• TABLE OF CONTENTS
HIDE
 Title Page
 Acknowledgement
 Table of Contents
 List of Tables
 List of Figures
 Abstract
 Introduction
 The social context
 Business groups of the coast
 Business groups of the Sierra
 The business associations
 The structure and dynamics...
 Camilio Ponce Enriquez
 Jose Maria Velasco Ibarra
 The administration of Carlos Julio...
 Summary and conclusions
 Appendices
 References
 Biographical sketch






Title: Political decision making in Ecuador: the influence of business groups
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Permanent Link: http://ufdc.ufl.edu/UF00097670/00001
 Material Information
Title: Political decision making in Ecuador: the influence of business groups
Physical Description: xi, 378 . : illus. ; 28cm.
Language: English
Creator: Hanson, David Parker, 1939-
Publisher: University of Florida
Place of Publication: Gainesville, Fla.
Publication Date: 1971
Copyright Date: 1971
 Subjects
Subject: Business and politics -- Ecuador   ( lcsh )
Politics and government -- Ecuador   ( lcsh )
Political Science thesis Ph. D   ( lcsh )
Dissertations, Academic -- Political Science -- UF   ( lcsh )
Genre: non-fiction   ( marcgt )
 Notes
Thesis: Thesis--University of Florida.
Bibliography: Bibliography: leaves 359-377.
Additional Physical Form: Also available on World Wide Web
General Note: Manuscript copy.
General Note: Vita.
 Record Information
Bibliographic ID: UF00097670
Volume ID: VID00001
Source Institution: University of Florida
Holding Location: University of Florida
Rights Management: All rights reserved by the source institution and holding location.
Resource Identifier: alephbibnum - 000125483
oclc - 01573364
notis - AAP1456

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Table of Contents
    Title Page
        Page i
        Page ii
    Acknowledgement
        Page iii
        Page iv
    Table of Contents
        Page v
        Page vi
    List of Tables
        Page vii
        Page viii
    List of Figures
        Page ix
    Abstract
        Page x
        Page xi
    Introduction
        Page 1
        Page 2
        Page 3
        Page 4
        Page 5
        Page 6
        Page 7
        Page 8
        Page 9
        Page 10
        Page 11
        Page 12
        Page 13
    The social context
        Page 14
        Page 15
        Page 16
        Page 17
        Page 18
        Page 19
        Page 20
        Page 21
        Page 22
        Page 23
        Page 24
        Page 25
        Page 26
        Page 27
        Page 28
        Page 29
        Page 30
        Page 31
        Page 32
        Page 33
        Page 34
        Page 35
        Page 36
        Page 37
        Page 38
        Page 39
        Page 40
        Page 41
        Page 42
        Page 43
        Page 44
    Business groups of the coast
        Page 45
        Page 46
        Page 47
        Page 48
        Page 49
        Page 50
        Page 51
        Page 52
        Page 53
        Page 54
        Page 55
        Page 56
        Page 57
        Page 58
        Page 59
        Page 60
        Page 61
        Page 62
        Page 63
        Page 64
        Page 65
        Page 66
        Page 67
        Page 68
        Page 69
        Page 70
        Page 71
        Page 72
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        Page 76
        Page 77
        Page 78
        Page 79
        Page 80
        Page 81
        Page 82
        Page 83
        Page 84
        Page 85
        Page 86
        Page 87
        Page 88
        Page 89
    Business groups of the Sierra
        Page 90
        Page 91
        Page 92
        Page 93
        Page 94
        Page 95
        Page 96
        Page 97
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        Page 99
        Page 100
        Page 101
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        Page 109
        Page 110
        Page 111
        Page 112
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        Page 114
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        Page 116
        Page 117
        Page 118
        Page 119
        Page 120
        Page 121
        Page 122
        Page 123
    The business associations
        Page 124
        Page 125
        Page 126
        Page 127
        Page 128
        Page 129
        Page 130
        Page 131
        Page 132
        Page 133
        Page 134
        Page 135
        Page 136
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        Page 163
        Page 164
        Page 165
        Page 166
        Page 167
        Page 168
        Page 169
        Page 170
    The structure and dynamics of government
        Page 171
        Page 172
        Page 173
        Page 174
        Page 175
        Page 176
        Page 177
        Page 178
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        Page 192
        Page 193
        Page 194
        Page 195
        Page 196
        Page 197
        Page 198
        Page 199
        Page 200
        Page 201
        Page 202
        Page 203
        Page 204
    Camilio Ponce Enriquez
        Page 205
        Page 206
        Page 207
        Page 208
        Page 209
        Page 210
        Page 211
        Page 212
        Page 213
        Page 214
        Page 215
        Page 216
        Page 217
        Page 218
        Page 219
        Page 220
        Page 221
        Page 222
        Page 223
        Page 224
        Page 225
        Page 226
        Page 227
    Jose Maria Velasco Ibarra
        Page 228
        Page 229
        Page 230
        Page 231
        Page 232
        Page 233
        Page 234
        Page 235
        Page 236
        Page 237
        Page 238
        Page 239
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        Page 243
        Page 244
        Page 245
        Page 246
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        Page 248
        Page 249
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        Page 257
        Page 258
        Page 259
        Page 260
        Page 261
        Page 262
        Page 263
        Page 264
        Page 265
        Page 266
        Page 267
        Page 268
        Page 269
        Page 270
        Page 271
        Page 272
        Page 273
        Page 274
    The administration of Carlos Julio Arosemena Monroy
        Page 275
        Page 276
        Page 277
        Page 278
        Page 279
        Page 280
        Page 281
        Page 282
        Page 283
        Page 284
        Page 285
        Page 286
        Page 287
        Page 288
        Page 289
        Page 290
        Page 291
        Page 292
        Page 293
        Page 294
        Page 295
        Page 296
        Page 297
        Page 298
        Page 299
        Page 300
        Page 301
        Page 302
        Page 303
        Page 304
        Page 305
        Page 306
        Page 307
        Page 308
        Page 309
        Page 310
        Page 311
        Page 312
        Page 313
        Page 314
        Page 315
        Page 316
    Summary and conclusions
        Page 317
        Page 318
        Page 319
        Page 320
        Page 321
        Page 322
        Page 323
        Page 324
        Page 325
        Page 326
        Page 327
        Page 328
        Page 329
        Page 330
        Page 331
        Page 332
        Page 333
        Page 334
        Page 335
        Page 336
        Page 337
    Appendices
        Page 338
        Page 339
        Page 340
        Page 341
        Page 342
        Page 343
        Page 344
        Page 345
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        Page 348
        Page 349
        Page 350
        Page 351
        Page 352
        Page 353
        Page 354
        Page 355
        Page 356
        Page 357
        Page 358
    References
        Page 359
        Page 360
        Page 361
        Page 362
        Page 363
        Page 364
        Page 365
        Page 366
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        Page 371
        Page 372
        Page 373
        Page 374
        Page 375
        Page 376
        Page 377
    Biographical sketch
        Page 378
        Page 379
Full Text














POLITICAL DECISION MAKING IN ECUADOR:
THE INFLUENCE OF BUSINESS GROUPS








By

David Parker Hanson


A Dissertation Presented to the Gr.aduate Council
of the University of Florida
in Partial Fulfillmcnt of the Requiremecnts for
the Degree of Doctor of Philosophy

UNIVERSITY OF FLORIDA
1971

























Copyright




1971


David Parker Hanson













ACKNOW' LEDGEI.1 IENTS


It is perhaps unfortunate that "acknowledgements" have become

such a routine part of all dissertations. There should be more

meaningful .a'.'~ to ackno,.'ledge w.. ith gratitude the help and support

of the many people withouthout *.,ho n this dissertation v.'ould never have

bee n v written. Among these people to '..'honm I am deepIly in debt are:

Professor Alfred Diamant, v.hose support and encouragemn-ent helped

make graduate school possible; Professor Manning Dancir, who w.,as

perhaps piarmrily responsible for making graduate school stimulat-

ing and meaningful: and the late Professor Charle-; D. Farris, wvho

beat into obdurate heads the mnea.nings of scholarship and logical

inquiry. To my '..ife, Barbara, I o.we the support, both moral and

financial, that got me through. Professor Ruth MI.lQuov.'n's sensible

councsling and personal interest navigated many of us through the

shoals of graduate training.

The list of people w..'ho participated with me in this dissertation

is almost endless. Professor Tom Page's friendship, support and

guidance have been invaluable for all aspects of the project. Ricardo

and Noella Levy are more than close friends, they have shown me

much of what I have seen of EcuaLdor. Professor Alfredo Pareja

Dic.caniseco helped me form a point of view. about Latin America

1ii







and gave me a gr-at deal of assistance in doing the specific research

for the dissertation. IMr. Mladison Monroe Adamns, Jr. gave me

absolutely invaluable help in the study of the but-inese groups.

Thanks al. go o to Sr. Aleiandro Carrion, Ing. Carlos Rota, and Dr.

Ale-. ndro ''e:g', T.oral, \.-ho leave of their time and provided -nuch of

the information and many of lthe contacts on w.'hich this di:sertation

has been based.

It would be- impossible to thank each of my friends v.'iho helped to

make n-i' stay in Ecuador so enjoyable. Ho'..ever, special mention

must be made to Alicia BEdoya, Jorge D-ique, John Solomon, and

Ed and Mary Andrevs The list of people -..ho gav.e of their time and

patience is sLiogested by the cited inter'.,-ews. Equally as many

people vwho \v.e re of help have not been mentioned. Because of the

press of space, it is impossible to give them all more than a blanket

ackno'.'.ledgement of thankl.c,.

A closimn ackno..:Aledcl ent must be made to Dorothy'. Bow.'ers,

v lo lias pe rforn-'ed ims-ssi.'e labors in editing and ty ping the mnanu-

script. Her position in this roll call is not a vceflection of tle

enormous help she has been.


IKa la mazoo, M ic Ii an
February, 197]











ACKNOWLEDGEMENTS . . . . . .

LIST OF TABLES ..............

LIST OF FIGURES ..............

ABSTRACT . . . . . . . . .. .

Chapter
1. INTRODUCTION ...........

11. THE SOCIAL CONTEXT . . . .

The Land . . . . . . .
The People . . . . . .
The Culture . . . . . .

Il1. BUSINESS GROUPS OF THE COAST

The Economy .........
Business Groups . . . . .
The Pattern of Business Ownership

IV. BUSINESS GROUPS OF THE SIERRA


on the Coast .


Business and the Social Structure of the Sierra
Business Groups of the Sierra . . . . .
Patterns of Business Ov.wnership in the Sierra
The Relation cetveen the Sierra and the Coast

V. THE BUSINESS ASSOCIATIONS . . . . .

VI. THE STRUCTURE AND DYNAMICS OF
GOVERNMENT .................

Introduction . . . . . . . . . .
Parties and Elections . . . . . . .
The Structure and Process of Decision Making
in the Government . . . . . . .

VII. CAMILIO PONCE ENRIQUEZ: JULY, 1959 TO
SEPTEMBER, 1960 . . . . . . . .

Introduction . . . . . . . . . .

v


* iii




. 1
ix









S 14
14



17
S 23

S 45

* 45
S 50
83

S 90


90
91
118
120

124



171

171
171

183


205

205






Clhaptc r

olit c il Silu i ion . . . . . . . .
Jl.ecr-uilt ment tlo 1 h Ponce Aldministration .
Dcciion l l;in Urndor Ponce . . . . .
The1 JUNTA 1.IONl-TAR1A . . . . . .

VII. JOSE M.IAR1.A VELASCO IBAIRA . . . . .

P political Sit tion . . . . . . . .
P olilic l ecrui nt . . . . . . .
Policy Coal.itions and Recruilment to Decision
Making Posi on . . . . . . .
Decision M making . . . . . . . .
Dcci ,ion Making: The Tax on Imported Wheat


Epilogue to Velasco


IX. THE ADMINISTRATION OF CARLOS JULIO
AROSEMENA NONROY . . . . .

Political Situation . . . . . .
ecru t m e t . . . . . . . .
Decision Making. The Law of Industrial
Der- lopnc T ent . . . . . . .
Pecru-itment and Decision makingg for the
JUNTA MONETARIA . . . . .

X. SUMMARY AND CONCLUSIONS . . . .

APPENDIX A . . .. . . . . . ..

APPENDIX B . .. .. ... .. ... .

LIST OF REFERENCES . . . . . . .

BIOGRAPHICAL SKETCH . . . . . . .


P.1 '

2u;
210
217
219

228

228
233

239
246
268
272



275

275
278

291

303

317

338

355

359

378


. . . . . . . .


.
.
.







LIST OF TABLES


Table Page

i. Decisions to be Analyzed . .. .. .. . .. . 10

2. Scope of Issue Involvement . . . . . . .... 10

3. Employment and Earnings in Sectors of the
Ecuadorean Economy in 1963 . . . . . . . 46

4. Major Agricultural Products in Ecuador in 1957 ..... 47

5. Major Exports for 1960. ................. 48

6. Industrial Employment by Sectors . . . . . . 49

7. Exports and Size of Business of the Largest Exporters 68

8. Exporters Classified by Size and Number for 1960
and 1961 . . . . . . . . .. . . . 70

9. Distribution of Businesses by Size . . . . .... 73

10. Characteristics of Businessmen in Ponce Political
Organization . . . . . . . . . . . 212

11. Characteristics of Businessmen in the Ponce Cabinet .. 215

12. Recruitment to the JUNTA MONETARIA . . . ... 220

13. Characteristics of Businessmen in Velasquista
Party Positions . . . . . . . . . . 234

14. Relation Between Business and Political Positions . 234

15. Situations of Businessmen Who Held Central Political
Positions . . . . . . . . . . . . 235

16. Economic and Social Positions of Businessmen in
the FDN . . . .. . . . . .. ...... 288

17. Differences Between Businessmen in the PLR and
the FD N . . . . . . . . . . . . 288







Table Page-

18. Bencfi;s of the 1957 Indu.strial Develop:ne t Law . 293

19. Rccruiiimcnt to Political Positions . ... . . ... 321

20. Specialized clecruitlrnit withinn the Business Community 322

21. The lRelatuion of Political and Economic Positions of
Bus inc -en . . . . . . . . . 323

22. Recruitnii'.it by cuggiuri', BusinuEs s5 S ctor and
Economy ic Position .. ... ..... ... . 325

23. Recruitment and Decision Making . . . . .... 329

24. The Guayaquil Business Empires ......... . 343

25. Significant Independent Groups .............. 353

26. Major Interlocking Group of the Sierra ......... 355

27. Minor Business Chains of the Sierra ........... 357


vi ii











LIST OF FIGURES


Figure Page

1. Distribution of Land and Income in Ecuador . . .. 20

2. il.l ribi:tion of R~pnana Lands in Ecuador .. ..... 53

3. Relations Among Guayaquil Business Empires . . 86





,A'. bstI rct of Di ssc rtatinn 1'Prsenltcc to the
Gr.dlu.:te Council of thl, Univers-ity of Florida in Partial Fulfillment
of the lc quire mcts for thu Dclgrec of Doctor of Philosophy



POLITICAL. DI)ICISION lMAlKlrNG ]N ECUADOR:
THl: INFLUENCE 01' BUSINESS GROUPS

By

David Parker Hanson

June, 1971

Chairman: Dr. O. Ruth McQuo..wn
Major Departinment: Political Science

Tw.o problems were posed for the dissertation. The first was to

determine the extent to which businessmen in Ecuador influenced

political decisions on economic issues betv.'een 1959 and 1962. The

second was to determine the extent to which the political influence of

a businessman v.'as determined by his economic position.

The condition and organization of business was analyzed to deter-

mine the probable political goals of the various groups, and the

patterns of power and dependency among the various groups. It was

determined that a central set of Guayaquil businessmen were quite

powerful because of their control of credit and marl-et conditions.

Banana grov:crs, wheat lfarinmers and other smaller businessmen

.were anioni the most di scontented.

The rec uitrnent of busincssmeln to the political campaigns and

cabinet:; b.:twc.n 1959 anid 19(62 was studied Relati\'cly few business-

mein participltt-d in the camip:iigns, h.lil- mnc,st of the people in thi

'C







caibincts weorc busineii-ssmen. However, the campaign businessmen

often camre from the most powerful economic groups while the cabinet

ministers wvere more likely to be smaller businessmen, A plurality

of businessmen in all positions, came from Guayaquil.

The deccisions made by the government generally favored the

inierests5 of thc, incumbents. Groups not represented in government

had little success in trying to influence decisions. Therefore it was

concluded that the i>nost powerful business groups could generally

control decision making through recruitment of their representatives

to deocision making positions.













CHA. PTER I


INTRODUCTION


Who governs? Dahl's question echoes a problem that hlas been

before political science since the days of Aristotle; what are the

means and e::tent to which private groups can influence public decision

makers. Tw.'o general answers to this question have run through

political theory. The "power elitists" have generally held that

societies are usually run by an informal coalition of the economic,

social, political, and military elites. Decisions that would challenge

the pre-eminence of the "oligarchy" would not be made; the power of
3
the state will be used to defend the positions of the few on top. Outside

groups would only lay claim to state authority on the issues on which

the interests of the oligarchy '.'.'ere not involved. The pattern of elite

rule v.'*ould not be significantly limited by formal constitutional proc-

esses or public debates. It %would be rare for a politician to be


Robert Dahl, V.'ho Governs (New.. Haven: Yale University Press,
1961).

2The classic statement of the elitist position .'was made by C.
Wright MillF., T! P'ow..r Elite (,New York: Oxfkrd University Press,
1957); Floyd l Iillter, Colinmlim:' Puo.'-r Structure (Chapel -lill
University of NoI rth Carolina Press, 1953).

31-unter, p. 23-; M ills, p. .1.

I







clectcd who represented mass interests. Once elected lie would be

either isolated or co-opted. 4

Mainy democratic theorists answer that there is competition withinl

elite circles. Elites who are losing internecine battles wvill be encour-

aged to find mass allics to broaden thcir power base.5 If forced to a

choice, politicians wouldl d rather have mass votes than elite financing,6

As a result, the existence of a social hierarchy is not necessarily

incompatible with a' political system in which lower class groups can

appeal to government to redress their grievances against elites. 7In

evidence for the pluralist arguments is the sharp political conflict in

most demnocracies, the relatively high level of mass supports given to

governme-ints, and the enactment of government programs regulating

busincss- and offering welfare measures for lower class groups

against the opposition of elites.

