. This diverted scarce capital that might otherwise have financed projects of domestic economic devel­opment that would have increased the nation’s productive capacity and raised the standard of living of the indigenous population.

The second adverse feature of this pattern of inter-American commercial ex­change from the Latin American point of view was the propensity of United States direct investment to promote the intensive development of a single export crop or commodity in each country at the expense of product diversification. This tendency to “put all one’s eggs in one basket” rendered most Latin Ameri­can nations tragically vulnerable to the wild fluctuations of commodity prices that characterized the 1920s. When the world prices of sugar, coffee, copper, and other commodities dropped precipitously, as they frequently did during this pe­riod, the national economies for which exports of these primary products repre­sented virtually the only source of hard currency were plunged into severe crises.

Finally, the commanding share of the Latin American export trade acquired by the United States during and after the First World War created a relationship of dominance-subservience that naturally extended to other matters as well. The extent of this export dependence was to reach incredible extremes in some cases: In the year 1937 the United States was purchasing 80 percent of Cuba's exports, 88 percent of those of Honduras, and 91 percent of those of Panama. No nation whose domestic prosperity depended so heavily on unimpeded access to the American market could be expected to withstand pressure from Washington to adjust their foreign and internal policies to the requirements of the national inter­est of the United States.

Were the independent states of Latin America condemned to languish in a po­sition of perpetual subservience to their powerful northern neighbour? As noted earlier, the reduction of Europe's economic stake in Latin America as a conse­quence of World War I removed whatever advantage the Latin republics had de­rived from United States-European rivalry in the region. In light of the striking imbalance of economic and military power in the western hemisphere, the only alternative to a destiny of continual inferiority for the individual states south of the North American giant was progress toward the type of political and eco­nomic integration on a continental scale that the United States had achieved in North America.

Brazil's reluctance to spearhead a movement of Latin American solidarity in resistance to American hegemony left Argentina as the sole aspirant to such a position after the First World War. The special geographical and economic ad­vantage enjoyed by Argentina enabled it to adopt an independent posture in hemispheric affairs that frequently brought it into direct conflict with Washing­ton. Its geographical location at the southern extremity of South America ren­dered it less susceptible to American military and naval intimidation. Moreover, unlike any other South American country, its major exports (beef and grain) competed with rather than complemented American exports and therefore pre­cluded the type of cooperative economic relationship that had developed be­tween the United States and Brazil. On the contrary, American farmers obtained extensive tariff protection against Argentinean grain and Western ranchers were insulated against competition from Argentinean cattle in the form of a stringent sanitary prohibition of beef imports from regions infected by foot-and-mouth disease (a persistent condition in the pampas).

This closure of the American mar­ket impelled Argentina to preserve and extend its commercial relationship with Europe during the very period that her sister republics were submitting to the domination of American trade. As late as 1937, Argentina's imports from the United States accounted for only 16.1 percent of its total foreign trade while it received 59.1 percent of its imports from Europe. In the same year Argentina shipped only 12.8 percent of its exports to the United States compared to 74.3 percent to Europe. This European commercial orientation was reinforced by the presence of substantial numbers of first-generation immigrants in Argentina from countries of the old world (principally Germany and Italy) who retained close ties to their homelands. The combination of these geographical, economic, and cultural factors helped to place Argentina beyond the reach of American power in Latin America and enabled her to mount a spirited challenge to Ameri­can hemispheric hegemony.

The rallying cry of Argentina's campaign to organize Latin American senti­ment in opposition to United States domination was the ideology of pan-His­panic solidarity, which it trumpeted as a preferable alternative to the Pan-Ameri­can ideology that the United States had employed since the end of the nineteenth century as a means of mobilizing its Latin American clients. But in light of the patent inequality of power in the western hemisphere, the likelihood of Latin American solidarity and independence was problematical so long as the United States continued to enjoy the prerogative of intervening directly in the domestic affairs of Latin American nations to protect the lives of American citizens, pre­serve social order, and collect public debts from governments that refused to submit disputes with foreign investors to international arbitration.

