Title Page
 Table of Contents
 List of Tables
 List of Figures
 Summary and conclusions
 Biographical sketch

Title: International economic sanctions
Full Citation
Permanent Link: http://ufdc.ufl.edu/UF00097764/00001
 Material Information
Title: International economic sanctions the boycotts of Cuba, Israel, and Rhodesia
Physical Description: x, 399 l. : illus. ; 28cm.
Language: English
Creator: Losman, Donald L., 1942-
Publisher: University of Florida
Place of Publication: Gainesville, Fla.
Publication Date: 1969
Copyright Date: 1969
Subject: Sanctions (International law)   ( lcsh )
International economic relations   ( lcsh )
Economic conditions -- Cuba -- 1959-1990   ( lcsh )
Economic conditions -- Israel   ( lcsh )
Economic conditions -- Zimbabwe   ( lcsh )
Economics thesis Ph. D
Dissertations, Academic -- Economics -- UF
Genre: bibliography   ( marcgt )
non-fiction   ( marcgt )
Thesis: Thesis - University of Florida.
Bibliography: Bibliography: leaves 388-398.
Additional Physical Form: Also available on World Wide Web
General Note: Manuscript copy.
General Note: Vita.
 Record Information
Bibliographic ID: UF00097764
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 - 000129393
oclc - 01636868
notis - AAP5408


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Table of Contents
    Title Page
        Title page
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        Page ii
        Page iii
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    Table of Contents
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    List of Tables
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    List of Figures
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    Summary and conclusions
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    Biographical sketch
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Full Text







3 1262 08552 4055




I wish to express my appreciation to the many persons who

rendered me assistance in the course of my investigations and without

whose help this dissertation could not have been completed, I would

like to thank my supervisory committee, Professors R. Bradbury,- R.

Blodgett, I. Goffman, and J. Morrison for their helpful suggestions and

careful reading of this.paper. My committee chairman, Dr. Bradbury, was

particularly.helpful, both with my research and writing and with the

scheduling of my graduate coursework, qualifying examinations, and a

host of administrative problems which arose in the course of my resi-

dence. Dr. C. Donovan, chairman of the department of economics, has

also been most helpful to me throughout my years of graduate study.

My colleagues at the University of Chattanooga--Professors

Armstrong, Cook, Haemmel, and Keilany very kindly offered their time and

assistance.and made valuable contributions to my work. I owe a particu-

lar debt of gratitude to Dr. A, Vieth, chairman of the department of

economics and business, for the cheerful encouragement he gave and the

innumerable favors he most unselfishly rendered on my behalf. Others

whose help I would like both to note and to whom I wish to express my

thanks include: Dr. P. Sweezy, Miss Susan Parks, Miss Tina Silver,

Mr. P. LeRoux, Mr. J. Pouch, Dr. Rafael Rivas-Vasquez, Mr. J. Morton,

Mr. and Mrs. J. Nesler, Mr, R. Hernandez, Mr. M, Gonzalez, Mrs. B.

Chappell, Mrs. A. Harris, Mr. Steve Weinstock, and Miss V. Parlan.

.The bulk of the research contained in this dissertation was, of

course, accomplished within the confines of the many libraries whose

services I utilized. I would like to thank the librarians at the Uni-

versity of Chattanooga, in particular Mr. GradyLong and Mrs. Nina Pharr,

for their very great assistance, and the librarians at the University of

Miami, Coral Gables, Florida, Northwestern University, Evanston, Illi-

nois, and the University of Pittsburgh, Pittsburgh, Pennsylvania, for

their invaluable help.

The University of Chattanooga provided the financial assistance

without which the dissertation could not have been written. In addition,

several students at Chattanooga--Mrs. Nancy Hullander, Mrs. Jackie Doty,

Miss Brenda Biggers, Miss Nancy Ballard, and Miss Patricia Long--typed

the many drafts and revisions which the dissertation underwent. The

author would also like to acknowledge the time and efforts of Mrs. Hilke

and Mrs. Haines, of the University of Florida Graduate school, both of

whom were extremely helpful at the final stage of writing. Cole Printing

and Letter Service, Knoxville, Tennessee, typed the final copy.

A list of the many others who in one way or another made my job

somewhat easier would be too long to provide here and would still

probably neglect a few persons. To these unnamed people my heartfelt

thanks. Finally, to my wife Barbara, I owe perhaps the greatest debt.

During the year of research and writing she provided both encouragement

and comfort, allowing me to center my attention almost exclusively on my

work. During that time her sacrifices were many and pleasures few.

Without her understanding and patience this dissertation could not have

been written.



DEDICATION . . . . . . . . . . .

ACKNOWLEDGMENTS . . . . . . . . . .

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

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

I. INTRODUCTION . . . . . . . . .

Boycotts: Theoretical Background . . .

Historical and Political Aspects . . .

II. CUBA . . . . . . . . . . .

Historical Background . . . . ...

The Pre-Castro Economy--An Overview . . .

United States Investment in Cuba . . .

International Trade . . . . . .

Political Pre-Conditions to the United States

Embargo . . . . . . . . .

Boycott Implementation and Maintenance . .

Economic Impact of the Boycott . . . .

Structure of trade

Effects upon domestic

production . .

Political Repercussions

economic structure and

. . . .






















III. ISRAEL . . . . . . . .

Historical Background . . . .

The Israeli Economy--An Overview . . .

The economic structure of Palestine . .

The economic structure of Israel . .