Ncoelitists question the scope of the issues that arc raised. 9The


4
Mills, pp. 245-247.

5Arnold Rosc, The Power Structurc (Ncew, York: The Oxford
University P--rcss, 1967), .. 102.

6 bi d, p. 2.

7E. E- Schattschneider, The Sem-i-Sovercican People (New York:
1-olt, Rincehart and Vinston, 1960), p. ?-; David Truman, The Govern-
mental Process Ne York: Knopf, 1951), 1). 61.

8Robcrt Dahl, A Preface to Domorralic Theorv (Chicaro: The
University of Chicano Pru-ss, 11)56), pp. 75-81,

back C. Wallkor, "A Critique of the Elitist Thcory o Demnocracy,
Ameicn oliic11Scionce R v w LX, 2 Jiinno,1966), 285-295.







many issues on which the elites are either not involved or are split

can be admitted into politics with ease. How..ever, the issues that arc

central to the interests of the elites will not be raised. As a result,

non-el tes cannot easily appeal to politics for relief against key aspects

of elitc position.0 Thus, for example, the organization of the .Amcri-

can economy around giant semi-private corporations is not questioned

in American political life.

The cla s sificaljon of the democratic Latin American polities into

any of these three models is hazardous. There is a strong intellectual

current in favor of the "power elite" theory.1 Rigid class distinctions

and the strong concentration of wealth in the hands of a few are held in

12
evidence. Substantiating evidence comes from the lack of improve-

13
ment in lov.-er class standards of living,1 and the general ineffectuality


10Schattschneidcr, Chapter 8; Peter Bachrach and .Morton
Barratz, "Decisions and Non-Decisions: An Analytical Franmework, "
American Political Science P.eviev.', LV'LI, 3 (September, 1963),
632-6- 2.

John G'er.assi, The Great Fear (New York: Macmillan, 1963);
Stanislav Aind reski, Parasitism anid Subve.rsion (New York: Pantheon,
1961).

12
Osvaldo Sun,;el, "The Structural Background of Development
Problcnis in Latin America, in Charles T. lNesbet (cd.), Latin
Amc rici. lProl-l ms in Econonmic Dcvelopment (Newv York: The Free
Press, 1969), pP). 3-10.

13
1O.scrr Lwcv.,is, The Clildrern of S; nchezl. (New Y'ork: Random
house, 1961).







of most governments. 14 No one In fact has challenged elite predlomiin-

Z 11 C C

The pliiralist counter-argumient. Nould point to democratic mnodcrn-

izing regimnes ill Mc.ico, 15 Chile, 1 Costa Rica, 17 Venezuela, 18an(]

Uruquay, 1 Most -ovcrnnients have used their power to push industri-

alization and the nouveau- -ichc industrialists at the expense of the

traditional laiided gentry, 20 The power of the industrialists has been

matched by a legal -control over hirincy, firin- and pensions that is

Unheard of in the United States. 21 F'urther evidence is anl expansion of

the electorate which suggest a liberalization not implied by elitist


I'Raymnond Vernon, The Dilemmlia of Mexico's Developmnent
(Camnbridge: I-arvard Universit) 1-ress, 1963); Claudio Velez, ed.,
Obstacles to Change in Latin Amnerica (London: Oxford University
Press, 1965), pp. 45, 135.

1-5L. Vincent Padget t, The Mexican Political Systemn (Boston:
Houghton Mifflin Co. 10,66); Hov.ard Cline, Mexico: Revolution to
Evolution, '19-40 1960 (O.ford Univcr~sity Press, 19.62).

16 Federico Cil, The Political Svstemn of Chile (Bostain: Houghton
T\ifflin Co. 1966).

1Jal-l-es L. Buscy, Notes on Costa Ric-an Democracy (Boulder-
University of Colorado P)res-s, 1967).

)Robcrt Alexander, Venezuelan Democratic Revolution (New
Brunsvwick: Rutners University, Press, 1960D.

)Philflip B. Taylor, Governniont and Politics of Uri viay (New
Orleans: TuLIa.nc Univertsity Prcss, 1960).

2()Charlcq W. Andei-son, Polics and Economic Channge in -Latin
Aniorica (NwYork: Vail Nostrand Reinhold Comnpany, 1967).







viewv.s. Mass u icnleification v.'.ith w.,inning populiil candidates h-is

brought clas.hs conflict directly into the political arena.22

\' e do not ikno.' enough l about political processes in Latin America,'

to conlidentl1y cla-ssify many countries. \We are lacking dati: on the

coIntexts of tlle private c .lit; '.vho would be in a position to press

demands on ltie government. What significant power groups are there

in these societies? From v.'hat pov.'er bases do they operate? What

range of policy alte',-nativ.es-do they represent? Is there in fact any

"virtual representation" of the interests and demands of lov.'er status

groups ?23 The second area on which v.'e are lacking data concerns

the political int,:ractions of the private and public elites. Which

private elites did achieve access to the government? How'c,, To what.

forces and demands did they respond" \Which counter-demands are

ignored? V'hy ?

The traditional literature on Latin America has generally not

responded to any of these points. A depressingly large portion of the

literature ha:s focused on the formal machineries of government and


Z\ 'lasco ibarra is 1an excellent example. See Chapter 8 and
George Bl.nkl:st. n, Ecuadnr" Constltutions and Caudillos (Los Angeles:
University of Califlornia Press, 1951).

23'or a criti'lq ofi political studies in Latin America see:
Willi-rm WVelsh, ";..I lMthodological lProblems in the Study of Political
Lead rship- in Latin America" manuscriptp, University of Iowva,
Dep):.)'lolinLelt of Political Science, Laboratory of Political Research),
p). 2.







has bee(,n conn tosketch it) groups demands ill tern-s of "goodlicss"

or "badncqs" while ignoring the SitUational aspects that shape demnand-,

suporsand events. 24

These considerations promnpted a decision to write a dissertation

on the actual, informal channels of decision making. The! specific

topic chosen %vas the Influence of business groups on economic decision

making in Ecuador between 1959 and 1962. The choice of Ecuador was

dictated by several. cons ide rations. Our knowledge of the political

process in the country is scanty.2 The country is small. Business

and politics are played in only two medium-sized cities. 26 Ecuador

has the reputation of being free and open for study. 27 Superficial

exam-ination suggests a pattern of politics similar to that found in

other Andean countries thirty years ago. 28

Business groups are an ideal subject to study in Ecuador. They

arc most closely related to the political decisions on economic


241bid. p. 21.

;>Thec only full length work on the political processes of the
country is still Blzinksten's.

Z6Echin E. E rick-son, et ?I. Area J-anidbook for Ecuador (Wash-
ington, D. C. : Governmennt Printing Office, 1966), p. Z61.

27vartin C. Neccler, Anatomy of a Coup (I 'Etat. rcuadz-r 1963
(Washington, D. C. Jnstiiute, for tlit Coinparative Study of Politic-l
Sys~terns, 196-1), p. 9.

2_8 WaynI A S I CherCJ, "The Ad iitainof Gal.o la ain"
Ecu do 94819 2: A "tep Toward- tblt" M s the'Sis,
Devar mentof Political Sciencec Un'rst of Florid'&a), 1966, 'P. iii.







development v.'lich i Criiadur needs so b.ldlly. They are reputed to be

quite pov.'i-rful and are more open for study than would be the military

or thie church." There is very little l;nov.'nI about business groups in
30
Latin Aimerica or of ihcir impact on politics.

Tlhe study has been cast loosely around the "participational"

i-nethodology. suitably modified to take into account the neoc-litist cri-

tique.3 Pov.,er is measured by successful attempts at influence, not

by reputation or social position. However, account has to be taken of

who v.ants to exercise influence. Otherwise we could not differentiate

betw.'een unanimity of a satisfied public and the apathy of the discon-

tented v.'ho knov'.' it is useless to try to have policies changed. There-

fore the first task v.'as to skctch in the broad outlines of the economy,


29John Gunther, Tnside South Ame rica (Nev York: Harper and
Row.', 1967), p. -124.

30.
Amoni. the fcv.e are: Mlerle Kling, A MLexican Inlerest Group in
Action (Enicle .'c.-od Cliffs, Pr(ntice-H1all, 1961); Peter Smith, The
Politics of eI.eC f in Argentina (Ne':.- York: Columbia University Press,
1969); V,'illiainm Lopjstro -n Attitudes of an Industrial Pressure Group
in Latin Amnerica: The A.sociacion dc Ind lc.tri il s Mli)eros di bolivia,
1925-19 I 6 (Ithaca: Corncll University Dissc-rtation Series, 19LS);
Car los /.'.sti, Pres.ure CGrc ups and Power Elites in Peruvian Politics
(Ithaca: Corncll University Prcss, 1969).

31The litcra:ture in this area is endless. For a representative
saniple see: Robert/., D.ll, "A Critique of the Ruling Elite Model,
Ain. ri. ..: Politirzl Science l',exic--.v, LII, 2 (June, 193'S), *463-469;
Juin \\'altun, "Sub: .ice and Artifaict: 'The Current Status of Research
on Coinnmi;ty Pover Sti-Lrclturc, Anll-ericin .Tournal of SocioloIv,
LXVI, I (.l irr l, 10.6), 430--17 .; B iij;u in v'Walter, "On lt e Logical
AnalyFsi of l'.v.-cr A; trilution Procedu res, Journal of Politics,
XX'VI, 3 (lNo'.v mber, 196-), 850-866.







to dCterminei the positions of major groups of businessmen in the

econonomy, and to ascertain, insofar as is possible, which groups

could be eNpected to have substantive grievances against the status

quo.

The second part of the study is a descriptive analysis of the chan-

nels through which influence would be exercised. Special emphasis

was given to the organization and dynamics of the business associa-

tions that purport la be major channels of influence. A related con-

cern was witli the decision making process in the government; who

made decisions, to .what types of situational limitations and pressures

did they respond, and v.who was in a position to exercise these checks

on decision making.

The last part reconstructed specific decisions. The goal was to

determine which business groups did have access, and to find out why

and how the mechanisms of government actually operated. These

data provide the basis of a sketch of business interest articulation.

The social and class differences between influentials and non-influ-

entials indicates the extent to which access is restricted to politics.

A comparison betv.ween the range of issues that were raised in politics

to the range of issues that people would like to have raised is also

suggestive of v.whether the neoelitist rc-joinder to the pluralists is

acculirate.

The specific deci .ioins studird all occurred between July, 1959

anrd Auigu:;t, 196(,2. 'l'i-,-r were seve L1rz reasons for selecting this







particular period. Three presidents ield office: Camilio Ponce

Enriqucz, Jou- Maria Velasco Ibarra, and Carlos Julio Arosemena

Monroy. Thi- offers a basis for comparing regime styles. Later

periods would have been unp profitable as a military junta held office

from 1963 to 1966. Post-junta politics: have generally concerned the

fate of junta reforms and the newv. constitution.

Only a fcv.' issues were raised in the three years that involved

businessmen. The author tried to select a set of issues that involved

most of the m-ajor groups and were representative of most on-going

issues. The author also looked for a balance bet'.veen broad issues

32
involving many groups and narrov.'er ones. Table 1 lists the issues

selected. Table 2 classifies them according to the number of groups

involved.

Data on the recruitment of political figures from business posi-

tions c- s ee included as a major tool in the analysis of the channels of

influence. Recruitment is a major means whereby important private

groups obtain sympathetic people in positions of power. Therefore

the direction and levels of recruiltm1ent indicates which groups would

be more likely to exercise muscle and which ones would be likely to

have an unsymp:ithetic receplt ion. 33 Furthermorc recruitment is


32rrnest T. Birth and Stuart D. Johnson, "Commu iity Powv.er
and i Typolo".,:" of Sucial Issues, Social Force.-!, IlXL, 1 (March,
1959), 29-33.

33Lest-.r Sliginaan, "Rec ruitmn.tci in Politics, P. R. 0. D. 1, .1
(Ida r i ,, 19F' ), p. *.







TABLE 1


DEC:;IONS TO EE


ANALY ZFD


Decisi on i
Maker P
Pc


J ulet a I
hloictaria


Pr sidcieit


on ce


Tariff proc action
for local manu-
facturing:
BPit Cri s
Ecutitorianas


Executive


Velasco


Credit
expansion

Devaluation



Inflationary
investment nt

Devaluation


Arosc menal

Tariff protec-
tion for local
industry:
EPISA



Industrial
Development
Law

Repeal of tax
on imported
wheat


Congre ss


Packing the
Junta Monetaria


Tax on
imported wheat




TABLE 2

SCOPE OF ISSUE INVOLVEMENT


Manly groups involved Few' groups involved


Inflationary investment

Credit exp]anFion

Devaluation

Packing the J unta Lot n tnria


Tariff protection for
Baterias Ecuatorianas

Tariff protection for EPISA

Tr: on wheat imports

Wheat tax repeal


IJndu strial DeveNlopment Lniw




1

frequently an efficient explanation of decision making. "Self-interest"

is a powerful motive, especially in a Latin culture that plays do.'.'n

tlie implcrtince of over-reaching loyalties. 1.lore indirect channels of

influence w.'ere looked for only when the events and outcomes did not

point to a "self -intere st" interpretation.

This is a very broad range of data to research. Some classes of

information were relatively well grounded. Data on the organization

of the economy and.on the social and economic positions of major

economic groups were derived from government statistics and develop-

mental studies. The names of political figures were taken from

governmental archives and newspaper articles and advertisements.

Informationn o ownership patterns and business backgrounds of poli-

tical elites was derived fror the World Trade Directory Reports of

the Department of Commerce and from the membership lists and

trade publications of the business groups. These data are probably

accurate although incomplete. It is likely that a more complete

analysis would reveal additional branches of the business empires

and nmay uncover additional relations with politicians that have gone

unrecorded. Ilo.wever, the major conclusions vould probably stand.

The data on the political interestE of business groups are some-

what shakier--being based on extrapolations from the reported situa-

tions anid the intervic v.s wilh some silty business and political leaders.

However, tli.'ri was no systematic sampling of business leaders, nor

wa, there any way of checking their statements as to the programs,








problems and -,upports of third parties. It is quit possibkc that

m1111y demands and programs of lower echedon businessmen never
we eag ea te up 11 th-,clc a of politicians with whom o t


of the interviews were conducted.

The recanlstruction of political processes and events was also

un1even-. Written reports and newspaper accounts were available.

However, the i-any gaps had to be filled in with interviews with pe-

ripheral participants, who hacl their own roles to defend and whose

memory may have dimnmed with the years. Given the Byzantine corn-

plexity of Ecuadorean politics, it would take an almost total aware-

ncss of the political situation to "completely analyze" any decision.

E-ven experienced politicians, close to the inner circles, report that

keeping up with political events and mastering political techniques is

a full-time occupation. Foreign oloscrvers have a difficult til-e gain-

incg, access unless they have "married into the system. 34 Even the

events that do seem well reported may tend to be interpreted by

foreign observers through an entirely different set of cultural values.

The major defense of the dissertation is that a brond survey of

the articulation of business interests, even given its imperfections, is

much more than is noN1w available. Tighter studies can hopefully be


341ntorvitnw with Sr. Jos6 Vincentc Orhlfl'o, form-erly clepu~ty and
advisor to former Prcsid(:nt Carlos Julio Arosemaena Munroy, on
October 16, 11,%8; int,rvicw wvith Dr. Rol.ert Norris, Director of thec
Andean Stu 7cent(-r of the Unjvcersif- of New MeCxico in Quilto, on"
Octobor Z, 1960t




13

built on this one. There wasb also a personal reason for th I broad

api.r .iclh. It v.'. f'lt that th-. author's intellectual development .would

be bc'Lt erv'.'d by having as broad a pe rspective on Ecuadorean society

as possible.













CHAPTER II


T11l1 SOCIAL CONTEXT


The Land

Ecuador straddesc the equator on the western coast of South

America. With an area of approximately 111, 168 square miles, it is

the second smallest country in South America. There are four

major regions of the country: the coastal. plains, the central mountain

region (sierra), the eastern Amazonian region, and the Galapagos

Islands. Only the coast and the sierra are important for national life. 2

Most of the coastal region consists of rolling hills and alleuvial,

plains, The northe-rn regions are fertile and well watered. 3Rainfall

decreases towards the south; the southern coast of Ecuador blends

into the Peruvian desert. The rains in the south tend to he highly


This is a very approxiniate figure. The 1.942 'boundary with Peru
is disputed by Ecuador, The geographical features on which the
boundary is based havoc not beon surveyed in detail. Sco. -L~o Linkc,
Ecuadoar: CouL-trZy of Cnntrasts (London: Oxford University Press,


Zlbid. ,p. 10.

3Luis Albr-rto Lopc-z, Cordovc,, /onas A riolas lEc do
(Qtlito: un N io l P niia h yCoordlinacian )c o nom 1n ca.
1()U]), pp, 1'I -1413 All po e u w tpub~lic'ations will be ise by
principal authuYr wvh('e on is, citcd.
14






sea onal.1 G .iyvaquil, thu o(nly city of any size on the coast, is

located at th. top of the della of the Guayas River.

The bacl.:,ic of the sierra is formed by two gigantic parallel

Aiindcan ridcgs.. Peat :s go up to 20, 57-1 feet (.1Lour nt Chimborazo, the

highest active. v,.lcano in thie world) and the ridges must average

15, 000 feet. The population of the sierra is almost entirely concen-

trated in the inlerrmoitl basins between the ridges. These basins

5
average bclt.-cen 7, 000 and 9, 000 feet in altitude. Q uito, the capital

city, is located in one such basin at a height of more than 9, 000 feet.

Between tlesc basins are the "nudos" or passes, generally over

10, 000 feet.

The sierra lands are relatively unproductive. lMost areas suffer

from severe erosion clue to intensive farmn-ing of the hillsides. Rain-

fall in many of the basins is scarce or irregular. Many areas have

lands deficient in required minerals. Many crops suffer from the

high altituLde and the lack of clearly ma] mrked seasons.

The poverty and geography r.,ike transpc.rl nation and communication

difficult. Of the 6, 500 miles of road in 1960, only 3, 500 vere open all

year. Roads along the coast tend to be more ncnrly adequate. How-


'1bid. p. 172.