Consequently, it was the issue of the right of intervention that became the focal point of the Argentinean-led assault on United States hegemony that enlivened the periodic Pan-American conferences of the 1920s. This prerogative, which was both generally recognized in international law and specifically codified in the Roosevelt Corol­lary of the Monroe Doctrine, was periodically reasserted by the American gov­ernment. The right of foreign intervention was deeply resented by the nations of Latin America as a humiliating limitation to national sovereignty much in the same way that the principle of extraterritoriality engendered fierce opposition in China. In vain did the southern republics endeavour to secure accep­tance by the United States of the Calvo Doctrine (after the Argentinian jurist Carlos Calvo), which asserted the principle of a sovereign state’s absolute immu­nity from external intervention and recognized the judicial system of the host na­tion as the final authority in disputes involving foreign citizens or corporations. Though most Latin American nations customarily inserted a “Calvo clause” in contracts signed with foreign investors (to preclude their appealing to their home governments for diplomatic support in disputes with the host government), the United States stubbornly declined to relinquish its right to intervene on behalf of its aggrieved citizens if the host country refused to arbitrate.

At the Havana Pan-Ameri­can Conference in 1928, in response to the introduction of a formal resolution prohibiting intervention, United States delegate Charles Evans Hughes mounted his country’s last defence of its absolute right to intervene in its hemisphere to preserve internal stability and national independence. That this dispute repre­sented more than mere legalistic wrangling was attested to by the conspicuous presence of American military forces in Nicaragua and Haiti as well as by the legal constraints on the sovereignty of Cuba and Panama that remained in force as the delegates deliberated.

In addition to this Latin American campaign on behalf of the doctrine of absolute non-intervention, there were other indications of mounting resistance to American hemispheric hegemony. The first of these was the refusal of most Latin American states to follow the lead of the United States in the First World War. In contrast to the British Dominions, which enthusiastically rallied to the side of the mother country and made important contributions to the British vic­tory, only eight of the twenty Latin American republics (of which seven were tiny Caribbean and Central American nations under direct American domina­tion) declared war on Germany. Such geographically strategic states as Mexico, Colombia, and Venezuela maintained a position of strict neutrality.

This spirit of independence from American foreign policy resurfaced in the post-war period. All of the Latin American republics joined the League of Na­tions at one time or another after that world body had been repudiated and shunned by the United States. Fifteen of them sat in the first Assembly of the League; the presidency of the Assembly was often occupied by a Latin American delegate; Latin American non-permanent seats in the League Council increased from one to three in the course of the 1920s. The very fact of Latin American membership and active participation in the international organization signified a defiant repudiation of the United States’ conception of a self-enclosed inter-American security system.

But Latin American efforts to employ the League as a counterweight to United States power in the western hemisphere were uniformly unsuccessful. It was precisely such a possibility that had inspired American in­sistence on the inclusion in the League Covenant of article 21, which specifically denied League jurisdiction over matters within the purview of the Monroe Doc­trine. Latin American attempts to persuade the League to repudiate this endorse­ment of American hegemony in the western hemisphere failed to budge the cau­tious European governments that dominated the League Council and were reluctant to antagonize the United States. As a consequence, the League was able to intervene in inter-American conflicts on only two occasions (and then only after having secured the prior approval of Washington), successfully in the Leticia conflict between Peru and Colombia (1932-35), unsuccessfully in the Chaco War between Bolivia and Paraguay (1928-38).

To recapitulate: Between 1914 and 1929 the United States definitively re­placed Great Britain as the dominant commercial and financial power in Latin America after having successfully challenged British diplomatic and naval su­premacy in the region at the end of the nineteenth century. Direct American mili­tary domination and financial control of Cuba, Panama, Haiti, the Dominican Republic, and Nicaragua, together with the acquisition of the Virgin Islands from Denmark, completed the process of domination of the Caribbean region begun before the First World War.

