Lessons From the United Fruit Company

Americans puzzling over the role of today’s powerful corporations may profit from considering the example of the United Fruit Company.

Americans puzzling over the role of today’s powerful corporations—Bain Capital, Goldman Sachs, Google—may profit from considering the example of the United Fruit Company.

It seems almost quaint to think that a company specializing in bananas might have once been considered a capitalist giant on the level of today’s firms, but so it was—at its height in the first half of the last century, United Fruit owned one of the largest private navies in the world. It owned 50 percent of the private land in Honduras and 70 percent of all private land and every mile of railroad in Guatemala.

A new account of United Fruit and one of its leading figures, Samuel Zemurray, is to be published June 5 by Farrar, Straus and Giroux. The book, by Rich Cohen, is called The Fish That Ate The Whale: The Life And Times Of America’s Banana King. It usefully reminds us of some of the wonderful things about capitalism, and some of the dangers, too.

There is the opportunity it offers for upward mobility. Samuel Zemurray came to America from Bessarabia, in Western Russia, in 1892 at age 14 or 15, with nothing but his brain and ambition. He eventually took over United Fruit and made a fortune estimated at $30 million back in the days when that was a genuinely vast fortune. He lived in a New Orleans house with a third-floor ballroom complete with a pipe organ and a crystal chandelier; the building now serves as the residence of the president of Tulane University.

There is the efficiency. Zemurray got started in the banana business by figuring out how to distribute “ripes,” the freckled bananas that were thrown away as useless discards before Zemurray figured out the logistics of fast-moving rail distribution.

There is the bias-free marketing creativity. Mr. Cohen reports that United Fruit “stationed an agent at South Ferry terminal in New York, where the Ellis Island Ferry landed. Handing a banana to each immigrant who came off the boats, the agent said, ‘Welcome to America!’ This was to associate the banana with the nation.”

There is the egalitarianism. The banana companies figured out they could make more money by lowering prices and making bananas a fruit for mass consumption rather than a scarce and expensive luxury.

There is the technological innovation. Anyone laboring under the misapprehension that improvements in agricultural productivity are entirely the result of the federal Agriculture Department’s cooperative extension service can learn from Mr. Cohen’s account of Samuel Zemurray’s banana-farming innovations: selective pruning, silting, the use of spillways and canals for drainage, staking, overhead irrigation.

There is the decentralization. When Zemurray took over United Fruit and turned it around, he told Fortune magazine, “I realized that the greatest mistake the United Fruit management had made was to assume it could run its activities in many tropical countries from an office on the 10th floor of a Boston office building.” Hayek would be proud.

And there are the philanthropic fruits of capitalism—Zemurray used his money and power to fund both Tulane university and the effort to help World War II-era Jewish refugees get to what became Israel.

And the United Fruit story also reminds us of some of the hazards when capitalism becomes cronyism. The book recounts all the Washington insiders hired by Zemurray as lobbyists, including Tommy “the Cork” Corcoran. A business that lives by Washington is finally at its mercy, as United Fruit learned when the antitrust cops came after it.

It’s all something to remember the next time you peel a banana.

Ira Stoll is editor of FutureOfCapitalism.com and author of Samuel Adams: A Life.

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  • Nyarlathotep||

    Thanks, Ira. The book's been added to my reading list.

  • robc||

    It usefully reminds us of some of the wonderful things about capitalism, and some of the dangers, too.

    ...

    And the United Fruit story also reminds us of some of the hazards when capitalism becomes cronyism.

    That 2nd sentence is accurate, the first, not so much. Cronyism isnt a problem with capitalism. Cronyism is a problem when people wont stick to capitalism.

  • VG Zaytsev||

    Not exactly.

    Cronyism is a problem with people period.

    The genius of free markets isn't profit. People have loved profit and looked for special advantages since the beginning of recorded history.