5Edwin EC. 1Cri(kson, t :l. Area l-ti:ndboolk for Ecuador ( \'ash-
ing.ton, D. C.: Gov.rnlment lrinitiL' Office, 196(), pi. 78.

t'C.i juLira det 'ricult iir; de la P rimnera Zona, Prini-ip:tles Pro)blh.'-
111"'1 .1'\ i'O- i' III('" l' t j OLt' dtI .; icrr;i 1'.( .tori.lia (Q uilo: C ; -illira de
A r nIt i tll r L l', < l ] riii ;/.uInt, 1 6'8), p 6.







ever, quality is rt-lntive; as of 1968, only a onc-lanc dirt road con-

nccted thw second port of the coast, E-smeraldas, with the rest of Lho

country. 7 Tlhcre is no train -,crvice along the coast.

The dramatic mountains of the sierra form a great barrier to

transportation and ntatioiial interfration. The Pan American H-ighway
8
stretches for 714 mviles from Colombia to Peru. For much of the

way it is a one-lane cobblestone road hugging the sides of the moun-

tains. Frequent landslides, steep grades and an uncomfortably

slippery surface make the cheap and rapid transportation of goods an

impossibility.9 The national. railway system connects from San

Lorenzo, on the northern coast, to Azogues in the sierra, and then to

Gjuayaquil on the coast. The system carried about 500, 000 tons of

goods and 2, 000, 000 people in 1956, 10 Hlowever, maintenance is poor,

and the rails are thought to be unreliable. Transportation from the

coast to the sierra is perhaps even more difficult than within the

sierra. '.here is a good road from Quito to Guayaquil. The railroad


7 This road had been substantially improved to the condition des-
cribed by the time I made the trip in 1968. 1 do not know how much
worse it had been before.

8U. S. Dop,-,rtmi-e nt of Con-nnerce, Inve stment in Ecuiador (Wa sh-
ington, D. C. : Guvcrnmient Printing Office, 1959), p. 9-1.

91bid. The highv,ay is very good bct'ween Qtuito and Latacun~g-.
Howevcr, it tiurnls into dirt ruts, over the difficult ter.rain Outside of
CuCInca.

10 l iI







and the I ) .'.'.'Iy be.l.t c n Cuenca and the coa.s t ;ire both difficult.


The Pe.'opl e


The official population of Ecuador as of November, 1962 v.'as
12
.1, 581, 4176 people. This v.works out to a population density of 43 per-

sons per square n-ile, one of the highest in South America. 13 About

half of the population (2, 363, 000 people) live in the sierra provinces,

virtually all of the remainder live on the coast. The Galapagos and

the Oriente contain less than 1 percent of the total population.

Population density per variable square mile in the coast is low. Less

than one-sixth of the land has been cleared for agricultural use.

Population pressure in the sierra though is very high. Much of the

land is too high and too steep to be useful for agriculture.15

Sixty-four percent of the population is classified as rural.16

Many "urban" families live in small agricultural tov.wns. Only four


I l bid. p. 92.

1Ecucador, Junta ',!acional de Planiifica;ci6 n y Coordinacion Eco-
noei-ica, Divizsidon6 de I:zitadli tic;a y Censo, 11 Ccenso cle Poblaciion \
Primer dce \viend:.'. Re(nzimen Gener.l (Quito 1962).

13Slati.- ic.il .b.ti-r ct for L.aZ1in Americ:t: 19.62 (Los Angeles:
Center for Latin Amrn ric in Studies of the University of California,
1962), Taibl. 5, p. 12.

l1Erickson, 'n t ;11., p. 62.

15Probll .',s Pr u iales . ., p. 60.

1E'L rick l ,, n, e.t al., p. 60.








cities h,-d a population ov(-'] 50, 000 in 1962; Quito (355, 000), Guayaquil

(510, 000), Cuenca (00, 000), and Ambatu (53, 000). 17 The genc-ral

poverty azid lack of communication make the urban areas more pro'inl-

cial than we would expeI~ct from cities in the United States of cornpar-

able s-izcs. Ozily in Quito and Guayaquil are there many members of

the urban and urbane national tipper class. National political and

economic decision making is carried out almost exclusively in these

two cities. 1

According to the 1962 census, 43% of the population over ten is

illiterate. 19 The life expectancy is low at 52 years. However,

longevity is substantially greater in urban areas. The high infant

mortality skews the gross life expectancy downwards. Even so, the

chances of a members~ r of the rural lower class making it to advanced


years after the age of five or so are not great. 20

Per capital income in Ecuador is quite low at $150. cc a year. 21


17Erickson, et al. p. R2.

18Investment in Ecuador, pp. 1 1-12.


II1 Censo ....

zoThe ,irilcr oincc spoke with the owner of the general store in
Tochinque, a sm-all tomn on the noyth coast. He was talking about how,
'"Whcn you h~a%- lived as long as I have. . I asked him for his age,..
"Thirty-ninc,'' hu replied. Thore %-,as general assent that these ad-
vanccd y(:ars constituted thc foundations for great wisdom-. The m-an
appeared to be at ]least sixty.

ZILStimrwtos of incomeI vary widely. This figure was povidCCd by
the ctf conoiiwi.:I of (lie US il i-D mission in Ecuador. See Clarence
Znvki"Eonr:Sclecfcd E"colomic Daltl wIth Con-mmntarv"







'The average 3 income on thel coast is perhaps twice as high as it is on

the sierra. \'ith the available land and favorable climate, thie "co-t:"

22
of pove-rty oii thle cLoist arc pI'rob bly lov.'cr than in the sierra.

Standards of living in the cities are probably somcv.'hat higher. Ilow\-

23
ever, lthe tilemplooymcnt pressure is very high.2

The validity of a mean income figure is largely nullified by the

extrmn-ely unequal distribution of wealth. About half of the popula-

tion is effectively outside of the monetary econorny. Thc net worth

of one big businessman is reputed to be about that of the central

governnment.2" Inequality in income is paralleled by inequality in

land holdings. The distribution of incomes and lands is shown

below in Figure 1.

The inequalities of income distribution result in a highly strati-

fied class system. Mlemrbers of the lower class, defined as agricul-

tural laborers, blue collar v.orkers, and self-employed artisans,

25
make up s1ome 83% of the economically active population


22This vie'.' may reflect my greater familiarity w.'ith the sierra.
Residents of the coast comment favorably at the low level of starva-
tion seen around Quito.

23Erickson, ei al., p. 70.

2.i
2 ntervicv v.*ith Dr. Alcjandro Vega Toral, 1960 deputy from

A:zwuay province and director of the Froeiie Nacional Vela sqtuista in
Cucnca, on Octolj r 18, 1968.

25 i -.s deriv(d from 'Zuvel;is, 3.1, Institllo de l-'tudios
Admini I tr.t iv\ dc- li Uni,\ rsidad Centiral del IEcOI:idur, Salarios
cn el Fl (I-i, ri" A-.\e lus cp lii bre 19(3 (Quilo, 1963), p. 11 9.
..i









F IGUlI : 1


DISTRILLTIO']ON OF L\;D A;:D II;COLE IN ECUADOR


Land distribution


Percentage
of total
cultivated
area


26 73 90 99

Percentage of land holdings


Income distribution


S Percentage
81 of GNP

67







17



95 99


PerlclntLAge of popI)LIntion

Figures d.'ri ve.l fr.a 1I II'r rcr Vl.isc ni., El Cu t i.vo
en 1 I:. i.ad v (Ci.nyv'quil: A.U;:", 1963), p. 18i ;
J.D.V. Siunid.i-.rs, "'M;an-Land L JLatiions in Eculdor,"
hRurlj Sci'l..v XXVI(1) (M:arch, 1961), pp. 57-61.







Therc are great regional variations in the social situations of

lower clash i people. The poor of the sierra are largely "indians"''" in

th it tlh Ly ;adopt ldi-tinct ive dress and identify with local "inldian" com-

27
munities and customs. Thle sierra poor are attached to the land,

either as small landow'.ners or hacienda workers and sharecroppers.

In popular viev.', the sierra indians (and, by extension, all sierra

poor) are dull, sullen, inefficient, possessing a "heart of stone."2

Anthropologists report that indians turn their faces away from the

threatening world of the white man. They tend to be very conserva-

29
tive and slov.w to adopt change.29 Many of the sierra poor are effec-

tively outside of the national economy. Hacienda wage workers

usually receive betv.een five and seven sucres a day.30

The coastal poor are entirely different. Along the northern

coast there are many Negroes. In the central regions many of the


26Linke, ,. 12; Carlos Cisneros, "El Indio: Nadie Hace Nada
por Su Causa," Vistazo, October, 1968, p. 81.

27Beate R. Salz, "TThe Human Element in Industrialization: A
Hypothetical Case Sti dy of Ecuadorean Indiains, Economic D evelop-
ment and Cultur;.l Clhan2e, 1V, 1 (October, 1955), part 2, 126.

28Li,,ln pp. 59-66.

29R' lph RI. Bcals, Comm':nitv in Transition: Nivyo, Ecu.dor
(los Angeles: University of California Press, 1966), pp. 115-117;
Cinneror, pp. 75-87.

30T']is is 25 to 30 cents a day. The rcal purchasing pov.er is
)perliap'- t ice. that: sum-. See, I"Pr-,duct ivity of the Agricultural Sec-
tor in ]l tadc .r, I, conoinic rul1 til' fr lal;in America, VJ, 2 (June,
19(62), 67.







people are former "indians" who have changed their identities to that

of niestizo. The high l.vcel of intermarriage between Negroes and

others is also evident in thle skins of many people on the coast. No
31
major group identify themselves as indians.3

The coastal poor are much more vivacious, outgoing and active

than are their sierra counterparts. This can perhaps be attributed

to the influence of the more open Negro culture, the higher wage

levels and superior social position resulting from the scarcity of

rural labor. The social horizons of the coastal workers are also

expanded through the common patterns of migration. Many of the

people move frequently in response to seasonal employment, the

search for new jobs in the cities or simply for some change and

excitement. 3

Middle class groups: skilled workers, lower level government

employees, and clerical workers make up some 16% of the econom-

ically active population.33 They are uniformly "white" and urban

oriented. Incomes for middle class workers varies between $50. 00

34
and $200. 00 a month.3 While the poor, especially in the sierra,

can be counted as being outside of national life, the middle class


31Linle, p. 58.

32Liiink p. 67; Erickson, et al., p. 113.

33Zuvekis, p. 34.

34S Salnrio en en <1 Ecuador . ., p. 72; Linke, pp. 79-84.






groups are definitely participl.,.ntu- in city life, if not in national life.

Upper clss groups :Lrt. quite v.aried. T Ile influence of irnmi-

grant groups is; Ftrong. The Europeans, gene rally Germnan- v.-lho

came before and after world d \'ar 11 and their dscendants,a re

extremely in-iportanit in Quito commerce. The Lebanese, "TIrcolF"

to the' Ecuadoreins, are coming to dominate banking and textiles

more and more. liow.ever, the total number of immigrants is no

more than 20, 000.35


The Culture3


Cultural shock and the retreat to prejudice rraket the accurate

reporting of foreign culture_ difficult. Therefore the picture pre-

sented belo'. i'-, a comlpoFite, built up of the observations of more

experienced researchers that seem relevant to my understanding of

Ecuador. These generalizations must be taken with caution. They

are related to the most sharply perceived areas of difference and

thus. ignore the la rger areas of similarity betv'een our cLilture and

that of Latin Americans.. 'The follov.'.ing generalizations are true for

sonm-e major group of Ecuadoreans in some positions, however, they

do not inec-cssc, rily represent a balanced viev.. of the country as a


351.rickson, et :il. p. 89; U. S. Department of Labor, Labor La'.v.,
and PrItcltic. iln u:idor (Was,' hlingtn, D. C.: Government Printing
Office., 1963), p. 13.

'3 The lilc li" lure is e.::t niisiv'e. A b:i.ic statement of the concept is
LivenI in Your:', C. Kin'1, '"')ln Concept of Political Culture in Comipara-
live Politics, .lJourn.-l of Politics, XXVI, 2 (June, 196-1), 313.







who Cle.

Thc world vilw of min1ny Ecuadoreans seems colored by ; sense

of class and hierarchy. 'The stations in life are properly ranked.

Inucumbency reflects jntrini sic merit, and not accidents of birth or

fortune. There is a sense of "deserving poor" but limited outrage at

the fact of poverty. The elites, too, view their positions as being

proper, a reflection of their intrinsic merit. Therefore the enor-

moius gulf in status between the national elites and the local middle

class is accepted as a natural reflection of the social order.37

The world is seen as essentially static. There is no natural

direction for change to take. So the social change that does occur

tends to be viewev d with suspicion. This is related to the idea of

"limited good. In a static world, one person's gain must be

another's loss. The idea of all workingg together for a common good
38
is notably lacking.

The world is seen as being neutral, tending towards being hos-

tile. \Vith the view of a static environment, there is relatively little

sense of "mastery of fate. The best the individual can do is to take

advantage of random di:.turbances for which lie is not responsible.39


37K1. 1. Silvert, "An Essay on Social Structure, American
Uin.'r' Sit i Field Staff RepI orts, November 25, 1956; John Gillin,
"''.t h os Componclits in Modern Latin American Culture, American
A i.nthrc poloci! t, LVII (June, 1955) 511; Erickson, et al., p. 106.

38F'rank Tannienlbin, Ten Keys to Latin America (New York:
Knopf, 1 ), 1962) 120.

39Tuniar Jloberto Fillol, Social Factors in Economic Develop-







L tijii. s have a mnuc]h shairpi.er senIsec of tlicir ov.,n unique identity

tl:han A\neric:tns .re used to. Ecuadortc;ns, from president to the

humble-,s f:armecr, sctin to be: aw.rre thai they are masters of their

soul if iiot of tlh world around them. This has tw.o consequences: an

interest in arti:lic c.:pr sc i.on as a demonstration of individuality, and

a tendency to demand autonomy of life and expression wvitlin some

sphere. Great sacrifices will be made to maintain pride in individu-

ality.

Social relations are more personal and more intense than we are

used to in the United States. People v.ant a close circle of friends and

relatives who are aware of the unique individuality of each other.

Individuals who are forced inlo contact with an anonymous public often
1 0
seem surly and unsure of themselves. Latins complain that Ameri-

cans will not mai kc them- selves av.ware of Ihe individuality of the people

wilh v.ihom they are dealing.1

A high premn-ium is placed on loyalty to the primary group.

People who really understand the inner makeup and merits of their


ment: The A-rentinc Case (Cambridge: The MllT Press, 1961), pp.
9-12; SJ.muel Sh!.iiiro, ed., 'lhe Integ.ra;tion, of Man and Society in
Lalinl A\mer-ica (I ondon: Uni,'ersitr' of Notre Dame Press, 1967), p.
5; Gillin, p). 515.

.1010 11. Silver, "On Civil Discourtesy, An-erican Universit"
Field St-iflf ]Wj' rl:., Februa ry 5, 1967.

"i1Ja iro .li ri ,'.;, Aii;.nomla d l- GCringo (Hogfola: Ediciones
T' rcer lu1indo 19(''.), p. 177.







friends would be willing to accept and understand their actions.

People who place loyalties to abstractions over loyalties to their

friends : re worse than damn fo ils; they have betrayed the trust of

others. Theli worse charge Lalins bring against North Americans is
'12
that they cannot be trusted vitall friendship. Ties of loyalty link

social stations together. Subordinates accord their superiors higher

status as long as there is a reciprocal recognition of the subordinate

as a worthy individual.43 Superiors in return gain recognition that

they are in the center of the world for their subordinates.

Latins seem extraordinarily sensitive to dominance and subordi-

nation in inter-personal relations. Leaders emerge and take clear-

cut roles in almost all social situations.44 The person in the center

claims a major share of attention and status by virtue of his superior,

more dominant personality. Subordinates v.'ant to have a leader suf-

ficiently overpowering to justify their own lower positions.
45
There are cultural differences between the sierra and the coast.4

The sierra reflects the hacienda ideal of a stable feudal society.46

Class and status distinctions are much sharper and something


42bid. p. 72.

43Norman E. Vihitten, Jr., Cla ss,Kinship and Power in an Ecua-
dorean Trc..-n (Stanford: Stanford University Press, 1965), pp. 105-106.

4 rick s-on, et al., pp. 232-23-1.

45
4llanksten, p. 28.

4 'Tanlncnbaum, Chapter 5.




27


rcsr enblingl a social a risto racy lih;s elcn rgecl. The influence of tllc

Church is heavy.

lo.os, Quji, ,'os seen guarde'ld in p, rsonal relations. People arc

socially conse rvative and dress tends to be very mnodest.48 Although

people are genc rally quite friendly, fe. are killingg to cornmit thenm-

selves to clo.-e relations c:-:cept after c::tended contacts. Q iLitci'os

als.o seem peaceful. Crimes of violence appear to be relatively infrc-

19
iue nt.

The sie rra business nsmn, with the except ion of the immirigrant

entrepreneurs, seem less innovative and dynamic than their counter-

parts on the coast. Business seems to be a means of achieving a

social position and not a pattern of activity to be valued for its own

sake. The politics of the sierra seems to reflect the aristocratic

ideal. Political recruitrument seems relatively closed. Fev:. "self-

slarters" '...'ho lkck a fainily name break into the- sierra political

50
arenas.



7'Elite circles are not completely closed. Former President
Galo Plaza: is a nev.'.com r to elite circles and yet is influential in
sierra business -lid society.

-18
1 In tlichry the co-ceds at Uni'.-cr.--id Cd Crnlral -mu, t be escortcd

while off campus. Dinc-cs, called 'bonfiri s" to avoid unpleasant
cr.ILnnotationr-, usually end by 10:00 P. Nl.

.19
J'lii. o bs rvati'on is .i scd on the relativ-e sense of personal
Uli-re; felt in Quito amd Guayaquil.

50, in illi is nut al.'. i s ruei. The p)rcs, nt mayor of Quito,
J i.-in.. Del C;st illo, cCn.I sL fIrom a p)or family of the nullthern prov-
inl ce S.