The establishment of undisputed strategic mastery of the Caribbean and economic preponderance in South America was facilitated by the weakening of European economic power in the western hemisphere dur­ing the war and then confirmed by the inability of the exhausted European states to recapture their prewar position in the 1920s. Latin American efforts to counter the southward advance of American power through some form of continental co­operation were frustrated by Brazil’s reluctance to renounce its privileged rela­tionship with the United States and the unwillingness of the other republics to follow Argentina’s lead in directly challenging American encroachments on Latin American sovereignty.

The promise of collective security represented by the League of Nations proved illusory because of the European powers hesita­tion to risk Washington’s displeasure by supporting the extension of the League’s protection to the nations within the inter-American security system formed and dominated by the United States.

The Era of Indirect Hegemony (1933-1945)

The United States’ acquisition of undisputed hegemony over Latin America dur­ing the First World War and the succeeding decade removed the traditional justi­fication for the employment of military force to forestall European intervention in the western hemisphere. This new situation of absolute immunity from transatlantic threats, which was confirmed by the abolition of the German navy at the Paris Peace Conference of 1919 and the limitations on naval construction adopted by the other maritime powers at the Washington Naval Conference of 1921-22, enabled Washington to adopt less overtly coercive means of preserving its position of hemispheric dominance. As Latin American criticism of heavy-handed American intervention and the legal principles on which it was based reached a crescendo toward the end of the 1920s, the direct methods of military force and diplomatic intimidation gradually gave way to a more subtle, but scarcely less effective, mechanism for maintaining control of the client states south of the border.

The first direct challenge to American power in Latin America was to come from the contiguous nation of Mexico, which had lost half of its territory to the United States in the middle of the nineteenth century, endured American military and naval interventions between 1914 and 1917, and seen most of its natural re­sources and valuable land fall into the hands of American investors and corpora­tions. Memories of past humiliations, mingled with the daily experience of eco­nomic subservience, rekindled resentment toward the powerful neighbour north of the Rio Grande. These long-suppressed grievances bubbled to the surface as the last contingent of American troops that had been dispatched southward by Presi­dent Wilson to combat “banditry” was withdrawn in February 1917 once the American chief executive was satisfied that representative government was about to be restored. It is supremely ironic that the democratic government that Wilson had insisted upon with such unbending determination proceeded in one of its first official acts to adopt a national constitution that contained a number of articles designed to liberate Mexico from the economic domination of foreign nations in general and the United States in particular.

The most controversial of these con­stitutional safeguards vested in the Mexican nation ownership of all the subsoil resources of the country (of which petroleum was indisputably the most valu­able). Soon thereafter this constitutional provision was judged by the Mexican government to apply retroactively: This signified the loss of title to hundreds of millions of dollars worth of oil reserves owned by American petroleum compa­nies. It is worth pausing to record that this unilateral action by the Mexican government constituted a landmark in the history of the relations between the devel­oped and the underdeveloped world; it was the first attempt by a country whose economic system had fallen under the de facto control of foreign interests to as­sert its prerogative to exercise exclusive legal authority over its own natural re­sources.

This unprecedented gesture of defiance did not immediately produce the de­sired result. The American government, under intense pressure from petroleum interests with extensive Mexican holdings, wielded every diplomatic weapon short of economic retaliation—including the policy of non-recognition—to in­duce Mexico City to reverse its course. A compromise of sorts was reached in 1923, whereby the United States acknowledged Mexico’s right to exercise au­thority over its subsoil resources in return for Mexican acknowledgment of (he legal sanctity of contracts held by American oil companies prior to the adoption of the 1917 constitution. A similar compromise was struck in 1927, following a temporary revival of the dispute over retroactivity, which remained in force until 1938. In the latter year the Mexican government settled the matter for good by expropriating the property of British, Dutch, and American oil companies after they refused to abide by the ruling of the Mexican judicial system in a labour dis­pute,