    The genius of free markets is competition and failure, especially failure. Which real world competitors surprisingly hate. At a fundamental level, free markets are anti-business and anti-profit. It's not surprising at all that businessmen, that are seeking to maximize their profit after all, will subvert free markets, in their favor, to the extent that they are able.

  • Sevo||

    "free markets are anti-business and anti-profit."

    VERY interesting view.
    I'll ask you define "business" as you use it.
    But the market is absolutely anti-profit. As soon as there is a visible profit, someone else jumps in and cuts that profit to as low as return allows. To the benefit of the buyers.

  • VG Zaytsev||

    I'll ask you define "business" as you use it.

    Engage in an activity for profit.

    My statement was intentionally provocative. However, consider a relatively free market like airline travel which is notoriously non unprofitable. All of the proposed "solutions" in that market involve some form of cartelization, with restrictions on competition, consumer choice and higher consumer prices. All to improve the profitability of the existing players.

  • VG Zaytsev||

    OK to much Vodka tonight.

    I meant anti-business as a counter point to the pro-business politicians that demonstrate their love of business via various regulations and giveaways and the businessmen that love to take them.

  • Sevo||

    "However, consider a relatively free market like airline travel which is notoriously non unprofitable."

    Nope.
    Not disagreeing (yet) with your point, but the airlines are hardly a 'free' market.
    UAL can fly to X, since UAL has negotiated gate privileges at X with government airport agency Y.
    I wish, and Carter's (?) dereg of them lowered prices, but they ain't a 'free' market.

  • Just Dropping By||

    UAL would have to negotiate for gate privileges at X even if the airport at X was 100% privately owned and operated.

    Modern airports are capital intensive structures that need a huge ground footprint regardless of who operates them and they are subject to network effects (i.e., the more routes that converge at any given airport, the more valuable every other route to that same airport becomes). Consequently, there are high barriers to entry into the airport market and strong market pressures that will assure a very small number of airports will exist in a given metropolitan area and that the number of gates is less than perfectly elastic.

    Furthermore, even if we assume UAL did not have to negotiate for gate access at X, how would that improve UAL's profitability in your example? Gate fees are a fairly minor part of airlines' operating expenses.

  • Sevo||

    VG Zaytsev|5.28.12 @ 11:12PM|#
    {I'll ask you define "business" as you use it.}
    "Engage in an activity for profit."

    DISAGREED!
    The market is nothing other than someone engaging in an activity for profit. If the market was anti-business by your definition, the Soviet Union would be healthy instead of defunct.

  • VG Zaytsev||

    Agreed,

    I mispoke, meant it as a counterpoint in the political sense, as in politicians claiming to be pro-business.

  • Bill||

    Free markets are pro-consumer as prices tend to drop with time due to competition. So not anti-business exactly but I see your point.

  • yonemoto||

    Sevo: not true. There is definitely a market for non-profits, and even for-profits will engage in anti-profit activity (if temporarily, to be sustainable) in the pursuit of something else, say market share, goodwill, etc. The market is nothing other than someone engaging in trade of money for goods and services.

  • JW||

    At a fundamental level, free markets are anti-business and anti-profit.

    Only if you suck at your core business.

    Cronyists want guaranteed profits, no matter whose pole they have to grease, which the greasees are only too happy to oblige.

    There's your problem. Without scumbag politicians, cronyists would, rightly, go under and never bother us again.

  • VG Zaytsev||

    Only if you suck at your core business.

    Not at all.

    Every business benefits from restricting its competition. And businesses exist to generate profits for their owners not as some philosophical exercise.

  • JW||

    Every business benefits from restricting its competition.

    That's only if you believe that the market is a pie that can only be cut in to equally sized pieces.

    In a strong or growing market, competitors can increase your profits by generating greater demand for a product sector in general (see Android, Apple, Windows Phone) or provide a service that wasn't yours for the taking to begin with (think competing TV shows in the same time slot--I wasn't going to watch what was on CBS to begin with, but there's a show on AMC that I will watch. CBS loses nothing.)