The oupen rcumirL-nercii l c:ociely of Ecuador is located on the coast

where there is a1 rcelIitively higi l evel of economic development and

social mobility. Col.tc7ios trnd to be open and spontaneous in per-

son:l1 relations. Individuals will make no pretense of friendship if

they do not like someone. People may commit themselves to ex-

tended adventures on the basis of casual contacts. Women on the

coast seem free and open to friendships. The people on the coast

also seem more anomic and violent. The level of criminal violence

in Guayaquil seems very high.5

The businessmen of the coast are the most progressive and

aggressive group of entrepreneurs in the country. They seem the

most receptive to new ideas and new investments. Many managers

seem to regard business as a game worthy of its own reward. As a

result, the successful businessmen have assembled personal empires

and have at times merged these into multi-family combines that have

major impact on the economy.

Coastal politics also reflect these traits. A much wider circle

of people staes to be drawn into the political arena than would be found

in the sierra. Radical populist movements are all stronger on the

coar.t. Political movements center around charisma, stressing the


Suggestive of the ;,amo.isphiere of violence are the fortifications
llat surround the offices of the leading newspaper, E1 Universo.
Guards are bci(k cd up by clhin link cagcs around a ll offices and entry
is conutrolled tlhrou11 ;h double steel door,;. There is nothing compar-
able in Quito.

52
Erickson, ,1 al., p. 319.







personal rel.ition bctv.'en lea adc r and his follo.c.,rs. Political vio-

lence nain pov.er confront ation- aire com mnOn on the con.st.5

These cultirr;,l dlffc rence s are both a result of and a reinforce-

lment for the lov., level of integration in Ecuador. The geographic

isolation of rma ny areas and the differences in outlook all contribute

to a very high level of regionalism. In Guayaquil, the provincial

flag is seen more often than the national flag. The slogan, "For an

independent Guayaquil" (Pro Guayiaqluil In.dependiente) appears on the

doors of the largest bank and on the desks of countless office v.orkers.

Regionalism is a fict of life in the other areas of the country too.

Clubs formed by residents of Quito and Guayaquil v.'ho have "immi-

grated" from oilier provinces are quite active.

Regionalism is not a recurring political issue. Most people are

willing to accept a common political framev.ork while considering the
54
citizens of other regions to be somewhat deviant.54 Regionalism can,

though, provide the common loyalties for thel construction of large


5-Tlhe students of Lav.al Bora High School (colec io normal) in
Guavacq'il severely burned tw..o p.'-liceir;-e v.'ith napalm bombs during a
dem-onl .ratioin in Guayaquil in 1968. The police had broken iup an
attempt it made by tlhe students to place a plaque on city hall that conm-
nmemor;'tedd a similar incident of the previous year. Such incidents
ar e tlint ucollCO'I'011n.

51
Sr. Alfj'c-do Pa .i- Die.::canscco reported that the coastal busi-
In'SSllen 11 '.'.(li-r en(lrc sll tic about thel possibilities of buying into
.illrr.i cu'p ni as a imiL:.tis of healing the regional split. Ho c'v.-c kr,
th all r) it ri l ,'.'vcl ly of Ihe pro'()] s.,l points to the sta.c of the gulf bc -
tIVwccI thle. tl'.v( r i--j'.n,,i litier'.'i i. '.'itlh Sr. '.lfrcdo P'a l (reja Dic zcan i co),
a; sfi sl;i a m i n:!t;er (.,I lle' I,.- ,n'r. I'fjul.ir arnd former m eiber of the
J.liit .l lM :rii~ on No(venil; r I, 1 08.






55
coalitions oin mnIjor political issues.55 Regional competLition for the

benefits of politics also limited the possibilities of projects in any

56
one aren.

The patitrns of buisiiness activity can be clearly traced to the

culture. In a hierarchical world, the businessmen see themselves as

being unique and a bit superior to the rest of the groups in the society.

They are the chief guardians of the economic fabric of the society,

57
the only groups responsible for the conduct of the economy. Fre-

quently they demand freedom from governmental restraint,58 while

also asking that they be the only group to participate in governmental

decision making that affects them. This is far from the ideal of

laissez-faire capitalism, as businessmen actively seek governmental

credits and protection.5


5 Erickson, et al., pp. 261, 318.

56Congress almost rejected an advantageous loan for a needed
bridge over the Guayas River because the funds would not be divided
equally between the other provinces. See Ecuador, Congress, Diario
de Debates: Sessiones cn Pleno: Agosto, 1959 (Quito: Archivo
Legislative, 1960).

57
For an example, see "Mhanifesto, Revista de la Carnara de
Comrnercio de CGuavaquil, XXXI, July 31, 1959, p. 5; Rafacl Dillon
Valdiz, "Duvclaracion dr la Camara de Industriales de Guayaquil,"
El Colnercio (Quito), November 10, 1968, p. 3.

58Dillon Vald>cz, p. 3.

59
Protection has bee(n dcnimandl-d Iby almost all groups. For an
xtireme ex;ii,] le,, tlh drycrlc,.ners association demanded lax incen-
tivj\s aild ]ro'cc t ion from "disloyal" competition. SLe "So Nos Con-
sidera Indus rii: Solo )Pa -lra Cobrar Imiipuestos, El Conmercio,
October 5, 1968, p. 15.







Bu iinr--.. activity :lso rcflL-cts the coniserv.at ivc emphasis on

being inlsti.d of doing, and the Latin demand for autonomy. Latiin

busines:-i. en se tm .-athe to take risks, to engage in cntrepreneuriA.l
60
activity. Stability is valued over growth. Competition is not '.';aluI cl.

It has been alleged that Latin businessmen generally prefer to raise

prices as high as possible instead of expanding the market through

price citts. In a market v.lhere prices are informally fixed, busi-

ness is based on c.-;lablishing personal loyalties with the clients.

Autonomy and the privacy of in-group loyalties make speculation

a valued form of investment. The attitude of South American business-

men could be compared to that of a riverboat gambler vwho is willing

to sink all to fleece the sucker on a sure thing. 2 Banks, for

example, will often finance a market-cornering operation but not a

market -producing operation.63

Business organization and decision making tend to be inefficient.

Businessmen seem reluctant to accept inno'.atlion, preferring the stabil-

ity of establishedicc practices. Stores seem drab, with little use made


60Scmnuur Martin Lipset and Aldo Solari, eds. Elites in Latin
America (Ne' .- York: O:xford University, Press, 1960), p. 15.

61\V'nd.ell C. Gordon, The( Political Economr', of Latin America
(New York: Columi bia University Press, 1965), pp. 58-59; Fillol,
p. 5S.

2F' l-r' de \Vris and Josc Mcdinii Elclil.'arlrfa, eds. Social
A p. 'r i l'( i c.nrnic Ciin.. in l.:in .iAm eri t: Vol. I (lelgium:
UN 3-SCO, I6v 3), p. 9/.

C63 ;ox io j,. S.




3





tendency to con celltra te all Pow er in the ha-nds of top management. 65

Dynamnic businessm-en work incredibly hard. Sr. Luis Naboa Naranjt,,

the largest banana exporter in Ecuador, runs his business almost

single-handed, 6 Most businessmen understandably pr-efer the role

of gentleman, so decisions related to innovations are not made.

Businessmen usually try to keep the firm within the family. The

"Iheir apparent'' is Irequcntly started off at the top. Occasionally, a

business will be started specifically for the purpose of givingtenx

generation business experience. 67 Staffing of subordinate- positions

is generally based on family ties. Some feel that highly qualified

applicants would be rejected for subordinate positions. If good

people arc content with lowv pay and the lack of opportunities, it is

only because they arc either tapping the till or planning a- palace coup. 6

641Interviewv with Mr. John J. Snyder, Labor Attach to the Ame -ri-
can Embassy in Ecuador on October 15, 11968,

65 pset and Solari, p. 16; Fillol, pp. 24-26,

66Intcerview% with Mr. W/ilfred Griswvold, personal pilot to Sr.
Nob-oa, on October 28, 1968.

67 Comercit) Inmnortaciora S. A. was stIarted by Giz-.vanni Mlalniati
Par-oci to give his so xporiellc2 .ind omlh to do, Thiere are,
other exa-l s s lL U. S, Dcpartmn-ct of Commn-erce, World
Trade Dr to rtC m rc lIror dra(date uinknlown).

68In 2-rv i c% %. Jih NAr. CGri (Ioi. Th:'s hiac been partly su-tbstan-
titc y e -01,1ojc~ain,e;)(C~ yofs ce a
lil ig,(01-1ny f rtlc f r ua ,lva c s






Th chr ic-:l incfficienc'y in.ay a lso be ri- lated to the concern for

"inner light" on i.he p t of th,- top m:tnagers. It is reported lthat

ma jor d'-cisi
done Io see ihow tih. decision consequcnc's would affect the company.

The desire for status, feelings of like and dislike, and geneei-al

dreams are allowed to replace objective analyses of profit and loss

69
situations.

Labor relations are patterned on the paternalistic ideal. The

company is regarded as a family and the workers should be grateful

and loyal to their superiors. Making demands against the top man-

agement is equivalent to "disloyalty" and "not knowing their place."

At times the system works impressively .well. Sr. Ricardo

Levy, the gender al manager of Fabrica Sudamericana de Droches S. A.

spends much of his time handling the most intimate problems of his

v.workers. The workers respond enthusiastically in their work and in

support of Sr. Levy and his v.ife.7

When paternalism breaks down, labor-management relations can

be extremely bad. One survey concludes that most businessmen per-

ceive their wv.orkers as being c islhoneist, lazy, incompetent and dis-

respectful.1 Petty thi'.'ery, absenteei sm and union irresponsibility


6CGordon, Clhapter 11.

T0lhii; opinion is based on exteCnded observations 1maide bIy the
anl rner, t al., Thmunity i adhor

Frank L. Turner, c-t al. The A rlisan Communnity in Ecuador 's







are evidently 'rvr prcv-aci It. lHowever, much of this may be attri-

buted 1o Im;ln i .CmIenl'C I at itlds. Many busin esm en subsidizec com-

munist unionCiS in or.l'-r to kep out lAmerican-style unionization. They

vwou o ld rallier deal v.'ith tlhe radicals, .who can be bought off in a strike

and v'ho justify their anger at the workers, than witli the Amierican

organizers who do not. This attitude seems to be based on the desire

to maintain a superior social position over the workers rather than on

a desire to maintain profits v.ith cheap wages. Management has gener-

ally rejected union proposals that guarantee an increase in total

profits through a modernization of work organization and an increase
72
in worker productivity.

Business often seem ambivalent about politics. High status and

visibility are accorded to individual political actors. Most Ecuador-

eans identify with political factions and arc interested in and knowl-

edgeable about political events. Charting the rise and fall of political

personalities, and watching the crunch of power plays in the political

big leagues is as fascinating to businessmen in Ecuador as profess-

ional football seerns to be in the United States. Many businessmen

seek election to put final public approval to a successful private

career. The individual who has served a term in Congress is ele-

vated to a special hiigph status. This fascination with politics has


Moth-rnizinJ Economyn (Menlo Park: Stanford Research Institute, 1963),
p. 10-1; Fillol, p. 7-1,

72Interview wilh M r. Snyder.







prol,'bly helpl-d iprC rvc'C the nIrajesty and legitimacy of political

inl l itul icn s.

Economic rch:malld)l arc- easily politicized. It is coni'. cered

(quite proper to seek political positions or influence for private gain.

There is no concept of "conflict of interest. Political connections

are as much a prerequisite for economic grov.'th as efficiency, pro-

duct quality and cost reduction.

Politics is also seen as dirty and dangerous. Politicians are
75
seen as being unmindful of the needs of the people. Corruption and

inefficiency are frequently cited as major barriers to economic

grov.th. Businessmen also resent the delay and necessity for political

76
pull to get action from government bureaucracies.6 There is also a

general fear that the costs of losing may outweigh the pleasures of

winning open partisan battles. These factors tend to reduce the poli-
77
tical involvements of many bL lsincessnmen.

Authority is often met w..ith overt compliance and covert resis-

tance. Fev. businessmen question the general legitimacy of the


73E>anrlin,2 Privatei Investments for Ecuador's Economic
Grrc.th (W',1:.l.ingtoni, D). C.: Checci and Co., I 61), p. 4.

Inlervic.'. v.-ith Mlir. Madison Mlonroe Adaims, Jr., on March 1, 116S.

)Do in .urn, "Do'. lMelscs del 'Honcorablle' Cong.reso, Epocc
October, 1968, pp. 22-28..

7('E ,) i1 ...P ri ',:it," lInv' stm .nl . p. .

lntri vi,'v."- '.,.ih Sr. ]],'-lg Vorbt--cl-., president of C -rvc.ceria J..-
Vietlri.i S. A. on July ;'. 196 ..





3b

government However, many '.w.ishl to avoid the application of author-

78
ily in situations in which tihy are involved.8 Tax evasions are

79
frequent and open. There are elements, of self-hate in this ambiva-

Incei ahbut politics. Many people couple a strong identification as an

Ecuadorcan with feelings that the political and social orders are not

80
worthy of serious regard.
81
Political roleF are centered around the image of cl caudillo.

Political leaders and their lieutenants have many different motivations

for participating. There are substantial differences in the styles of

different groups. Howvevcr, I was struck by the uniformity with which

certain heroic characteristics were attributed to leaders at all levels.

The impression was very strong that followers must be able to pre-

sent their leader as an authentic caudillo, even if neither the politi-

cian nor the follower has internalized the ideal characteristics of

8;2
this role.2


78
78Shapiro, p. 8.

79Hugo Nlas, "Qui'n Paga Impuestos en El Ecuador, Vistazo,
October, 1968, pp. 12-19.
80
One of the most poignant examples occurred in October, 1959.
A bill giving honorary, citi:.:n' ship to an American philanthropist who
had resided itn E'cuador for many years received wide support in Con-
gre ss. 1lowever, Ihe propvis;.l was allowed to die because no one was
sure [le nh man would accept and pride prevented anyone from asking
himi. See EcuILdo r, ConCg re s, Diario de Deliates, Se nado; S eptiem-
bre 19C,9; Vol. I (Quito: Archivo Legislativo, 1960).

1George I,11 .nkst'ni, Ecuador: Constitutions and Ca udill os (Los
Angels: Univa-rsity of California Pri-wts, 1951), p. 31.

81 was imniressed by the xltLi) to which many sophisticated







Tihe plliCal- le.' d Ir Inu t hiv'le a follo'..'ing loyal to him. His

org;tniit: ltion ii 1 per sot:' l, it is not based on int-r.-vening variables SLucli

as party or orgini :ltional idci ifications. The individual who has not

been ablle to -gain the loyally of a close following deserves no attention

by those on the fringes. The 1.c:lder is combative, powerful, and au-

lonornous. He is supposed to relish political fights. He must be able

to project the image of being able to master the competition through

sheer force of his personality, superior strategy, or weight of organ-

ization. He is also autonomous v.'ithin his organization. His follo.'wers

depend on him for direction, advice, and the benefits of his power.

Divided leadership through Lask specialization is weak.83

The lender is pure. Many want to see their captains as "saviors

of the country. Therefore, his goals should be idealistic and he

should bc personally honest. If he deals in corruption, it is in the

interests of higher goals or to protect the interests of his followers.

Sophisticated politicians w.ho knIov. the v:hecling and dealing in Ecua-

dorean politics insist that their leaders do not participate personally

in these arrangemn cents. The dirty v.ork is done by advisors, either



politicians referred to their particular factional leaders and the oppo-
sitions in almost exactly tlie same term s of lhlroism ;and villiany.
They all s.ecimwd quite .sincere even though the ir evaluations were
apparently quite unrealistic, given thlie Ec liadorcan political context.
Since pol itic .ians do not b)haive as if they r>igardcd leaders as being
eitller all good or all bad, 1 c.iincludtd th-it ilis image is windoww
dre in.Gq ''," that iiuslifi .- :ncld ': blues ),liticil activitiCs that would
utherv'.'i:c not bu (] iti 1, gitiiniate.

'' rickL cl ;L l., p. 320.







out of loyalty tu the chief or, at timn s, basLcr motives.

The l-;eadir should be ai universal manl. The extraordinary indivi-

dual compectcnt to lead a lmov'ilmcnt should also be well-roundcd

intcllctlually. The ideal of the philosopher-king or the renaissance

man, intellectual, valiant and humanistic, is much more appealing in

Latin America than it is in the narrowly specialized culture of the

United States.

The leader should be human. He should be "simpatico" ; warm,

charming and genuinely interested in others. He should be open to

the ideas and wishes of his followers. A constant preoccupation

should be the interests of his follo'.ers.

The ties between leader and follower are warm and emotional.

Many seem to gain a vicarious sense of participation through identifi-

cation with a leader. For active party workers,, the vicarious sense

is reinforced by the possibility of employment.

The close lieutenant gains status through association with the

political leader. An individual who has the confidence of a president

must he exceptional. He also gains power by his claim on the loyalty

of the chief and through control of access to the chief.

These factors can be related to the "arrogantly combative" style

of politics.84 Cooperative efforts and pragmatic bargaining for


'lThis image is consistent with the observations of Colombian
politics in:.dl-c by James L. Payne, 'Patterns of Conflict in Colombia
(New Haven: Y;le University Press, 1968), Chapters 6-8. However,
the social constrmaints on political conflict in lEcuador seem strong
enough to prevent the development of defensivee feuds. "







muituFl :itin sen'i011 rel', tit.'ely infreqluent in Elcuadoreian politics. Poli-

ticians have. .,n inter st in dcemon!lstrati ng their intrinsic majesty as ;,

true c;lu'il lo1. '.my fear that tlljnir follo.'Jing would be sv.-alloved up
85
by competing gro .ps if ;autonomy is not guarded jealously. There

are fewv I rancscending loyalties to serve as common goals in a coopor-

alive c-ffort.
86
Political conflict often resen-bles open battle. Each group

claims that the opposition is hopelessly corrupt and damnable. Open

negotiations are difficult at first, so outcomes are determined by the

results of pov. er plays. This may take the form of mass demonstra-

tions, attacks on the meetings of the opposition, threats of sporadic

violence, or a general strike. Negotiations start v.'hen neither side

can crush the other. Both sides usually can claim a victory. The

"ins" have maintained order or have v.'on the election, the "outs"

have gained the status of a ma-jor competitor .who could force negotia-

tions and have demonstrated a significant force for future battles.8


85Coalitions are form-ned during ple sidential elections. -However,
faclion.-il leaders are quite av.-arT of the necessity of m inta lining a
separate identity. Jll er\-i\cv.'s v.ith Sr. Jorge Luna Yepez, chief party
tacticiwn for ARI l' on Novc lmber 13, 1968, and v.'itli former president
arnd lilerail candidate foi prej- ident in- 1968, Andrc. F'. Cordo'a on
Novem!)ber 29, 196C.