Efforts by the expropriated American oil companies to organize an interna­tional boycott of Mexican crude in retaliation failed because of the eagerness of Germany, Italy, and Japan to purchase this critical source of energy as their rear­mament programs got into high gear. American concern about the potential threat to national security posed by the development of intimate economic ties between Mexico and the Axis powers eventually took precedence over the parochial interests of the oil firms. A mutually acceptable agreement was signed a few weeks before Pearl Harbor whereby Mexico retained control of its oil re­serves in return for a promise of financial compensation to the dispossessed American companies. Having extracted this major concession from the United States, Mexico was to become a loyal supporter and supplier of the American war effort, in sharp contrast to its defiant posture of absolute neutrality during the First World War.

Mexico’s persistent (and eventually successful) campaign to reassert control of its national economic resources became an inspiration for burgeoning nation­alist movements in other Latin American countries, which brought increasing pressure to bear on their governments to challenge the United States’ refusal to acknowledge the prerogative of a sovereign nation to exercise political authority over people and property within its borders. We have seen how Latin American attempts to gain American recognition of this right at the Pan-American confer­ences of the 1920s met with failure. At the sixth conference of the American states in 1928, United States delegate Charles Evans Hughes’s reference to a “breakdown of government” as sufficient justification for American intervention seemed so broad and imprecise as to justify virtually unlimited interference in the domestic affairs of the sovereign states of Latin America.

Yet, by the early 1930s, the presence of American military forces in the Caribbean region had become a source of acute embarrassment to the United States as it endeavoured to mobilize world opinion against Japan’s expansionist policies in the Far East. The Japanese incursion in Manchuria had been officially justified by Tokyo as a necessary step to protect Japanese citizens and property endangered by Chinese lawlessness; such language was uncomfortably reminis­cent of the rationale invoked by the United States in defence of its military inter­ventions south of the Rio Grande. Sensitive to the mounting allegations of hypocrisy that emanated from the world community, the new administration of Franklin Roosevelt that took office in 1933 inaugurated a dramatic modification of the Latin American policy of the United States.

The groundwork for this change had been laid by the Hoover administration in 1930, when the State De­partment published a lengthy memorandum composed by Under Secretary of State J. Reuben Clark that repudiated the Roosevelt Corollary to the Monroe Doctrine as a justification for the American right of intervention in Latin Amer­ica. Though the Clark Memorandum was replete with qualifications and did not receive much serious attention from American officials, it heralded a new atti­tude toward inter-American relations that had begun to crystallize in Washing­ton. Before leaving office, the Hoover administration undertook a systemic revaluation of the interventionist policy that had been pursued by every Ameri­can president since Theodore Roosevelt.

In his inaugural address on March 4, 1933, Franklin Roosevelt declared that in the field of foreign policy he “would dedicate this Nation to the policy of the good neighbour who resolutely respects himself, and, because he does so, respects the rights of others.” There was no reason for his listeners to believe that this in­nocuous phrase applied specifically to Latin America since no geographical re­gion was mentioned in the speech. But a month later, speaking at the office of the Pan-American Union, the new American president mentioned the need for hemi­spheric cooperation in such conciliatory tones that commentators were soon hail­ing the new “Good Neighbor Policy” of the United States toward Latin America.

Later in 1933, at the seventh conference of the American states in Montevideo, Uruguay, this presidential rhetoric was translated into government policy. The new secretary of state, Cordell Hull, abruptly reversed a long-standing American policy by supporting a resolution prohibiting any nation in the western hemi­sphere from intervening “in the internal or external affairs of another.” By this historic act the Calvo Doctrine, resisted so long by the United States, was incor­porated in an official document endorsed by Washington. Though Hull insisted on reserving the rights of the United States conferred by international law, the American reversal at Montevideo marked a turning point in inter-American rela­tions.