  • Sophist||

    Uh, you do realize that you didn't actually refute VG Zaytsev's claim, right? Like, at all? You don't have to think the market is a zero sum game to realize restricting your competitors benefits you. Just look at the economic history of the US. It's full of companies using their influence to restrict competition, and profiting enormously from it. Your claim is just obviously false.

  • JoshSN||

    And that's why Adam Smith said to pretty much never trust a law coming from a businessperson (nowadays, all our laws come from corporate lobbyists, it seems)


    To widen the market and to narrow the competition is always the interest of the dealers... The proposal of any new law or regulation of commerce which comes from this order, ought always to be listened to with great precaution, and ought never to be adopted, till after having been long and carefully examined, not only with the most scrupulous, but with the most suspicious attention. It comes from an order of men, whose interest is never exactly the same with that of the public, who have generally an interest to deceive and even oppress the public, and who accordingly have, upon many occasions, both deceived and oppressed it.

    Final passage of Smith's The Wealth of Nations.

  • Sevo||

    JW|5.28.12 @ 10:58PM|#
    "At a fundamental level, free markets are anti-business and anti-profit."

    "Only if you suck at your core business."
    ----------------------------
    Disagreed re: Profit. AFAIK, only one business (Alcoa) had the expertise to actually 'market-out' competitors. It did so by cutting costs and prices to keep competitors out. The winner was the consumer.

  • Rasilio||

    DeBeers.

    And they did it by pretty effectively cornering the market on supply of Diamonds along with some pretty brillian marketing to turn what should be a relatively worthless rock into a valuable commodity

  • DJF||

    What, no mention of Zemurracy's innovative overthrow of the Guatemalan and Honduran governments and the installation of new governments which gave him concessions

  • Sevo||

    I'm not disagreeing, but do you have a link or some evidence of what happened?

  • plu1959||

    I don't know the answer to your question, but the Wikipedia entry appears to be pretty good.

  • Sevo||

    Actually, it doesn't. There's a lot of claims back-and-forth, but not a lot of evidence. I may have missed it; got any direct links?

  • plu1959||

    It looks like you will have to go to print resources.

  • GILMORE||

    http://en.wikipedia.org/wiki/1.....lan_coup_d'état

    The land-reform of Decree 900 especially threatened the agricultural monopoly of the United Fruit Company, the multinational corporation that owned 42 per cent of the arable land of Guatemala; which landholdings either had been bought by, or been ceded to, the UFC by the military dictatorships who preceded the Árbenz Government of Guatemala. In response to the expropriation of prime-farmland assets, the United Fruit Company asked the U.S. governments of presidents Harry Truman (1945–53) and Dwight Eisenhower (1953–61) to act diplomatically, economically, and militarily against Guatemalan President Jacobo Árbenz Guzmán.[1]
    ...
    The paramilitary invasion, Operation PBSUCCESS (1953–54) featured El ejército de liberación an “army of liberation” recruited, trained, and armed by the CIA, 480 mercenary soldiers under the command of Colonel Carlos Castillo Armas, an exiled Guatemalan army officer

    Its pretty interesting reading. Something similar happened in Honduras as well.

    Hard-lefties have long made 'united fruit' the poster child for all Capitalism, and 'imperialistic corporate exploitations of teh brown people', etc. While overblowing the case broadly, when talking about united fruit...well, they actually have a point.

  • JoshSN||

    Not sure if I count strictly as a hard-lefty, but it wasn't just United Fruit, from Major General Smedley Darlington Butler:


    I helped make Mexico, especially Tampico, safe for American oil interests in 1914. I helped make Haiti and Cuba a decent place for the National City Bank boys to collect revenues in. I helped in the raping of half a dozen Central American republics for the benefits of Wall Street. The record of racketeering is long. I helped purify Nicaragua for the international banking house of Brown Brothers in 1909-1912 (where have I heard that name before?). I brought light to the Dominican Republic for American sugar interests in 1916. In China I helped to see to it that Standard Oil went its way unmolested.