Tlliese conmmcn ls paara llel observations of Peruvian politics
made Iby Ja. mes L. Payne, "]'Pru Thc Politics of Structured Vio-
lencet, '" Joiirn l of Politiics, NN-\'ll, 2 (June, 1965), 362-375.

8 N" r\.i .n D. ilcy, cd. Iat.in A ,m ric a: Politic., EIcouIomics
inld ,l -. .- S .- u'riy (N.\.' Y ork: P r. v-g.r, 1965), p. Sl.







Several clolstr -inLt Lre-p lthi political order from br(; king dolvwn.

Challenlers are careful not tou enter conflicts in which they would riot

put ]up a respect ab c slowing. A major defeat could spell the end of

a political Iclead r and his organization. Political loyalties often

cross-cut friendship and family loyalties. Opponents may bc joined

by a v.cb of social relations that dampen open battles.88 No group is

willing to strain social tics with uncommitted third parties by push-

ing the fight too far. The social support of uncommitted groups

gives combatants a potent reserve against potential attackers. So

leaders are generally careful not to make unnecessary enemies that

may return to haunt.

The pattern of Ecuadorean politics resembles those found in

neighboring republics. Political instability has been apparent.

Ecuador has been governed under 16 different constitutions since inde-

pendencc.89 Only three constitutionally elected presidents have

served a regular term of office since 1924. A total of 31 people have

held the presidential office in this period.90

However, instability has not meant the absence of political norms

and patterns. Participation has always been restricted to a very

small section of the society. At best, fewer than 20% of the people


88\littenli, Chaptler 8.

8 B1an l. stn, p. 8.

90Jbid. A new constitution was written after Blanist'en's book
was publ i slicd.







vote in clection-l. -uFormil control of thc machineries of government

has tended to sitay within a small circle. Many recent presidents, Jo-,,

Maria Velasco, Ai'ndres F. Cordova, Gilo Plaza Lasso, Carlos Julio

.Aroselmiena and, Otto Arosernena among them, have either served

several non-consecutive terms of office or are very closely related

to past president-..

Oligarchy in Ecuador has been tempered by at least a verbal com-

mitmeint to freedom and democracy. Most recent presidents have

justified their control of the office through an appeal to either a popu-

lar mandate or a commitment to reforms v.hich wv'ill make democracy

truly functional in the future. Personal freedoms have also been

generally respected. The coups have generally been run according to

gentlemen's rules. Violence has been kept down and the losers have

been permitted to withdrawaw into exile. Ecuador has had no military

tyrants to compare \vith Melgarejo in Bolivia, Trujillo in the

Dominican RCepblic or even Perez Jimenez in Venezuela.

The themes of personalism, regionalism and the quest for econom-

ic advantage have figured often in the panorama of Ecuadorean political
92.
history. The inidependencc of Ecuador from the federation of Gran

Colombia v.was declared in 1830 by the \'nell-uclan general Juan Jos(

'lore1 ;, vwho ruledl the country y directly or indirectly for the next 15


91 P.><.

92lol: n Ed'.'ii F'i a L.-it i i AAi3.:ri a' A Gcll rral lirlory (New\
York: Mhl cm illun, '19(.9), p. .i.-3.







ycars. National life c::l ended very little past the city limits of Quito.

Guayaquil andc the otl ler coastal areas were generally pcfst holes fit
93
for sn'm ggclers, adventurers and exiles.

The repressive rule of Flores, together with the resentment of the

role played by foreign generals in the country (one of whom was presi-

dent), and the struggle for the spoils of the government coalesced into

a vagurcly nationalist opposition movement. The coalition of dissident

Quiteios and the always troublesome residents of Guayaquil finally

forced Flores from office in 1845. However, the removal of Flores

did not bring peace, rather an intensification of internecine warfare

was the result.

Peace was achieved with the establishment of the reign of Gabriel
94
Garcia Morcno, the former rector of the University of Quito. A

civilian, modest, upright and scholarly, he was the antithesis of

Flores. However, militarism had been exchanged for clerical fanati-

cism. The Church was firmly entrenched, the Jesuits were brought

back and the curses of liberalism and anti-clericalism were combated

by the most strenous means. As a culmination of his religious pro-

gram, Garcia Mhoreno reverently dedicated the country to the Sacred

Heart of Jesus. An attemptt wazs made in 1870 to raise a clerical army

to rescue the Pope after the annexation of the Vatican. The medieval


931bid.

]bid. p. 4?.9.







tiillocracy tli;il GC rcia hiorneno v.as trying to build was brought to an


95
crnioup of mai cilltc'-v.- ldinl youths.95

If the 19thl century had belonged to the conservatives, the 20th

ma rkcd the rise of the liberals. A. prosperity based on the exporta-

Lion of rice and cocoa together with the eradication of yellow'v fever

brought population and economic power to the coast.9 The period

betv. ecn 1875 and 1895 .was characterized by an uneasy truce between

the liberals and the conservatives. However, a scandal in the admin-

istration of Luis Cordero resulted in a civil v.ar betv.'en coast and

sierra v.'hich v.'as '.,'on by the coastal general, Eloy Alfaro. Alfaro

promptly began to cut back the power of the Church and to modernize

the legal and commercial systems of the country to keep up .'ith the

newv prosperity. Although Alfaro \as assassinated by a proclerical

mob in 1912, the presidency wvas firmly held by the coastal liberals

until 1924.

The economic development of Ecuador brought n.e\ groups into

the political process. The military v.-as largely pacified through pro-

fcsF ionalization. Many of the economic elites, v.who apparently' decided

that revolution v.as bid for business, began to support political


95George- ]J. l31;nl'l.'trln, "Ecuador: The Politics of Instability, "
in martinn Nercdltr, Ti1-. Polit il S. \ F -.lms of ;,lin I Alimerica (Prince-
lon: 1). \'an Ios! ra. d, 190-;), ]. 27 1.

F6- 6. (39.






coalitions
and rising literacy brought in the spectre of popullism.

During the depression years there was a brief experiment v.wilth

miliilary rule. During the .war 'years the liberals and radicals united

for a last clc'cion and gave the presidency to Dr. Carlos Arroyo del

Rio. However, the dominant figure of the period has been Dr. Jose

Maria Vclasco Ibarra. Between 1937 and 1968, Vclasco has been

president five times. Only one term has been finished. Three times

98
novw ie has been ousted because of corruption and violence. The

persistence of Velasco's political career can be attributed to the

appeal his brand of populism has for the poor and the marginal busi-

nessnmen. His presidency from 1960 to 1961 is the subject of Chapter

8.






















97 1BlI;nkMtln, p. 277.

98Velasco wLas president at the time this was written.













CHAPTER 11I


BUSINESS GROUPS OF THE COAST


The Economy

The Ecuadorcan economy is specialized in the production and

exportation of a fev. agricultural products. There are a few'. business

groups and the economic relations among groups are relatively simple.

The importance of agriculture in the economy is suggested by Table 3.

Agricultural production is relatively undiversified. Most of the land

is taken up in the cultivation of a relatively f-ic. crops. This is shov.n

by Table 4.

Exports are highly important to the Ecuadorean economy. With

a total gross national product of some fourteen and a half billion

sucres in 1963, exports amounted to about tw'o and a third billion

sucrcs. This is a fairly high ratio of foreign trade to total produc-

tion for a South American country. Since Ecuador has enjoyed a

stable balance of payments in recent decades, these figures accur-

at.ely reflect the importance of international trade.

Virtually all of Ecuador's exports are agricultural goods. The

i-nlporitanl ce of a fe'.' crops is ho ,n by T ble 5.


1h:-culor, L3;nco Cen tria, B3oletTn del ',anco Central 1965
(Quito: 1965), p. 1i,8.
45





a
TABLE 3

EMPLOYMENT ANID EA ]INGS IN SECTORS OF THE
ECUADO1(EAN ECONOMY IN 1963

Sctr Peopl 'o% of Labor Value- % of
Emplovyd Force Added GNP
Agriculture & Fishing 839, 000 56. 5 5202 35. 9

Manufacturing 209, 000 14. 1 2409 16.6
Artisans 179, 000 1,2. 0 1409 9. 6
Industry 30, 000 2.0 1000e 7.0

Commerce 92, 000 6. 2 526 3. 6

Services 240, 000 16. 2 1252 8.6

Construction 48, 000 3.2 526 3. 6

Transportation 42, 000 2. 8 609 4. 2

Finance 8, 000 .6 428 2. 9

Mining 3, 000 2 320 2. 2

Utilities 3, 000 2 181 1. 3
TOTAL 1,48.4, 000 100.0 13, 862 100. 0
aBasic data are taken from Edv.win E. Erickson, et al. Area Handbook
for Ecuador (Washington, D. C. : Government Printing Office, 1966),
p. 329; Clarence Zuvekis, "Ecuador: Selected Economic Data" (Quito:
USAID, 1968), p. 21 (mimcographed).

Erickson, t al. p. 64.

cDue to the complexities of the Ecuadorean exchange system, all local
prices will be given in sucres. An average rate would be close to 20
sucres to the dollar. (Figures in thousands of sucres.)

dcThere are many artisans engaged in cot tagr- manufacturing of shoes,
clothes, stra'.v hats, and the like. The 195'1 i industrial census included
only businesses ciploying 5 or more workers with an annual production
greater than $500. 00 (approx. ) and that had over $600. 00 active capital.
Ecuador: JuInta Nacion:il dr Planificacion y Coordinacioh Economica,
sec Primer Ceo Indusrial: Re suim n de e tcsuiltados (Quito: 1957), p.
v (nliml cograplihd).

CClarence Zuvekis, "Recent Trends in Ecuador's Manufacturing
Stctor" (Quito: USAID, 1968), p. 6 (mimncographed).









TABLE 4

IM.A\JOR AGRICULTURAL PRODUCTS
IN ECUADOR IN 1957a


Product Area Planted in Acres Tons Produced


Cattlcb 2, 950,000 40, 000 head

Barley, oats,
corn 696,000 48,940

Cacao 410,000 8, 139

Bananas 232, 000 73, 000, 000 sten-iF

Coffee 209, 000 8, 900

Wheat 173, 000 8,987

Rice 158, 000 20,000

Potatoes 78, 000 53,420

Cotton 70,000 19, 156

Yuca 48, 000 40, 789

Others 3, 32?., 000 N. A.

TOTA L 8, 316, 000 N. A.

a"Produc cin Agricola Estimativa de la Republica del Ecuador en el
A'ro 1957, El A% ro (Quilo), August-September, 1958, p. 41.

bEcuador, Junta Nnciciinal de Planificaci n y Coordinaci6n Econ6mico,
Bases v Di re-ciivo.s ),-ra I 'rop ramar el Doesarrollo Ecc.n6miica del
EcuA.clor: Toinm. 1 (Quitio, 19]-), pp. 21 1-216.

bhid. p. 127.







TAB LEI 5

MIAJO, EXPORTS FOR 1960c


Conmunodity E>.xort Value % of Total Export V\altue
(in million) (in millions)

Ba n n ,a s 90. 0 60. 3

Cacao 21.4 14.4

Coffee 21. 9 14. 7

Other 15. 7 10. 6
TOTAL 149. 0 100. 0

aStatistical Abstract for Latin America: 1962 (Los Angeles: Center
for Latin American Studies of the University of California, 1962).

bBoleti p. 153. Figures are in dollars.



The unclassified exports include such items as balsa, pyrethrum

flowers, canned tuna, tagua nuts, Panamaa hats, and pharmaceu-

tical herbs. Few of thlse have an exported value of over $2, 000, 000

a year.

The manufacturing sector of the economy is small and simple.

The 1954 census of industry recorded only 1, 085 businesses. Few

intermediate products are bought and sold. Most of these are agri-

cultural goods which pass through relatively few hands. Virtually

all capital goods and processed raw materials are imported.3 (Table 6


2Ccn o Jndustrial. . p. ix.

3Ecu idor, Mini -tr de Tesoro, Anuario de Cornercio Ex:lterior:
1960 (Quito, 1961); .Lilo 1-inke, Ecuador: Couni r of Contra sts
(London: Oxfurd Univ'er .ity Press, 1960), p. 1-17.









TA13LE 6

INDUSTRIAL EMPLOYMENT BY SECTORSa


S .I rI- Workers, En-ploycld of Induti ri;l Total


Te (-tiles,
clothing 9608 31.6

Foodstuffs
Proce sing 7750 25. 5

Automotive,
railroad
maintenance 3897 12. 9

Oil drilling,
refiining 2361 7. 8

Other 6754 22. 2

TOTAL 30, 370 100.0

aCon:;o Industrial . pp. '1-9.

blncludes spinning '.' caving, and dyeing of some imported fibres as
well as the processing of domestic cotton and wool.

Concludes milling, baking, canning, the processing of chocolates, ice
creamis, liquors, etc.

Td his includes the fii brication of bus and train bodies on importccl
trucl classic as '.e1ll as such "heavy" repairs as the regrinding of
crankl .ihaftrf;.







The organiz-Ation of the conmmerice and services sectors reflect

thec simplicity of 11)c economy in wliich they are involved. Substantial

markets exist only for a few commodities, As a result few busincssc,-

can afford toseilienrowly. Economic expansion hs gcnorally


been achieved through diversification.


Business Grozips



Coastal Ac,,riculture

Agriculture is the least developed sector of thq..eFcuadorcan

econom-y. The level of investment and techpology is very low, even

by Latin American standards. 4 The average agricultural worker

produces less than one-fortieth of the value generated by his North

American counterpart. 5 It is not surprising then that the value added

per worker is also low despite the dism-al level of agricultural wages. 6

There arc great regional variations in crops and cultivation

techniques. Coastal I riculture is heavily specialized in bananas,

coffee, cacao, su~gar, ric2,_ and cotton which are the exportable and

''heavily processed" comminoditics. The .close working relations amron-

the exporters, the producers and the processors )iav, becin a factor i
7
encoiirging a relatively hiigh-l-evel1 of dcvelopinent on the coast


4"Productivity of the Agric u1tural Sector in Ecuador, "Economlic
Bulletin for L HIn Americai, VI, 3 (October, 1901), 66-67.

5Ibid. 67.

6b( 1 7







I 1:, n:11 ;I s

Ban.;imnar are the. i.a-cil.lone of the Ecua-dorean economy. Ecuador

i.- the lar,,..st exporter and second largest producer of the fruit in lthi

v.orl d. Th"le development in bananFas has a occurred since 'World War

II. The value of banana exports rose from $7, 000, 000 in 1950 to

$90, 000, 000 in 1960.' This trerenc dous progress has been attributed

to cheap labor, government supports, fertile disease-free lands, and

a favorable climate. Although exports are not expected to grow, in

such a spectacular manner in the future, the long term prospects are

considered excellent.0 Yet the banana growers are one of the most

divided, discontented, and politically aware of all business groups in

Ecuador. They have a common desire for an improvement in the,

sucre price of banana exports and for more go,.crninent investment

in banana growing. l '.'.'ever, there are sharp splits between the

large-scale producers and ltc smaller grov.-ers as to ho'.v these goals

are to be reached.

The ov.wnership of' banana-producing lands is not highly concen-

trated. There are only some 160 plantations held_by the big land-

owners. The largest, Cia. _Bananera Ecuatoc riana (Unitc d Fruit)
_- .- ------------ "- -


Rl-lph J Vatkins, -,:dinr cu-dor' E ports (Ne'. York:
Frederick A. Pracg. r, 1967), p. 10.

91Ecnom ic ulltc in . ., p. 15.1.

1ll,ins J. Lin em.niii, .-\n l\ .is \ l)-rov ccicr'n..s I La:s Export;t-
ci(n .'= d.-1 l:-cl, l ir (Q uiitl Jmnit:I ;' iL jon.il d( I' Il 1.nificaciI'i1 y Coor-
diine ._,in ]'b : ,n, :i'ca l ,','l), p. 0.







cove;1 abu 400nrcs. 11 Some of the, other large plantatinar

the Fronch-mvned Astral (4, 500 acres), Cia. Frutera Stid-Am rc,1

(3, 700 acres), and the Swe dish-owned llacic da Clernentina (- 0

a c res). The production of those largest plantations accounts o

than Z0 percent of the total crop. 12 (Figure 2 shows the dliqtrbto

of landholdings.)

The rn eciurn UXQuc~crs account for about 50 percent of t oa

export volume. Although the smallest peasant producers areb a

the most numerous, they account for only about a third of toa po

cluction and onlv a small fraction of the total volume of expors.1

T.1ie-smjallcst producers are peasants with less than 12acesi

production., They generally grow bananas with family labor a

s idc lL. Lo-subsistence farming and the cultivation of cfe n

cacao. The bananas produced arc rarely exported and are fcunl,

not even harvested.1 These small producers fall outside th cp

of this study.

The medium- planters have between 25 andl :250 acres.Thyac

frequently upwardly mobile mid-dic cls wie"who arc n h


These figures are based on a rough conversion ratof.5
acres to the hectare.

12N'atkins, p, 16; Ietmnsin 1Ecuador, p. 37,

13








FIGULr. 2


D1L.[, Ei 11 (' : OF .\:'.'\:.' L.A:.DS i:. ECU,'DO


Percentage
of total
area
cu t iLva ted
in
bananas


48 88 98


Percentage ot banana landholaings


Figures deriv.'ed tLr.m Ilrrera Vasconez, ]F Cu lt ivo
dcl F. mi n..- en El 'curad r (CuaJ.qu L1: A::II 1963),
p. I.'I ; J.D.V. Srundcrs, ":lan-land r-.1'ILions in
Ecuador," II',hur l So.n iol v, xx'VI(1 (:larch, 1961),pp. 57-61.








process of parlaying a small start into a reasonable planting.15 The

more prosperous planters of this group generally take agriculture

quite seriously. They produce for export and are aware of planting,

cultivating, harvesting and grading techniques. However, the imple-

mentation is often hampered by a lack of capital. The medium

planters are highly vulnerable to market factors.6 They lack the

reserves necessary to weather a bad year, to keep fallow land into

which to expand, and they rarely have the capital needed to change

to the cultivation of coffee or cacao.