Soon thereafter, the United States proceeded to relinquish, one by one, its treaty rights to intervene in the de facto protectorates in the Caribbean basin. During the first two years of the Roosevelt administration, American military forces were withdrawn from Nicaragua and Haiti. In 1934 the United States Sen­ate abrogated the notorious Platt Amendment of 1901, which had restricted Cuba’s treaty-making power and established the prerogative of American mili­tary intervention to protect Cuba’s independence and preserve domestic order. In July 1935 an agreement was concluded with the government of Haiti enabling it to regain control of its finances by purchasing the Haitian national bank from the National City Bank of New York. A year later a treaty with Panama terminated the American right of military intervention outside the Canal Zone (though Sen­ate ratification was delayed until 1939, when an exchange of notes authorized “emergency” military action by the United States to protect the canal).

The Roosevelt administration had thus resumed and accelerated the radical transformation of the traditional policy of the United States toward Latin Amer­ica initiated by President Hoover. By 1934 no American troops were stationed in the region (except at the military and naval bases retained in Guantanamo Bay, Cuba, and the Panama Canal Zone), Washington had specifically relinquished its claim to the right of intervention to protect persons and property. Financial su­pervision of Haiti, the Dominican Republic, and Nicaragua was phased out be­tween 1936 and 1940. Mexico had successfully nationalized American-owned petroleum properties without suffering the effects of American retaliation. It truly seemed that the previous relationship of dominance and subservience be­tween North and Latin America had been replaced by a relationship of equality and mutual respect.

But the modification of American policy toward Latin America was more ap­parent than real. While the Good Neighbor Policy terminated the practices of military intervention and financial supervision, it replaced this discredited diplo­macy of the gunboat and the dollar with a more indirect form of American con­trol.

In essence this consisted of the utilization of non-coercive means of enlisting the assistance of indigenous political, military, and business elites in preserving the United States’ grip on the economic resources of the region. The judicious use of American Export-Import Bank loans to tie the economic systems of the individual Latin American republics even more closely to the American econ­omy, the training and equipping of national constabularies to suppress social in­surrection against pro-American regimes, and financial assistance to autocratic governments to balance budgets and stabilize currencies—these were the alterna­tive means for perpetuating American hegemony once the employment of direct military force and financial control were abandoned.

The experiences of Nicaragua and the Dominican Republic furnish typical illustrations of this evolution from direct to indirect control. The United States had retained military forces in Nicaragua from 1912 to 1933 (except for a brief inter­lude in 1925-26). During the last years of the American occupation, American officials trained and equipped a national guard to assume the function of preserv­ing internal security upon the withdrawal of American troops. After the Ameri­can evacuation in 1934, Cesar Augusto Sandino, leader of the rebel forces that had been harassing American marines throughout the twenties, signed a truce with the Nicaraguan government only to be murdered by members of the na­tional guard. Two years later the head of the American-trained security forces, General Anastasio Somoza, seized power and instituted a dictatorial regime that brutally repressed revolutionary elements in the country and maintained close re­lations with the United States. The Somoza family remained in power either directly or through puppets until being overthrown by the ideological heirs of Sandino in 1979.

A similar transfer of power from American military occupation authorities to an American-trained indigenous elite occurred in the Dominican Republic. After ruling that nation under martial law since 1916, the United States withdrew its military forces in 1924 after establishing a national constabulary to replace the departing marines. In 1930 General Raphael Trujillo, who had moved up the ranks of the national guard to become its chief in 1928, assumed the presidency after a fraudulent electoral campaign. With the financial assistance of American sugar interests, the National City Bank, and the government in Washington, Tru­jillo ruled his country with an iron hand for the next thirty-one years until his as­sassination in 1961. Within a few days after Pearl Harbor all four of the former American protectorates—Nicaragua, Cuba, Haiti, and the Dominican Repub­lic—displayed their continuing loyalty to the United States by declaring war on Japan, Italy, and Germany.