    From a talk Butler gave called "On Interventionism."

  • 35N4P2BYY||

    Here is a pretty good book that has a section devoted to United Fruit. As well as detailing one of the pretty good reasons that Iranians are pissed at us. I detect a leftist bent to some of the writing but there is lots of good information within.

  • Robert||

    Any of you partial to the idea, as I am, that they were mostly defending their rights against democracy? Wish we could do that in the advanced countries.

  • perlhaqr||

    "Concessions" like "not taking 40% of the land they owned"?

    Those monsters.

  • Jesse Walker||

    "Concessions" like "not taking 40% of the land they owned"?

    How do you think the company came to own that land? Not through anything like an open marketplace.

    The United Fruit Company relied heavily on land grants and government contracts to build its empire. It has always been cronyist at its core.

  • Randian||

    You sure you want to go down that road? Because if so, we shouldn't have banned White Indian.

  • Randian||

    How do you think the company came to own that land? Not through anything like an open marketplace.

    IOW, they acquired it in accordance with the laws of the sovereign country in which they operated.

  • Jesse Walker||

    IOW, they acquired it in accordance with the laws of the sovereign country in which they operated.

    I would not describe the United Fruit Company as a consistently law-abiding enterprise. Anyway, if mere legality is your standard, you don't have much cause to complain if they lose the land the same way.

  • affenkopf||

    So you're ok with private businesses using eminent domain? It's in accordance with the laws a sovereign country.

  • Juice||

    From what I understand, any land that was taken was uncultivated and they were paid the amount assessed (by UFCo) for taxation purposes. They were paid $650k for the land but they protested and wanted $16 million. Btw, the land was given/sold to them by previous military dictatorships, that were practically run by UFCo. They didn't get what they wanted from the government so they started to organize a coup in 1954, with the help of the CIA, to overthrow the president.

    1954 Guatemalan coup

    So they got their land back, and then banned labor unions. But they also paid their workers better than any other company in the region. Also, this is one of the things that inspired Che Guevara to be all communist and shit.

  • Robert||

    Who had the better claim to that land?

  • mcc1789||

    The peasants who actually homesteaded and worked it?

  • Big Jim||

    Or for a more accurate account see:

    http://www.ratical.org/ratvill.....acket.html

  • Sevo||

    Big Jim|5.28.12 @ 6:31PM|#
    "Or for a more accurate account see:

    http://www.ratical.org/ratvill.....acket.html"

    That takes me to a page entitled "War is a Racket". I don't disagree, but if there's something there that applies to this issue, please link it.

  • tarran||

    IIRC Smedley Butler was an officer on some expeditions where the U.S. Marines were sent into Honduras to protect United Fruit 'interests'.

    He devotes a couple of lines of his famous speech 'War is a Racket' to it.

    BTW, it's always awesome to throw that speech at the 'if you ain't a warmonger you're an America hatin
    coward' crowd. Because then they have to call a Major General in the Marine Corps with two CMOH's a coward. :)

  • robc||

    CMOH

    No such thing.

    Its an MOH.

  • JoshSN||

    He also had a Marine Corps Brevet Medal, was made Major General when that was the highest rank in the Marine Corps, was the son of a Congressman, joined the Marines illegally at the age of 16 with an eagle, globe and anchor already tattooed over his chest, and was never made Commandant because he said impolitic things about Mussolini, something like "He's a real warmonger."

  • Anacreon||

    At first I thought United Fruit Company was the band that did the song "Simon Says". Turns out that was the 1910 Fruitgum Company.

    Somebody should sue, those names are too close.

  • GILMORE||

    "Reason is just shilling for Big Banana"

    ....I actually do agree with DJF above, in that talking about United Fruit *and not even mentioning* the seamier side of their history seems at the least to be willfully omitting inconvenient facts. At least give them credit for inventing the reality of the "Banana Republic".