The medium-sized plantings cannot be farmed with family labor

alone and cannot support a full-time work crew. Therefore almost

all planters in this group use floating wage laborers on a seasonal

basis.17 Selection, harvesting, grading and transporting of the

bananas to the export docks are very frequently contracted out to pro-

fessional wholesalers. These wholesalers may be either independent

operators or affiliated with one of the export houses.18


15Ecuador, Junta Nacional de Planificaci6n y Coordinaci'n
Economico, Reforn-as de la Estructura de Tenencia de la Tierra y
Expansion de la Frontera: Plan General de Desarrollo EconSmico v
Social: Vol. II (Quito, 1962), pp. 95-96.

1Interview with Sr. Vicente Chang, banana grov.er and owner
of "Hacienda san Luis, on October 27, 1968.
17
Anthony Bottomley, "Planning in an Und-e-rut ilization Econ-
omny: The Case of Ecuador, Social and Economic Studies, XV, 4
(December, 1966), 311.

8Watkins, p. 17.







The owners of the largest plantations (over 250 acres) are sol-

19
idly in Ihe "'.vhite" elite of the upper cl::.ss ..lany of them belong to

the old ari.-tocracy whichc h dominates much of Guayaquil business.

Their style could be described as patrician in that they expect to

receive deference and do not have to compete in the arena for what is

rightfully theirs. Tiei social ties betv.'cen the large lando'.,ners and

the commercial elites reinforce the economic positions of each. The

large landowners could expect to receive favored treatment from the

ba.nklers and the exporters as a result.

These largest estates are wvell capitalized and generally well

managed. The operation of the banana plantings often more closely

resembles industrial agriculture than the classical latifundia model.20

Almost all have a full-time force of agricultural workers and often a

fleet of private spray planes.1 Plantings are often diversified into
22
cacao, coffee, cattle, or rice. As a result, the largest bannan

planters are much less dependent on the yearly success of the one

crop in a competitive market.

The large planters generally select, harvest, grade and ship


19Georg MNiier, "The Jmpact of Vel squisino on the Ecuadorean
Political Sysitem" (Ph. D. dissertation, )epa rimenL of Political
Science, Southern Illinois University, 1966), pp. 1-5.

20United Nations, Econonic Cornmi.ssion for Latin America,
El Des..-irrollo Econinliico d.I' Ecuador ('.lM xico, 1954), p. 59.

21 Produc-tivil . ., p. 70.

22 \\;ilkin., p. 16; In\vert:n1 lnt in 1cn:i'ior, lp. 37.







their production directly to lite e'xporters. Whereas the small and

medium, gro'.wers are p:P,,,....... 'r- s-:tern accept cd for export, the largest
.. .. ..... ...... g.. . . .. . .. .
producers have contracts based on total production, regardless of

quality. The exporter has a very direct interest in helping the large

planltrs improve quality and to reduce the percentage that cannot be

shipped out of the country.

The cultivation of bananas is a highly complex art. It takes a

year for a crop to mature. After the fruit is harvested, the land has

to be cleared and replanted.23 Banana "hands" grow in bunches on

large stems, which may weigh between 50 and 100 pounds. The stems

are picked green and must be placed under refrigeration within 24

hours. Handling and shipping are coordinated so that the stems

approach maturity by the time they are delivered.24 This calls for

the closest cooperation between shipper and planter.

Bananas are extremely susceptible to bruising in shipment.

Bruises that may completely discolor the fruit when it is ripe are

difficult to spot when it is green. Therefore utmost care must be

taken in moving the fruit to the docks for shipment. The exporters

examine the fruit very closely for improper handling.25

The most serious banana disease is sigatol:a, a virus which


23
"El Des.irrollo . ., p. 174.

2.1
I2birl.

ai p. 17.
2-SValinsj,I~ 1. 17.




57

infests thl soil. There is no economical '.vay to prevent or control tliI

disease. Land thrt has become infested must be shifted into other

forms of cult ivatio'n until the disease has died out. As a result,

growers are very inlereC sled in finding ne'.. uninfected lands to which h

they can mo'.'e ini tile event that sizcatoka spreads to their cultivtions.

The larger growers buy up large tracts of unused land and can make

their own improvement s on it. The smaller growers generally have to

wait for the government to open up areas for colonization before they

can afford to move their plantings. The other major plant disease is

mal de Panama, a leaf fungus which can be controlled by oil sprays.2

Profits in bananas can be respectable. Harvested stems are

worth about ten sucres (50 cents) on the farm. The average yield is

about 250 stems per acre. Cultivation costs for the first year are

about $70. 00 and drop dov.,n to $60. 00 for subsequent years. The net

profits come to about $60. 00 an acre.2

The price of a stern of bananas is about 23 sucres at the dock

($1.10). Transportation costsar ar around five sucres and processing,

handling, and taxation costs add another five sucres. Therefore, the

banana growers could dc tli cr own proceC.sing and transporting to earn

the extra three sucres at the risk of not being able to find an immediate


Galo Pla;a and Stacey May, Tih United Fruit Ccrinpany in Latin
America; (Washiintoln, D. C. : The National Plalnning Association, 1958),
p. 169.

2 ]hid., p. 191.








buyer for a hi.ghJly perishable corninodity.2 'The. only major market

for b nana exp:Iort rejects is for cattle feed at ten cents a stem-.

The political interests of the small and the large producers on

exclieige rates are identical. Everyone involved in banana exports

has animmrediatc- interest in increasing the buying power of the

"baiiaa sure. This could be done by a general devaluation, which

would raise the sucre income from all export dollars, or by altering

the ten-s of the rmithiple exchange rate to benefit only bananas.

There is a major split between the small andi the large banana

growers on the issues of regulation of export-buying practices and

on government investment in virgin lands for b)anana grOWCTeS. TheO




a significant fraction of total current demand at any o~ne tim-e. He

also has relatively complete control over the factors of production,

Therefore, the large producer can shop around for th e best possible

contract for his bananas.

The smaller growers do not have these advantages. The organi-

zation and timing of selecting, picking, shipping, packing,, and loadt-

ing for export simply cannot be handled by one itidividuial. Because

the small grower has been 5;o clopendent on e.-po)rters and mniddlemenc

for hianfliing hi,; baiianas, the m dlm nhave become muxch miore

selective, In trading. small lots- of fruit. The m~in-iumn stem wei-lht


?2I,,Jacjw l ias,; "Ura Bainana de Oro M,aizco, Presenii a
T~ma nov erian JuTly 31, pp8.o 18-23.







acc.eptec for e-:l'port hi :i gone up from 30 to 70 pounds since 1950.29

Gro',vers. have also charged that process sors have demanded a frac-

tion of the total production "under the table" as a price for accepting

any of the, frult. : E :..,porters and their middlemen have also refused

good fruit on occ-isjion only to buy it later as cattle feed :nd then

export it to the Latin American market.31

Tlih smaller growers depend on ANIBE for oil spraying of their

fields. Some charge that the exporters have influenced ANBE to

spray the fields of recalcitrant grcw.ers at inconvenient times and
32
even to apply useless w.'ater instead of oil.32 As a result, the smaller

growers in areas in v.hich a single influential buyer handles n-mot of

the bananas are prevented from shopping around for a competitive
33
outlet.

It is not surprising that many smaller banana growers have a

very strong interest in some form of state regulation of the exporters.

Specific suggestions have varied from urging the creation of a state


29J. Champion, L.as Bananeras del Eciudor (Guayaquil: ANBE,
1959), p. 37.
30
Inl ervic.%v v.'ith Sr. Vicente Chang.

31"Jean Le Ro.',e" (Pscodonym), "La Gran Catastrofe del
Banano, JL Callc (Quito), 213, April, 1961, p. 10.

32 .1it wrvicw v.:lth a knowledgeable crop duster v.-ho works for
ANBE; "Jen i Le I;ouge['" ( IPcurdony)m), "El Negocio de la Fumiinga-
cin, La C.lle (Quito), 219, May 12, 1961, p. 26.

I33n .trvie'. v.' ilth Sj-. Alui'jalndro Carric't, editor iand publisher of
]_, Callc, on Novoomb,.-r 12, 196S.







elxporl ing and .shipping line31 lo the formation of indepcndenl coopera-

lives to in;arl.I b1aiian;is abroaid35 to reorganization of AN3BE to

incrcasc the influence of .smallr gro.wers.36 The smaller grove. rs

art' also interested in govcriiment dc-velopmincut of future banana lands.

The sn-allcr grco'.'.'.-rs fear that the large landowners .'ill buy up avail-

able lands when producing fields are infected by sipatoka, thins forcing

the smaller grow'vers out of business.

The political interests of the exporters and the large-scale pro-
.. ......... . -. ..... ........
ducers are often allied. The large producers have an interest in

maintaining .he sucre prices of bananas by restricting lthe...p.,-oduction

of the middle and small gro'.ers. The profits the exporters can

make from the n-edium and small grov.'ers give the large plantation

37
owners a "cushion" ''when negotiating a price for their own crop.

Therefore the large-scale growers are not so opposed to the lack of

influence of the smaller gro,.vcrs in ANDBE. Also the large growers

are not as much in favor of government road building and colonization


3For recent examples see "Intercscs Bananeros: Los Produc-
tores Banancros de Pichincla, El Comercio (Quito), September 24,
1968, p. 9; "La Asemblc.aI Nacional de Delegados de la Fedcracion
Nacional de Bananeros del Ecuador, El Comcrcio (Quito), Septem-
ber 29, 1968, p. 7.

35
3"Piden No Jntcrfecrir en Ncgociones de Pcqucn os Productores
dc Baninas, 1-El Comeri io (Quito), August 11, 1968, p. 28.

36"Ascnmblea Nacional "

I37ntcrviev.w with Sr. Vincente. Chang.







projects iIn u' 1 -.ar r.. b n: a in: lLnds. Thcir ability to build their

ov.in ro.ids p.i\'cs ~in-m an enormous competitive.' advtantage over the

smaller producers in shift lin a'.'.-a from sir atoka-infe stcd areas.


Cacao ;an Co!fee

The economic and political positions of the cacao grov.ers is in

sharp contrast to that of the baanaeros. Cacao is a relatively, "sich"

branch of Ecuadore.n agriculture v.ith low profits and an uncertain

future. However, the problems of the cacao growers do not seem to

have been reflected in their political programs and goals.

At the beginning of the 20th century cacao wvas the prime export

of Ecuador. When v.'orld market prices were 25 cents a pound in 1916,

Ecuador c:;portcd over 40, 000 tons annually, accounting for some 20

39
percent of total world trade in cacao.39 Prices fell to less than ten

cents a pound during the depression and World War II. Annual produc-

tion fell .0o less than 12, 000 tons in 1933 and has gradually recovered
40
to the current production of 33, 000 tons annually.40 Future earnings

are expected to decline gradually as higher quality cacao produced in

Africa enters the worldl d market.4

Some .100, 000 acres are planted inl cacao. It is estimated that


38 ,
intervioev. wi.,th Mr. Joln W. Sn,,der, Labor Attache of the
Amirican m slj;i.- sy in Quilt, on October 15, 196S.

39
\ ;,T kin ., p. 21.

40 l-in[In,, p. (9. Walking, p. 23.







cur1lren production n could Ibe ra- ily Cdounlji'd by recultivating 120, 000

acres that have been abandoned and by improving production techni-

42
quc s.

An acre of cacao produces $120.00 in gross income. Costs

average around $40. 00 an acre. It takes several years for new. plant-

ings to produce. Many farmers are unwilling to invest in cacao,

fearing that the falling world prices will not make it worthwhile.43

Yearly harvests of trees occur in December-January, May-June,

and August-September.44 The beans are allowed to ferment after

picking and then are dried in the sun. Dried beans are sold in small

lots to local representatives of the exporters. Since the beans are a

durable, easily transported commodity, local pricing is generally

based on economic factors and is approximately the same for both

the small farmers and the large producers.

Cacao is gene rallyjy ro1wny by peasant fa rmers. About three-

fifths of the plantings and one-third of total production come from

small plots worked by peasant labor for the free market. Most of

45
the remaining production is held by the large plantation owners.45
............. -. ... ....
Usually the landowner will "lease" a set of trees to i)s peasait

workers for them to farm using family labor. The peasant agrees
.... ." ---


'12]bid., p. 22. 43Ibid., pp. 22, 24.


U. S. Dep- rtment of Commerce, Investment . ., p. 41.

"5"E D DtLsarrollo . ", p. 157.







to sell all the production to the landovwner for a set price. The

16
own c',r Iet-'ps l12c profits from reselling the cacao to the Cexip rters.

The Ecuadorcan gcAernCnent has set up the Emprcesa de Renova-

ciSni de C.c a (cacao renovation enterprise) to promote discasc-

47
re- instant straiins and better cultivation techniques.4 Their efforts

have not been entirely successful. The resistant strains produce a

cacao bean of lowv.er quality and it has been difficult to persuade the

peasants directly responsible for cultivation to adopt better tech-

niques.

Given the market and production situation, it is not surprising

that the uncertain future of cacao has not resulted in widespread

political de-mands for government help. The landlords and middle-

men can recoup their profits by paying a lovwcr price to the peasant

producer. Governn-cnt supports for a price higher than currently

being paid on the world markets would be a financial impossibility.

Government programs to improve the quality of cacao would inevit-

ably involve working with the peasant producer. Such programs

would not be particularly popular. A last strategy for improving the

prospects for cacao would be to change the exchange rates on

exports. Tlhe cacao producers share with the banana grov.ers an

interest in devaluation. However, mi-ost landox.lwners and exporters

are involv'edl in bIoh commodities. Since tih prospects for balnaina


'16 bid. 1- ] id. p. 163.




6-t

are brighter, most people %vould rather spend time and m-oney there

at the e en of cacao.

The peasasnt producers who depend on cacao for much of their

income have alm-ost no impact on the political process. Unlike the

enidiurn and larse banana growers, they lack the time, the skills, the

power and the social standing needed for a hearing. A s a result, the

problems of the cacao growers rarely become political issues.

The situation of the coffee growers is quite similar to that of the

cacao farmers. World. coffee prices have fallen from $70 to $33 a

quintal in less than ten years. 4 Ecuadorean coffee sells below world

prices due to the lack of quality controls. 49 Most of the coffee is

grown by peasants in Manabi province. The few large fa rm~er~s whlo-

could be effective in national politics also cultivate bananas and cacao.

They will probably only invest timec and energy in coffee as long as

the world prices make it worthwhile. Most large coffee growers

seem mo2-e interested in the long term development of bananas.

Attempts have been made to ])cost earnings by improving culti-

vation, processing and grading techniques. The peasants who are

responsible for most of th(! production have not responded to the

proddings, of the I-arge growers, thQ exporters, and the Ecuadorean

government.0 'TlereforQ it is not surprising that few people continue


4,81hid1., 1). 160, 49%atkins, 1). 24.

50U. S. D)onartment of Comme-rce, .nv(,.fnment . rp '61.







to press vocally for further development by the government of coffee

Ia n d s.



Rice

Rice is generally grown by sharecroppers for local and national

consumption. Quality is poor and production costs are high.51 The

landlords are generally not concerned with developing techniques as

long as their lands are being worked in a profitable manner. There-

fore rice production does not seem to have been a political factor.



Sugar

Tv.o major mills, Azucarera Valdez and 'Azucarera San Carlos,

52
grov. and refine virtually all Ecuadorean sugar. Profit levels on

these integrated operations are high, reputedly around 50 percent of

the sale price.3 Since over 50 percent of all production is consumed

domestically, sugar growers enjoy excellent security outside of the

vagarities of the world market. Who gets the U.S. sugar quota

premium has become a political issue in recent years. However, it

v.,as not during the period under study.

Some sugar is grov.'n in the sierra foothills for local moonshine


51V'atkins, pp. 12- 3.

52
Watkins, p. 35; "Reportaje: El Inigciio Valdez, Ci;mnara dc
Inclust ri i1 :-, d(. Gua aq\'i il, Miay-J une, 1968, p. I 1.

53")- stiblCen Cos os y Utilid:irdes on Azicar, El Comercio,
Nov\ ember 11, 1'( p. _5.







(aguI rdic'ni e ). Proc,, -.-.in is. usually on an extremely small scale.

Distillers have be c-u c conc.'rnr.d about the problem; how.-ever, it
54-
hab not bothered the sut ar I 10. n to any extent.


Cattle

Commercial iherds are kept only by the large landov.'ners. Some

peasants have draft animals which may be...,jsed for domcttic consump-

tion. They have not been an important factor in the market. About 60
55
percent of the 1. 5 million head of cattle are on the coast. Most.~f

these are in beef herds.

A good herd of cattle earns about $40 an acre. Many farmers pre-

fer to keep basic herds, despite the low profits, as a hedge against

56
the highly competitive banana business.56 herds, traditionally of very

lowv quality, have been improving rapidly in recent years. Rising

profit ma rins have stimulated an interest in subsidized importation

of purebreds and in the construction of slaughter and chilling
57
hou se s.

Price ceilings .:in retail beef (about 30 cents per pound in 1960)

have probably reduced profits. Some cattlemen feel that a major


54 Watkins, p. 36.

55 p. 61; kings, p. 77. Ibid. 8

Slbid., pp. 79- 0; I'l De1-'arrollo Agro;ccario del "Ecuador
(Quito: C'ml.ara (r Agrit ultur:i dC. 1- l'riunera Zona, 196S), pp. 18-23;
R{cori'nd(] LLi.,'rn- 1 .11.ic,.t ]P. a I: ALrccin FIutrt ia n e l Stctor Ag rope-
cr'ii (QtOilu: C i:,;r.L de Agric-.iltur, dc l;i Primera Zona, 1968),







price incrYcLne S .-ould rducd ce ma rket more thanll; they v.'1ou1ld increase

profit inm rgiin s. T he r, fure price ceilings have not yet become a

ma jor political issue.