In conclusion, it may be said that Franklin Roosevelt abandoned the “big stick” first wielded by his cousin in the years before World War I for a number of economic and strategic reasons. First of all, the economic recovery of the United States in the depths of the Depression required guaranteed and continuous access to the raw materials and markets of Latin America. This became all the more im­portant as the revival of economic nationalism and the increased likelihood of war in Europe and Asia threatened to disrupt American trade with those distant continents.

Second, the rearmament of Germany, not to speak of the increasing belligerence of Italy and Japan, revived the long-dormant issue of foreign inter­ference in the Americas. In order to counter this new menace posed by the infor­mal “unholy alliance” of Nazi Germany, Fascist Italy, and Imperial Japan, the United States sought to strengthen the peacekeeping machinery of the Pax Amer­icana. But the traditional methods of military coercion and diplomatic intimida­tion had been rendered increasingly difficult to countenance in the face of sus­tained resistance from the Latin American republics and the accusations of hypocrisy from the world community. By substituting indirect for direct methods of hemispheric domination, the Roosevelt administration cast off the embarrass­ing albatross of old fashioned imperialism. It was thereafter free to act as the de­fender of peace and national sovereignty in the world at large as well as to mobi­lize its clients in Latin America in a hemispheric security system based on the voluntary cooperation of juridically equal nations.

After the announcement of German rearmament and the Italian invasion of Ethiopia in 1935, the United States government launched its first initiative aimed at establishing a system of hemispheric solidarity amid the collapse of collective security across the Atlantic. On January 30, 1936, President Roosevelt proposed the convocation of a special inter-American conference to devise procedures for protecting the western hemisphere from the new threat to world peace brewing in Europe. At this conference, held in Buenos Aires in December 1936, the Ameri­can and Argentinian delegations clashed head on over the question of how such hemispheric security could best be assured. Foreign Minister Carlos Saavedra Lamas of Argentina, the leading proponent of Latin American resistance to United States domination, trotted out a proposal for cooperation with the League of Nations to implement sanctions against aggressor states anywhere in the world. Predictably, the Argentine plan struck at the very heart of the Pan-American ideology propounded by the United States. It linked the security of the west­ern hemisphere to the international organization headquartered in Europe, domi­nated by the European powers and repudiated by the United States.

The American plan, introduced by Secretary of State Cordell Hull, preserved the principle of Pan-American ism by seeking to organize the republics of the Ameri­cas in a common defence of hemispheric security. It proposed the creation of an inter-American consultative committee comprising the foreign ministers of the twenty-one republics, which would be authorized to hold consultations during international emergencies. In the event of war involving any of the member states, the neutral nations of the Americas would be obliged to enforce an em­bargo of credits and arms supplies on all belligerents.

Determined Argentine opposition to this United States effort to circumvent the League of Nations by establishing an exclusively inter-American security system meant that the idea of an embargo was dropped. Also added was the Special Protocol Relative to Non-intervention, which overrode the Hull reservation to the Montevideo resolution by prohibiting any of the signatories from intervening “directly or indirectly, and for whatever rea­son,” in the internal or external affairs of the others.

In the two years after the Buenos Aires Conference of December 1936, the de­teriorating political situation in Europe sharpened the need for co-operation in the Americas. Most ominous of all was the apparent increase of Axis-inspired subver­sion in those Latin American states, such as Argentina, Brazil, and Uruguay, with substantial numbers of first-generation immigrants from Germany and Italy. Hitler’s agents had seized control of the major organizations and publications of the Latin Americans of German descent. The resulting upsurge of subversive activity in these countries was accompanied by a propaganda broadside launched from Berlin in the form of radio broadcasts, press subsidies, and cultural exchange programs that was aimed at promoting Latin American support for German foreign policy. In the meantime, the Nazi regime made a determined effort to improve Germany’s eco­nomic position in the region through the granting of foreign credits to and the conclusion of barter agreements with a number of Latin American states.