  • Libertymike||

    Mr. Stoll's account is ripe for criticism.

  • Sevo||

    OK, let's hear it.

  • Brutus||

    Whoosh!!

  • plu1959||

    I think we need to unpeel this story.

  • GILMORE||

    dealing with the history of bananas can be slippery business when you simply deal with surface-level issues.
    (boom!)

  • Jake W||

    It's quite easy to peel apart his argument.

  • Jake W||

    When it comes to criticism, us Reasonites can really Dole out the punishment.

  • sloopyinca||

    This whole thread is nuts. No, wait...

  • Sevo||

    WIH does anyone like bananas? Peel 'em, throw away the bone, and there's not a lot left to eat.

  • Lucretio||

    That's it, I can't take this smarmy sarcasm, I'm gonna split.

  • Jake W||

    Smarmy? I think it comes off as fruity more than anything else.

  • GILMORE||

    Orange you glad I didn't say Banana?

  • SIV||

    LSD CANNIBALISM! 4 SIMILAR CASES! "LSD" BATH SALTS !

    Aguilar said the case also serves as a warning to drug dealers.

    “If you are selling this LSD to people, unsuspecting people, on the street and somebody ends up dying as a result, you will be charged."

  • Sevo||

    Back on-topic, I'm asking specific questions, since like most folks, I was taught that the Homestead strike deaths were the result of management hiring the Pinkertons.
    Well, read ppg 141-193 of Standiford's "Meet You in Hell". He's no capitalist tool, but it turns out the union thugs attacked the Pinkertons.
    So maybe United Fruit is really guilty of some of the claims. OK, let's see the evidence.

  • R. Franklin Carter||

    The United Fruit Company's role in prompting the U.S. government to overthrow the Arbenz government in Guatemala in 1954 is well known.

    I'll recommend Bitter Fruit (Anchor Books, 1983) by Stephen Schlesinger and Stephen Kinzer as a detailed source of information.

    Libertarians will find much to criticize in the Arbenz government's land reform, but President Arbenz looks like Jesus Christ when he is compared with the U.S.-backed Guatemalan military dictators who followed him.

  • jdgalt||

    Didn't we fight a war or two in Central America for the benefit of United Fruit? The fact that you didn't even mention it stinks to high heaven.

  • Juice||

    It's almost Sotssel-esque.

  • Juice||

    motherfucker!

    you know who I mean

  • sweeterjan||

    ack on-topic, I'm asking specific questions, since like most folks, I was taught that the Homestead strike deaths were the result of management http://www.lunettesporto.com/ hiring the Pinkertons.
    Well, read ppg 141-193 of Standiford's "Meet You in Hell". He's no capitalist tool, but it turns out the union thugs attacked the Pinkertons.

  • John Galt||

    Nothing's tastier than a blood banana.

  • db||

    United Fruitcake Outlet?

  • Pubic Lice||

    Another reason FAIL. You FAIL to mention the lesson of this company purchasing the CIA to overthrow democratically elected governments in south america. Small detail I know but....

  • MacKlingon||

  • MacKlingon||

    http://www.ratical.org/ratvill.....racket.pdf

    This man was awarded two Medals Of Honor.

  • JoshSN||

    The book is nice, but this URL is shorter to type, and gets to the point faster fas.org/man/smedley.htm.

  • Dr. Thaddeus Tingleberry||

    I think this is what they used to call 'bullshit.'

    Zemurray was a Zionist so he was a great guy, that's basically it, eh, Stoll?

    Meh, doesn't make him a bad guy, of course, but I'm not sure your presentation of his life and work and how he affected the life and work of others is fair or balanced, my good man.

    WWII refugees is always good copy. Of course they were also shipping over Czech guns in preparation to kick out the Arabs by hook or crook... but it's tough to admit both the good and the bad when you only want to construct rather than uncover historical truth, wot?

    dum dee dum.

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