The .Ex)o rl r i-

Exporters have long b-c-en involved in Ecua;dorean politics. They

all share three general goals: to increase the sucre price of exports

on the -world market, to reduce the sucre price of comrnodilies

bought for export, and to encourage government investments in export

agriculture.59

Sharp political competition among exporters of similar size is

reduced by the lack of differential specialization. All of the largest

exporters handle many of the same commodities. This is shown by

Table 7.

Political splits occur between the larger and smaller exporters.6

The smaller businessman generally do not have the capital to finance


SugtestFed by Sr. Luis Del Campo Salvador, member of the
board of directors of the Clmara de Ac: ricviltura de la Primera Zona,
in an inter'viLv. held Novemt'lber 15, 1968.

-' imilio Estrada Ycaza, "GoCne sis de la Crisis Economica de
1961, La Calle (Quito), August -4, 1961, pp. 16-17 and continued in
L;, Calle AL.-1ti.tI 11, l961, pp. 11-12; Jorgce \V Villacres M.oscoso,
1]olitica Ecl 'ini '.C Intern iiounnl d'l E .-tIadc. (Guayaquil: Univer-
r.id.-.d do Gu;.- ..quil, 195''), p. 11_: .Il o -'i Lui s G i.:i~ lez A., N lur=stra
Cri i: 1\ Fi ori;:rd Mo .li rio Interni: >iown.1 (Quitlo Editorinal
iumini tiaini, I35 ), pp. ..UT-- Us; Intervicv.- will, M r. Jolhn \'.. Snyder.

Inlc r\iew '.'ll Sr. 1( A.bbd0! Cald roL i, .xecut ive director in
C;1.,'1 for ] id. .il i .-" l la.d''!, on Novi, il-.r 1, IC, 68.






EXPORTS AND SIZD OF J3USI.NE:SS OF T1E LARGEST EXPORTERS


9,10 C, U0 o' I kdro NM tpulns a g s cianio
lilt II bo v c Crk'dit S. A.co f ,
E norm a< s Un aS. A.bnns

-1, 000, 000 N 'e Cia. bananas, caca(

2, 500, 000 Sociodad Ce'leral c rice, coffee

I, 000, 000 Luis A. Nxoboa bananas,
Bonmancra Nohoa S. A. rice



Soo, coo Raid Cai~lzares La Madrid bananas
Fr~utera Chilena-E'cuatoriana S. A.
ExL2_iradora Ecuatoriana-Euronea S.A.

500, 000 UBESA bananas

400, 000 Sociedad Nacional Com-ercials S. A. bananas

250U, UUU) Exa oradoi at i2, Fruat: S. A. bananas

250, 0O0 C. A. Industrial Azua cacao, coffee,

aThe names of exporter s hawe been taken f rom ''Lista de Firmnas, E-xto
tadorcs de Productos Agricolas, '' El Agro (Quito), October -Novemer,
1962, pp. 28-3?-; "Firmias Exportadoras de Productoros Agricolas,"E1
Afrro (Ouito), October -November, 1961, p. 35. Ranking by re-isterc'
capital is baz-ed~ on data found in Guinl Gcneral de. Comerciantes de
Guaggaqil (Guayaquil: Cnimara de Com-ercio de Guayaquj~il, 1963).

bRegjistered capital i-, equivalent to the valuc of stocks ss; by co -
porations but covers all forms- of private u ies r(2zto s Snc
many exporters, particularly SoiddG nrladSr, Noboap, a-re
tlhou1Cht 10 C10pOe d on unregiC1)s10ered forciori capital, registered capital
may not accm~ratcly reflect the relative volklmes of sie s Ho v
it is; the only illoe' Ivailablce

cSoCj 11 t 6 C' J1 c ra n 1to Ie a1 12a Codn co r 1)or at io C ow10vne ICd 1)
Sr. Juan1 ea.1( clCnrl loolrtsa a band is
n av(-6 in hI) II in I n )(I Ie ta e SrZ. N0 r o I r kj Cor t C( tp nbeCtr
Ile d t~yWCn(0 '' -Pll d t()111 11-t1\ 1eso a con" rol o\'(' r r); -1 of ( le lo e

volunw of busI )'11 is 1111(1 1k l ls t al w-o lOd I)( i ndi cate d by Ilis r p
fQI'I k0 ii i ii c c/


V t )..............






] i..1 l i( I thI C otl" It;t s thC, W .bt, in m ii or CLc'l tra.ctb. A .s a

r -iilt th c d, p.nd on 11-.e rInaillC r growv:rs for the bulk of their busi-

n~ss. The sm, al cr exporter-s and thel smaller growers ars r oftc.n

;ill3 c( aiLa;inHL tlic larger procducc rs and export rs in an attempt to

I ncou'. ra'e m ore v.idely ,s}prcad production.

The snma-ller exporters cannot afford to wage extensive political

warfare against the lar-ge, growers and exporters. Because they lack

c.apita-l and econonCii:cs of scale, the overhead can be substantially

higher for the Fmaller exporters. They, depend on the larger ex-

porters to keep purchase prices low. enough for the s-maller buyers

to make a profit. These tw'o goals--cncouraging more widely spread

plantings and maintaining lo'.'. purchase prices--are often mutually

exclusive. This probably has reduced the political effectiveness of

the smaller exportcrs.

Table S cla ssifies the exporters by size and number.



Jnmporters, whnlepalers and retailers

The comierciautes62 have been regarded as one of the imost

63
pot1) t:it groups in Ecuadrori an politics. The Liberal Party has a


6 1]bid.

62Cc.G m rci:ini dre.cribe.- a major businessman engaged in coin-
merce, v','hih i.- nut thi, :i. s- con\v yc.d .by the trinslation of "mer-
I hitt. Tiic re.ore thie spal ti.-.hi termn will be used.

,3i.i.- G .,l.ir;,, 'r /, a-, I--r',im ]Dolitic:( del E c i ul;dor
(C'i:y,, q l' 1].'i i .ra.-l .1 i' ic,,,.., 19(3, ), 32'.; .Itiuin CGliithII r, Itnside
'_iil.h .'ni.ri. ,. ( v.- 'iYorl.: IL rIji r ,iul ]ow'.', 1967), p. 12-I.







TABULE 8

EXPORTERS DECLASSIFIED rY SIZE AND NUMBER
FOR 19'60\ A\D 1961


R(.gister d Cci iail in i Number of Percentlag.c. of Total
ThouS.;llnlCs of Sucres Businesses Registered Capital


Less than 20 9 .5

20 to 49 6 .5

50 to 99 7 J.5

100 to 219 14 7. 0

250 to 499 5 5. 5

Over 500 7 85.0

Unclassified 18

TOTAL 66 100. 0

Figures derived from sources used in Table 7.





firm base of support among the Guayaquil businessmen. The con-

rnercial sectors of the coast have been very well organized through

the CMnmana de Comerrcio de Guayaquil. The status of the cimara is

such that a past president could say that he "treated the government

on the basis of complete equality. "G64 General strikes organized

through thie cr.ivara brought dov.n the Military Junta in 1966 and have

shaken n-iany less fragile vc rIulnlments.


ntler\view with Sr. Ata;hux:lpph;i Chauez Gonzalez, former presi-
dcnt of the C:';im-:ia cdl Coinercio d,- d C ;v:coui..l, on October 30, 1968.




71

1o vc Io.'- r, theIl c :r ii r iit,'s do n lt form a. cohesive political

1..'d Ti lar 1 i r '1 i t, C in. rcia.l hours are L.-ul;a]lly a pa rt of a family-

run econ m)ic empiJi. 'J hle core businesses ha','. often supplied the

r/pl)il.'L, l. c-,tji cts:, rijd ic ,i mirl;:l s fur im porting and rctailing

of'er.'l ionS. .li hoiigh irrt Iall\ no importing business is highly spcci -

aliz.cd, the larger irriporcr. tend to handle capital goods, semi-

finished products (r.I.v materials for associated manufacturing

plants), and luxury items. One has the impression that wholesaling

of "bazaar" and cheap luxury items accounts for a relatively small

portion of their business.65

Although the political inleru sts of larger importers may be danm-

pened by other economic interests, the logic of their situation would

suggest they favor a generally inflationary policy. A rapid expansion

of investment and ian increase in available spending money benefits

the ma iny commodities. in whichh they are interested. The large

busincsf.c .'.vith available capital canl also profit from inflationary

specul :tion.

Tlhe smaller bu sineC smnen aire in a v'ery marginal position. They


65Small luxury imports account for less than 20 percent of the
value of :11 imports. Ecuadcl-r, Mlinistro de Tesoro, .'inuario de
Comncrci.' '-. terior (Quit-, 1961).

66.] liy c-rinjll y -iarc not firmly united on this point. For cvi-

'Ihtnic of in ol'.',.-i' nt of lhe inip l' rr in dce-manids for inflation, sec
Cl11.,1 t 1r 8. IloW, v\'-r, .lr. .lbi-,1 rt G( lla dil'i, .'.m erican business con-
. ,lt.int, -aidl ill :in in,; r\ \'iv. on M.iy .23, 19 .3 llth t m any im porters
I -.'or :,titl i il.- ; b c .-- tum iL ioni for long r::igc gro'.\ ll.




II tI

67
arc mor' geneAit'lly invtlvecd nl\ ill retailing bazaarr" items. 'They

o(cprate in a rowdy id niiar i-lk. on ;I small vullnme and frequently man-
68
a uc0 only a pr .cnrious living despite tmhe hi-h i ma rlhuplS. The general

lac.l; of spcci:-liz;'ation ci s ns more a child of desperation than true

divU:rsification.

The retail "ba::aar" trade has been most vulnerable to the very

wvidcly spread contraband in Ecuador. The smaller businessmen

therefore have been most vocal in demanding a government crack-
69
dov.'n on sm-uggling. Most of the retail sales are made to wage-

earning customers. Since prices seem to rise faster than general

wages in an inflation, the smaller retail merchants are among the

first to be hurt in an inflation. They share a strong political interest

in maintaining price stability.

There v.ere 1700 commercial businessmen affiliated with the

Cmrnara de Con ercio in 1962. The distribution of commercial busi-

nessmen by volume of business is suggested in Table 9.







67These observations; have been based on an explanation of the
siz.s and types of businesses listed in the membership lists of the
C 7mn:Ira di, Con:m rrio de Guliay)aouil.

I ntcrvi\ '.' v.' ith Sr. Abdon Caldero5,.

The be-st :-iample.- a re given in La Inclustria, tlhe official pub-
lication of thi. C: m :ar dlc .3 lndstriales de Pichin tcha. See the editorial
in La ndlust ri_- ,, July, 1959, p. 5.






TABLE 9)

L)ITI;il;'UTIO.N OF BUSINESSES BY SIZE


l i. ilere.d C lpi.-il in Percentage of
'Thou .a.inds f S, res Businesses Siampled


less than 5 9.8

6 to 10 28. 7

11 to 20 18. 4

21 to 50 19.5

51 to 100 8.6

101 to 250 5. 1

251 to 500 5. 7

over 501 4. 0

Total 100. 0

Distribution based on a sample of every tcnth listing in the
Guaia Grieiral d, Comierciantes, excluding all businesses
v.'hose main activity wv.'a clearly not commerce.


Industry

The economic and political interests of the industrialists are per-

haps the mi'ost complex of all sectors of the Ecuadorenn economy. No

olher set of business Tnmr in cc.'enm such a wide range of activities, posi-

tions, ;ind goals. Mtny indIustries are relatively new additions to

(- st;bl ih-.ed "family empires, which further complicates the political

ilt L.re( -tsI of i ndust riial m' u r s. This di ,vcrsily has resultcid in ;

f.,irly hligl I'. l of political coi]i'rltition among industrialists. This







i:.,1 -S..ion is only to pr-',.'idr a g.'rner;l fraine.'urk which seems to

,-c,,L:nt fur so 1-,, m ij('r difft rI.nces.

Over one-ihalf of Ilie nt.. ional indLitI rial production takes pace In
70
(;i-,:iy quil. Virtually all types of national industries, with the cx-

Seplt ion of textil: I ills, caii be found on the coast. A count of the

membership list of the Guayaquil Camriraa de Indlustriales reveals

375 affiliated industries. There are 37 print shops, 37 pharma-

ceutical houses, 35 bakers, and 33 millers. The 25 businesses

involved in metal working arc engaged in wire-drawing, canning,

bottling, and the manufacture of furniture and construction fittings.

Most of the other businesses are engaged in agricultural and food-

stuff processing or in industrial servicing.

Ecuadorean industry has been described as being a classic

example of "imperfect competition. ",72 Many businesses are crowded

into a few fields. Market conditions in each field are established by

the few large industries. This condition can be related to the style of

Ecuadorean business. Investors are conservative, unwilling to break

into ne. fields that lack an established market and available technology.


70Facultad de Ciencias Econonmicas, Guayaquil en Cifras (Guaya-
quil: Univer.sidad de Guayaquil, 1964). (M imeographed)
I -
"Clarificacion dc laI.. Emprcsas Inclustriales de Guayaquil"
(Guayaquil: Cam ira Idc Indust riales de Guayaquil, 196-). (Mimeographed)

"Anlhony BD. tl :nly, "In.pe 'pcrf.ec Cornmpetition in the Industriali-
z;itinn of IEcu.,dor, '" t111 r- .\:n' rican Econol ni: Affairs, XIX (Summer, i |
196r)), 83. 9.1; Cl 'irinc /uv-kis, "LRecent Trcnds in cutwdor's Mann-
f.crturing Secti.jr" (Quito: USA.ID, 1968). (\limeogra1iphed)







]t is conl, idi c r (.1 ..i i' i. alid .S.iLf-r lIo S l up -m a;ll business s s thal will

opierail f.ir uIn(l.r L.ij't 'ilty .iin i o i ct-pt tlI lower profit levels.. It i -

niu .-uri, r .l. Ill t i i ,' i :Jd,,..: ri.il 1l i.ant in I: C'.uII(1 r are ineffi'i cieltlv

sm:i11 I.b \'.'i!rld st.znd.- rds andil operate at 60 percent of capacity or
-7-
l.s.73

This Iiigl l1vel of competition and lov.wer profits have made indus-

trial in.'cst 'rnln s U iiinccessa rily risky. Consequently, investors are

even less willing to break into new fields and much capital is diverted

74
to agricultural mortgages and urban real estate.

There are three major splits among Ecuadorean industrialists;

domestic versus foreign ow.%ned, laree versus small, and domestic-

nrarl:et depelncence versus foreign-marklet dependence. These differ-

ences are frequently reinforcing, and so .'.ill be discussed together.

The larger industries generally are involved in large-scale pro-

cessingi and v.hat passes for "heavy industry. These include brev.'-

ing, canning, milling, etc. Many large industries have foreign coii-

ncctions. The Ecuadorean oil refinery is run by the Burnmiah Oil

Company of England. Dov.' Chern-ical owns 60 percent of LIFE, the

largest piharm'aceutic;.l hioise in thell country. The Ecua dorcan Cor-

poration is an A"niewricLii-run, Paliamas-b.ased holding corporation

which lhas channeled Ecuadorcan capital ineo the largest brewery, a


73 utllluI l'x', "Im ,crflct . ", p. 85.

Int rviC.. '..'ili Sr. ]'.' (1du rd Larra Siac-y, former general
ini. .i ,r >.f li" I,iL Cci ril, on Nouvi'im br .!.), 1968.




76


I I rlyc m a t 4ry, ;II ice 11ousey a ceme t pl t, a largc power plant,

-nd Cverail othcr ktrr;2 citcrpriscs, Howcver, the niujor sugar miill

and the(- larrgeSt Oil ZLId SO:il) J)latS areC purely Ecuadorean. Because

the 1,irgor izidustritlists aftken have access to foreign capital and

skills, their jiadustrics have been quite profitab1c. The average value
75
added per worker for the larger industries in 1962 was $2, 200.

The larger Ecuadorean industrialists are generally members of

the economicc oligarchy'' which dominates commerce and banking.

Their social tics with the economic leaders in other fields gives thern

an almost impregnable social and financial position. The social posi-

tions of the foreign businessmen seem ambiguous. They appear to

move in the best social circles, but are reputed to be "in" but not

"1of" elite society. 7

The majority of the smaller businesses are owned and managed

by Ecuadloreans. 77 Man), have entered into smnal-I scale foodstuff

processing or industrial services. Most of the manufacturers of


75Frank L. Turner, ct -al. The Artisan Commn-unity in Ecuador's
1\o0dernizin" E Coonomy (Mcnlo Park: Stanford Research Institution,
1963), p. 105.

76nterview with Sra. Stisana Ashton Donoso, Amnerican Amnbassy,
in Quito, -encolon ical expert, on Novemaber 6, 1968.

7U. S. Dcp trtim nt of Commnerce, "American Firmi-s, Subsidi-
aric.5 and Affiliaitos: Ecuaclor. 0ifme g ahe) O ly 61 businei sses
ii" Ln l 11,111 of llk.se b on r centy, Tiert

in ,;I~~l)re iiis ep rt'|







importt SullbS'tilt tNl n ;Ir it l. .s such ;is batteries, so:psll Cosi ethics,

records, ,n1il-, etc., fall in tli category. They are the most mar-

gin il of, all indc- tri- l] gruiil].;. They suffer from tlie multiple afflic-

tions of low cali't; 1i:.ation, tIr1,lcr-dlc\lulopcd technology, the threats

of che.' ilp r and l'etlt(r foreign jiniports, and ai market v.ith hiegl income

cl-a-tic i y. i Many smaller industrialists are socially nouveau rice.

Their freqIucnt lack of social status and personal ties with dominant

economic groups adds to their economic disadvantages.79

Not unexpectedly, the larger and smaller industrial groups have

political as well as economic differences. The major families have

solid positions in banking, commerce, and agriculture as well as in

industry. This, togetlier ith their patrician culture, has made them

seem overtly depoliticizedd. They have neither the need nor the

80)
desire to compete in public. Since the larger industrial concerns

are on a solid economic base and offer few possibilities of expansion

in a limited market, many large Ecuadorean industrialists direct


78"Nccsidad de Prorep,gr la Industrial Ecuatoriana, Camlara
de Industrials i le Gua:aquil, Jan iilary-February, 1968, p. 7; Jos6 Luis
Con>.ale::, i\ ie 1 ro Crisis v el F',ondo .lonetario Interrnacion.al (Quito:
Ldiuli. il u Rumiin.lltii, 196il), Clhapters 5 and 6, Ecuadcr, La Industrial
]Kc ortir'.n.': (Qu ito: Junt;a NIacioni l de Planificaciin y Coordillacion
]'coionomico, 195'/'), p. 9.
7'3
lai,.r, pp. 1-5.