In the aftermath of the Munich Conference, the Roosevelt administration began to exert pressure on the Latin American republics to tighten the bonds of hemispheric solidarity in the face of the threat of war in Europe and the increase in German political and economic activity in the Americas. At the Eighth Con­ference of the American States in Lima, Peru, in December 1938, Secretary of State Hull obtained unanimous consent to a pledge of joint cooperation to defend against “all foreign intervention or activity” that might threaten any of the twenty-one American republics.

To facilitate the process of joint consultation en­dorsed at the Buenos Aires Conference, a consultative organ composed of the foreign ministers of the signatory states was formed to handle emergencies. As was customary, Argentina resisted this United States-inspired movement toward closer hemispheric cooperation and held out for the maintenance of close rela­tions with Europe; but the mounting anxiety in Latin America about the threat of a European war enabled Secretary Hull to win the day, helped by the Argentine dele­gate having prematurely stalked out of the con­ference.

The consultative machinery established by the Declaration of Lima was first put into operation in response to the outbreak of the European war in September 1939. The first ad hoc meeting of the foreign ministers, held in Panama Septem­ber 23-October 3, 1939, produced a series of recommendations that were unmis­takably detrimental to the Axis and favourable to the Anglo-French cause. These included the proscription of domestic activities on behalf of any belligerent state (a measure aimed at German and Italian nationals residing in Latin America) as well as the revision of maritime legislation to enable neutral ports in the western hemisphere to receive armed merchant ships (thereby affording an advantage to Great Britain’s large surface fleet) and to exclude belligerent submarines (thereby discriminating against the principal naval weapon of Germany). Less successful was the Panama conference’s designation of a neutral zone around the western hemisphere extending several hundred miles from shore as far north as Canada. This presumptuous redefinition of the laws of naval warfare deterred none of the European belligerents as they launched the Battle of the Atlantic in the winter of 1939-40.

In addition to passing these blatantly anti-Axis resolutions, the Panama con­ference strengthened the existing machinery of hemispheric solidarity by creat­ing an inter-American Financial and Advisory Committee to promote economic cooperation among the American republics. Behind the euphemism of inter-American cooperation lay a concerted (and ultimately successful) campaign waged by the United States to reduce Latin American trade with the Axis powers and to reserve for itself the markets and the strategic raw materials of the region.

This American effort to forge a hemispheric economic bloc was the culmination of a long and bitter trade dispute that had threatened to undermine United States commercial predominance in Latin America. During the second half of the 1920s, the traditionally protectionist Republican administrations in Washington had resisted Latin American initiatives, led by Argentina, to eradicate artificial trade barriers (such as the notorious sanitary prohibition that excluded most Ar­gentine beef from the American market). The Hawley-Smoot Tariff of 1930 placed additional obstacles in the path of Latin American exports to the United States. This upsurge of American protectionism ultimately forced many of the states of Latin America (with Argentina typically leading the way) to turn to Eu­rope for alternative trading partners.

It was in response to this threat to inter-American commercial relationships that American Secretary of State Hull promoted his pet project for the reciprocal lowering of trade barriers to revive foreign commerce in the midst of the Depres­sion. Though originally proposed to all of the major trading partners of the United States, the lack of enthusiasm on the part of the European powers (which were busy forming autarkic trade zones out of the extensive territory under their political control) caused Hull to concentrate on reducing trade barriers between the United States and the twenty other American republics. The United States Congress passed the Reciprocal Trade Agreements Act in June 1934, which authorized the president to negotiate recip­rocal reductions in tariff duties with individual countries. During the last half of the 1930s a number of such bilateral agreements were signed with the nations of Latin America. This lowering of barriers to trade, together with the extension of commercial credits by the Export-Import Bank, forged a tight-knit commercial relationship between the United States and its Latin American clients that inten­sified the economic solidarity of the western hemisphere.

