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.