10 hIs may Ie ,misl.:ling. Thle elite b'ls.nesssmen are reported
to l'I quite a.l ~ r.. e o .f lthe u lity i.if political influence. Public indiffer-
'.m .' iiay tiCe pu.-: ible only bec.,utie of a lhighl lCvel of pri ate influence.
J l i- ;ill r V.-.I. n '. r able] to d, Itc- in .ii c thi for him self. lIItervic'.'
v i11 Sr. .Alt .iim ro C"arri,.']i, publiilh, r of i-.! Callt., on November 12,
coP 6 ,








tlicir attention tolwardx (hlir otlcr interests.

The foIrciin inlidu sri. lists Cse m apolitical for different reasons.

The radical and highly n-itionalistic unions apparently strike more

freely against foreignn exploit crs" due to the emotional issue involved
82
and their lack of ties with political elites. Large foreign business-

men are also fearful of a hostile government that may restrict or

expropriate their operations. They have found it best to maintain

friendly relations w\lh all factions by avoiding commitments to any one

of them. Foreign investors frequently seek alliances with local cco-

nomic elites as a protection against these forms of raiding.83

The industries that depend on local agricultural products are less

involved in issues of vital interest to the "bazaar" or import substitu-

tion manufacturer. Demands for low tariffs on raw materials and

high tariffs on finished products simply are not of concern to the

"domestic market processors. Since the demand for foodstuffs is

more or less constant, these businessmen are not nearly so concerned

about monetary stability. Many of the agriculture processors have


81Some Ecuadoreans consider the large foreign businessmen to
be a potent pressure group. Ilowever, this was not the balance of
judgmecnt of the people with whom this author talked. See "El Juego
de Poder y los Grupos de Presi6n, Vist;izo (Guayaquil), October,
1968, pp. 35-52.

'"This s s based on personal observations and interviews with
Mr. George Fitch, USAJI) Industrial Officer, on May 17, 1968, and
Sr. RI.fael D13illon V'nldtc-, president of Banco dic Guavquil and
A; !'ia r'r V.t lch .z, on October 29 and 30, 196(8.

83Interview with Mr. Snydc.-r.






c.-t:li.' li. l Id rel t c1 1i '.*..11t thlr lI.irT 1L ..:icl .'. llers Z1 i ; ( do 1not h 1ive to

-11, ',C O flut f,," I t'.C'Irm ll t si,';' .--.

Sn r :ille i d llI I lJ.111. li t t. I.it d c 'u nU Lcl Iini ,re polt ica;lly av:.'ai-

i)ccaiiscO ii."' ar m uJry liIc].., 10 be ]n'.ol'VCd II in i )port Stilbtiittiions.

/S ;-i res l tli'y h111'.ve an iln-lri H.'d.-ite inicrcsL in ma ilintalling protective

tariffs on finished goods .'.hile .eepii n tariffs lov. on needed raw.

mnatcriJal and seml i-fini.ilhed products.. Like the smaller coiner-

cianteq, the smaller industrialists are more aware of the dangers of

inflation. They are alpo very av.are of their marginal social position.

The lRcvista de la Cimara de Indua t rialec'. de Guavalqul has an aggres-

si\e "booster" tone in promotiiig industrialization as an end in itself

and in characterizing industrialists as the major progressive and

venturesome force in the Ecuad-orean econoiny.

Bankers. --Danilkcrs occupy one of the most pov.'erful positions in

Ecuadorean business. Since Ecuador does not have a public excli.an)ge

market, a tlie banks play an inmpo-rtant role in financing and handling

bonds ind stccks as v.'e-ll as in making loans. Approximinately tv'o-

thirds of the foreign exchange coming into the country is handled

through Ilie banks- or their allied money changing houses. The



"Neces.id.ad . "; Gon:',.le;: Chapter 5 and 6, "lleredad
Nrf.i-sta I .ira l, J_,c notin i, C.,1nara. d Indu trial's de Gua yaq il,
Nov nemlbcr-De-c,-ml r, 19l7, ,. 3.



tlI i r.t 1..

uI tc.r.i v, v. jitl ?.ir. . i,' ,.r.






deedneof smarzller fLmiers and comme-irciAl bu sines sme-n on bank

loans to finance harvests and szilcs hizas alrcad been discussed. The

private banks account for appro~xim-ately two-thirds oil all agricultur.lI

conMnInercial, and industrial loans, the remainduer is handled by the

Dance Ccntral and the public Banco Nacional de Fam-ento. 87 Over

twvo-thirds of all private credit is extended by the Guayaquil banks. 8

As a result, the Guayaquil bankers have major impact on the national

economy. The economic power of the bankers is enhanced by the

scarcity of credit. The demand for loans is so high that a "black

market in credit" has developed in which money is offered at illega_lly

high rates of 20 percent or more. 89As a result bankers can be

highly selective about who can receive credit without limiting their

volume of operations.

The political power of the 'bankers is enhanced by their connec-

tions with the Guayaquil "inner elites. The major banks are man-

aged by the prominent families that have extensive holdings in all

other areas of the economy, Another major asset of the bankers is

their command of cxpertise. The banks are the major employers of

economist s and financial technicians outside of the government.

Public planners depend on the bankers for much basic information

87 'B I tI B n o ],
PE LIZcIaOV, Banco Central,B ltnde noC nrldl
YEcuador: 1965 (Quito, 1965), p. 91.

Iiol In I, p 6 5.
89l







..b),iil ec-1'noInic )p rformrlincL. This C-,onsal nt :e change of pVersonnel

:inld inform. Lion beL'tv, n ti ll i b:l)i crs and the government gives the

bI.inkLer hil pre-ti',e in political circles.

Banking style is rational and 'cry conservat i'e. Collateral

rtquiremcntl s are ]hi;ih, bankers usually require clear titles on lands

90
'equal] to t.'ice the lo:ri for agricultural credits. Most loans are

91
made for six months or less. ExceptLions Lo both generalizations

are made to old and solid clients and to members of the family. This

has been considered a sound banking practice; bankers will risk ven-

ture capital to trusted managers v.when it is clearly understood that

they can take over a faltering situation v.ithout having to formally

92
foreclose.

Conservatism is also reflected in the preference for large loans

to established businesses. About half of all credits were placed in

93
less than four percent of all loans. Bankers also tended to avoid

the riskier industrial and agricultural loans. Seventy-tv.'o percent of

all loans v.,cnt to finance commercial transac tions. Both of these

practices placed a s.cvere limit on the private credits available to the

smaller farmers and industrialists, whicl partially explains the


I0 i rvicv v.' iltl 1.M r. Snyder.

91


li tLrv-iw \ v. il I.t r. .1)el miller, American Erlnba.-sy in Quito,
.i:.ff ,c,.nomni.-:t, on April 27, 1968.

,l.,i .ll . p. *'l ibid. p. 63.






interest s of these grotlups in gove rnment financing and investments.

The political propr;ims of the coastal bankers reflect their eco-

nomlic inte rests. Although some bankers accept inonetary stability

;s ai national virtue, niany have been very much attracted to the

95
tillures of inflation 1,ry inve''stmCent. A rapid expansion of the money

supply would stimulate the demand for capital goods and luxury

imports, which w.vould benefit both the large importers and their

bankers. The devaluation which usually follows steady inflation

would raise the sucre income of the exporters, benefiting many areas

of business on the coast at the expense of the sierra.6 Inflation and

devaluation would give great scope for monetary speculation, in

which the bankers would benefit since they have the dollars.

The bankers are frequently opposed to the minimum reserve

requirements which limit the amount of money which can be placed

in profitable loans. A related demand is that the government assist

in maintaining the financial integrity of the banks. It has been sug-

gested that this could be achieved through the government insurance of

bank holdings.9

The role of the public banks (Banco Central and the Banco


95
Documentation for these observations is extensive and complex.
Since the bankers \vwere deeply involved in the devaluation of 1961, the
detailed analysis of their programs and roles will be presented in
Chapter 7.

96fmilio Estrada Ycaza, "Genesis ."

9Docum nation tu be given in Chapter 7.







.;cion.'il : 1i .un..' tc) dccl'.s not 4ce'n to have been attacked by thli

pri'.a:tc b, il., rs. Ti..- volume of business of the Danco Cc(ntral is

cqlite n'"ll il the 1C :' I "nc' N-cioina;l dci Fomento specialize' s in the

higher ris1, r.gricLltu r.i 1 credits. Ml;.ny private bankers seem to have

c-'ltablishcd iu.ieul ,..orkin-. relations w'.ith the public banks and many

bank 'rs are :glad to sec the e:x:pinsion of credit, even under the aegis

98
of a competing public agency.

Political split s among the bankers are kept to a minimum by the

lack of specialization and tle doi-iination of tv.wo major banks. There

99
are 16 banks registered in Guayas Province.99 The largest tv.o,

Banco La Prc.'is.ora and Banco De Descuento, hold 72 percent of all

deposits. These two banks are allied by very strong managerial and

family tics.


The Pattern of Business Ov.'-nership on the Coast


Business ov.'.nership and control tends to be rather centralized on

the coast. Several business families have part or full ownership of a

wide range of buIsinessecs. Tlese individual "empires" are also

joined at r.n.ny points through joint participation in common business

Vcnl res.


91ntervic'.'. with Sr. Alfredo Part.ja Die:canseco, assistant man-
;Iger of tle 1"'. n.., IPo [ la r and former rncmlb: cr of the Junta Monetaria,
,n Nov Im N D1.'c i -" 1 19 8.

Gu i\ rLuil 'n Cifr i- (Gul'yaqjlil: Univcersidd clec Guayaquil,
19 ( ,2 ), p 1. ";.






Thi "interlocking d irccto r;1itc:" lh;ive a strong impact on the poli-

tical, social and ccoflnomnic positions of the "oligarchF. To an cxtenlt,

the power of se-'v ratl individ c l bti -uinesses tends to be additive. A

combination of mosl of lhe nima jor banks would have a greater effect

on the supply of credit than would any one bank operating alone. A

\.idcr con-bination of most large manufacturing firms would offer a

potent political base for businessmen n advocating protective tariffs.

The social position of the central managers could not but be helped

by the added income from many businesses and the subsequent non-

availability of a business base for social competitors.

However, the range of situations in which power could be applied

may well be reduced by bringing many different businesses together

into one combination. A single manufacturer can easily press for

protective tariffs for an entire segment of the economy. His mancu-

vering room would be significantly reduced if he had to worry about

the effect protective tariffs would have on an import-export company

in which lie was also involved. Managers involved in a wide range of

companies might find their political maneuvering room to be quite

narrow. The only interests they could comfortably defend would be

those that applied to a major portion of their business empire. As a

result, the owners of large business empires could be expected to

have a rather weak interest in defending the interests of a business

sector, whilc hI'in' v.\'ery active e ,and lpowc'rful in the defense of cither

tilh' spEcific bI.Mu inles ni'eeds of thlcir spt cifie companies or the defend se







..f I li c tir "It, ii : t l .. "

T'i- hIt eel of inlt(f r.tiL n I Of ie several business empit, r s would

;.1-.o have :in i ff.t un the political and economic positions of the

u-iness le,i(- rs. Tihe formation of a closed "inner circle" through a

hi t,li level of inite r;,tion of Liisine.s cinpires would be expect ed to

facilitate cooperation in promoting a "business candidate" and the

dampening out of personal conflicts in tile political wars. Lower

levels of integration would probably result in a greater tendency for

the business leaders to break down into separate factions.

These considerations suggest that we should be looking for three

factors when examining the pattern of business ownership: the extent

that the rnajor businesses in one field have been brought under one

management, the range of businesses included within the empires,

and the cx.tent that the businessmen involved have been highly inte-

grated through many points of shared business contact and family

relations. Although no indices have been developed, the situation of

the Giiayaciiil business leaders with respect to these factors can be

estimated through an ex>:i in nation of Figure 3 below. A breal:dowv'n

of the listed groups by participants- is given in Appendix A.

T']ie central set of associated groups clearly occupies a very

po'.w.'erful position '.vilhin Itic coastal economy. The potential for

pu.'cr partly dlependscl on fihe r accretion. Fifty-five industries are

inliludled ill ih' gr'ipj) '.whIchl is some I J percent of tile coa,;tal total.

T'lie pO-rcnl.*,; of larger plants is probably eve-n higher. .I so





YIG ,U 1 1E 3

RE-LATIONS AMONG GUAYAOUIT, BUSINESS EIMPIRES




.nw ce 8 Con-m-lercial





The Banking Circle
Ivan ufacturing 5
Commnerce 10
Fin since 5


The Val airinos
Manufacturing 6
Commerce ?
Finance I
# 1


Luis A. Noboa - -Estrada Ycaza

Commn-erce 8Commercc 15
/ 9Finance 5
#- 15


Her beIrto Orces Mcndoza
Manufacturing I
Commrerce 4

Finance3





Ec 'oran CoL. ep ocVle- a ns y Bigas
Mauatuig7 Manufzictuirine 20 IManufacturing' 2
Comre 4 Commerlce 25 Commerce 4
-1 Fnn e3 -7
11 3 1


ll= um"bcr of aF. oci-ted u n s me

One' 1;n(, is dralwn bwtwcen ( mpire, for- each person who participates
inhu ftl;( ultit oined. Figu 3 ,,, ba.scd u1poll data prcelented, in
AnnondsA,







iiilcludi d I icn t LC'i' ipingi arc;1(- 22 :large ( comm( racial firm s and II Ilarge

fin;in i:.l firm-. 'hC comlhin(l d ecncmOnlic v.'cight of these businesses

is im pres ivc.

The potential forr po.'-r has also boon aided by the compl .l.nen-

tarity of the powers of the pa rticipants. The combine includes the

managers c.f thi- five leading coastal banks, La Previsora, Banico de

Descuentc., Banico de Guavagiqil, Sociedad General and Banco Terra-

torial. Also includ.c-d are the major exporters w.'ho control much of

the foreign exchange in the country and the managers of the insurance

companies v.-ho make many of the long term investments. The coor-

dinataed use of the financial po.v.ers c.f the inner elites would have a
100
major impact on the Ecuadorcan economy.

Several factors mitigate against the coordination of all members

of the "inner elite" --the interlocking groups. One factor is sheer

size. Many other businessmenn, in addition to the 79 listed, partici-

pate iln running tlic associated businesses. It v.'ould be difficult to

assume that all would be 'willing to cooperate on a common project

except in special circumsnltances.


l0Many Ecuadorean observers feel that the economic position of
thie Guayacq il oligarchy m il:s them one of the inost powerful of all
political] groups. T'he succCCes of the 1966 general strike in bringing
dow'.n the nmililt: -y julnta is ciited as an O:xa p] :le of v.'hat (iLe elites can
do. Similar vi '.s of tlie lp '.'r-rs of Ith. b!us.inessrnlc- i are expressed in
lRfa l] GO.tl;r.a :-.. .ri;.;,ig., .l ;qU,: 1i l-Pi 13l ic a tdel cunadc. r (Guay'mquil:
d]ilt-ri.:l .All r- d-. 1963), 33; "l` ,.a.- Fa- m ilias Ilan Contrcl .i(i
L..%! Ec',.no i ,i l. -'p(ic Coli'niall, 'lI Comcnercic, Septcmi'er 29,
1968, p. 1.






A sccondl futclor is tht! coiipc-siticon o~f ilh sub-groups wvithin l

n o inerlokig st. All of the sub-crowps, contain both corninr -

cat 1-11d mnictilfactur ill, busimes.,-s. The diversification of an cipm c

into several type of businesses mnak-es it improbable Oiat grand cozli

tions could be assenmb~ed to defend the interests of only one sector

It is more probable, that the businessmen would rise to defend onlyth

101
specific interests that affected their specific businesses.

The high level of integration of the sub-groups would probably

result in two effects. Given the emphasis on primary group 1oa~

in Ecuador and the high degree of overlapping business associain

Compounded by family loyalties, it would be expected that them -

bers of the sub-aroups would work very closely together. Hoevr

the construction of larger coalitions would be dampened byth aco

tight integration am-onry the sub-aroups. Sub-groups. scee tob

joined at only a relatively few places by a few busine~snsen lohv

associations wvith several groups. The Guayaquil "oligarchy em

to be composed of mnany mnore or less overlapping groups, each r-

mng to scrambile for a place at the expense of the others. The cinci

tion is controlled by ties of friendship, station, anid family, a da


03Perhaps the idea of conflict mnanancn-init thiroufli fa-cr iito
Of Col,, P(I -;]I, Co'litionssho'.16 bo e amillci as --upp oniwntto th
11101L' t'rld-io!111 Vi W Oft]-JQ impo tanc(- ofdcimm agpieqaton i







.'t:.'.1.: lLs tlhatl i ', .- ll 1 l -i\'vc a I coinOil ilt rest in m eC tiic g c ha ll [en


tu t 1, lt arPr b .i %E s.s v.orl'-d.


102
Au e :;:n plc of tin.- "'l~-n*i 2no tc-Ocl.elcr'" of the GuayaqCuil busi-
nl.;s ,ii ,)i is the c'lo e coo- pe'raltiCon beLtv.'. c n Sr. I.larc'o and Sr. Dillon,
inLnn of .tl1usl :i-t ithi tic:il 'vi'v.'s of business responsibility. The
g.n-r;tal vie.' of thlc, relations .111on011g Gu,)a uil buslinessimcn is con-
Ci -it.ilt v.-ilh ili,- .iiions of ?.ir. Johi, Snydcr and llio:-e expressed by
Sr. r:c. AbIlA n C'.Ild riTn, dir,.ctor of the Partlido ]ilieral Radical of
Cul-y I- on NIcv.'IIl t r 1 1, 19(8; ;and llth inI c. i-'i." .'. ith Sr. R] Ifacl
1illn V\'aldrz, preo idc n(i ,f ic ti an( o tie Guayaluil, on October 29,
1%96.




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