The second conference of foreign ministers of the American states, held in Havana July 21-30, 1940, authorized the seizure and joint administration by the American re­publics of any European possession judged to be in danger of falling into hostile hands. The most momentous act of the Havana conference was the Declaration of Reciprocal Assistance and Cooperation for the Defense of the Americas, which defined an act of aggression by a non-American state against any one of the twenty-one republics as an act of aggression against them all. This declara­tion in effect represented the formal multilateralization of the Monroe Doctrine. The principle of regional collective security, based on the mutual consent of the twenty-one American republics, thereby replaced the unilateral prerogative of the United States to prevent foreign intervention in the hemisphere.

Even before the entry of the United States in the Second World War, it be­came apparent that American military authorities were prevailing in their bu­reaucratic struggle with the advocates of a genuinely multilateral or collective security system for the defence of the hemisphere. The Roosevelt administration concluded bilateral defence agreements with the strategically situated republics within the United States’ defence perimeter such as Mex­ico and Brazil to coordinate those two countries’ contribution to hemispheric defence. Negotiations were begun with Brazil and several states in the Caribbean region to secure air and naval base facilities for the United States to supplement those obtained in the British possessions in the new world by virtue of the de­stroyers-for-bases exchange of September 1940. American military and naval missions were dispatched southward to assist the individual states in their defence preparations while Latin American army and navy officers were invited to either the United States or the Panama Canal Zone for training. Lend-lease agreements for the delivery of military supplies were eventually signed with every Latin American nation except Argentina and Panama (which received American aid under a separate arrangement for the protection of the canal zone).

The behaviour of Latin America as a whole after the United States’ entry in the Second World War exhibited a coop­erative spirit unprecedented in the history of inter-American relations. In contrast to the First World War, all of the twenty republics of Latin America eventually followed the United States into war, although Chile and Argentina held out until the last minute. At the third conference of foreign ministers in Rio de Janeiro, January 15-28, 1942, all of the American republics except Argentina and Chile severed diplomatic relations with the Axis powers, undertook to cooperate in the suppression of German espionage in the Americas, and adopted an extensive program of inter-American economic coordination and the pooling of strategic materials. Strategically located states such as Ecuador, Brazil, and the Caribbean republics eventually furnished base facilities to American military and naval forces, which accommodated over 100,000 United States troops by the end of the war.

These developments collectively reflected the unequal distribution of inter-American military and economic power that had been evident for so long. Notwithstanding the ubiquitous references to multilateral cooperation and collec­tive security in the rhetoric of American officials concerned with Latin America during the war, the Roosevelt administration engineered the military build-up in the western hemisphere according to the specific strategic requirements of the United States. The most notable exception to the general trend toward bilateral­ism in the United States’ security relations with its Latin American clients was the establishment in 1942 of the Inter-American Defense Board. But that sole surviving symbol of the State Department’s original project for multilateral hemispheric defence was reduced to an innocuous advisory role as the United States military establishment pursued its preferred policy of bilateral links with the military elites of the individual states to the south.

But Latin America’s most important contribution to the war effort was eco­nomic rather than military. Under the procurement programs drawn up by the War Department in Washington, the Latin nations were induced to step up pro­duction of raw materials essential to the struggle against the Axis and to export them northward at artificially low prices in exchange for the provision of Export-Import Bank loans. This emergency program of wartime production led to the al­most total reorientation of the economies of the Latin American states toward the United States, placing them in a position of great dependence on the American market for the specific strategic commodities involved. Once the demand for these war-related exports abruptly declined after 1945, most of the supplier countries were condemned to endure a painful readjustment to peacetime condi­tions. In the meantime, the reciprocal trade agreements (which reduced Latin American tariff barriers to United States exports) and Export-Import Bank loans strengthened the bilateral commercial ties between each of the individual Latin American countries and their powerful and prosperous neighbour to the north at the expense of the region’s former trading partners in war torn Europe and Asia. Thus the Second World War and the intense inter-American cooperation it gen­erated reinforced the long-term trend toward United States dominance of eco­nomic relations in its hemisphere and launched the process of bilateral military cooperation between the armed services of the individual Latin states and their sources of military aid and training in Washington.

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