Political Pre-Conditions to the Boycott .

Boycott Implementation and Maintenance .

Economic Impact upon Israel . . .

Political Repercussions . . . . .

IV. RHODESIA . . . . . . . . .

Historical Background . . .

The Rhodesian Economy . . . .

Political PreConditions to Sanctions . .

Implementation and Maintenance of Sanctions

Economic Impact Upon Rhodesia . . . .

Political Repercussions . . . . .


APPENDICES . . . . . . . . . .

Appendix A . . . . . . . . .

Appendix B . . . . . . . . .

BIBLIOGRAPHY . . . . . . . .
























. . . . . . . . 399



1. Cuban Sugar Exports 1786-1850 . . . . . ... .29

2. Cuban Sugar Production 1911-1954 . . . . . ... .33

3. Performance of Cuban Economy 1928-1940 . . . . 36

4. Average Annual Growth Rates of Industrial Production

Latin American Nations 1955-1960 ...... . . 39

5. United States Investments . . . . . ... 44

6. Direct United States Investments in Cuba in Selected

Years . . . . . . . . . .. . 47

7. Sugar Mills in Cuba, Nationality of Owners, and

Percentage of Sugar Production in Selected Years

1935-1958 .. . . . . . . . . . . 49

8. Cuban Trade With The United States, England, and

Spain 1841-1859 . . . . . . . ... 55

9. Cuban Trade With The United States and Spain

(1891-1896) .... . ........ .. .... 56

10. Cuba and The United States: Main Product Exchange

1893 . . . . . . . . . . . . ... 58

11. Cuban-United States Trade 1902-1927 . . . 64

12. Cuban-United States Trade 1928-1940 . . ..... 66

13. Sugar Cuba's Supply to the U. S. Market .... .. 72

14. Balance of Payments . . . . ......... 78




15. Cuban Trade Balance With The United States and United

States Share of Total Cuban Imports 1950-1958. ... .79

16. Geographical Distribution of Cuba's Foreign Trade:

1949 to 1958 . . . . . . . . .. .. . 81

17. Composition and Value of Imports, 1954 . . . . 82

18. Cuba: Composition of Imports According to Economic

Categories 1949-1958 . . .. . . . ... 83

19. Value of Principal Exports, 1953-1954 ....... .85

20. Cuban Trade With The United States and Latin America

1958-1963 . . . .. . . . . . . . 99

21. Cuban Foreign Trade 1959-1966 . . . . . 105

22. Free World Shipping to Cuba Selected Months, 1963-1967 . 115

23. Basic Data of Israeli Economy . . ,, ....... 166

24. Contribution of Citrus to Palestine's Exports

(1927-1939) . .. .. . . . . . . 171

25. Jewish Industrial Establishments (Jewish Agency Census

1937) . . . . . . . . . 176

26. Palestine's Balance of Trade 1930-1939 . . . . . 182

27. Palestine's Balance of International Payments, 1936

and 1939 . . . . . . . . ... ..... .187

28. Indexes of Value and Volume of Imports, 1942-1944 . . 192

29. Percent Distribution of Palestine's Imports,by Country

.of Origin, Selected Years, 1936-44 . . . . 193

30. Exports from Palestine in 1939 and 1943 . . . .. 195

31. Palestinian Foreign Trade, 1939-1944 . . . 196


32. Population and Jewish Immigration 1948-1966 . . .

33. Employment by Branches, 1955, 1960, and 1964 . .

34. Development of Selected Branches of Israeli Economy,

1950, 1956, and 1963 . . . . . . . . .

35. Israeli Trade Balances 1949-1966 . . . . . .

36. Gross Imports by Economic Destination 1959-1966 ..

37. Israel's Capital Imports by Sources, 1959-1964 . . .

38. Imports and Exports by Main Countries of Purchase

and Destination . . . . . . . . .

39. Industrial Origin of Rhodesian Gross Domestic

Product 1954-1964 . . . . . . . . .

40. Non-African and African Employees in Rhodesia, 1965 .

41. Rhodesian Exports 1964-1965 (Including Gold Sales) . .

42. Rhodesian Imports 1964-1965 . . .. . . .

43. Direction of Rhodesian Foreign Trade 1964 . . .

44. Summary of Most Trade Sanctions Applied Against

Rhodesia January 16, 1966 . . . . . . . .

45. Rhodesian Tobacco Industry 1965-1969 . . . . . .

46. Rhodesia: National Income Measures (1964-1967) . . .

47. Rhodesia: Net Migration (1956-1968) . . . . . .

48. Long Term Economic Development Credits Extended to

Cuba by the Socialist Bloc 1960-1965 . . .. . .

49. Cuba's Trade With the Socialist Bloc 1959-1965 . . .






















1. The Middle East . . . . . . . . 164

2. Boycotting-States and Israel . . . . ...... .222

3. Southern and Eastern Africa . . . .. . . . 272



This dissertation studies the economic impact of international

economic sanctions upon the target nationss. Three specific boycotts

are investigated: the United States boycott of Cuba, begun in 1960; the

Arab boycott of Israel, which was initiated even prior to the legal

creation of the state in 1948; and the economic sanctions against

Rhodesia, initially implemented by Great Britain in late 1965 and later

joined by the United Nations. Boycotts are essentially political acts,

representing instruments of foreign policy by which one state tries to

bring about a change in the domestic or foreign policies of another.

They are, then, a form of coercion which attempts to inflict economic

hardship upon the country under sanctions. Boycotts may have varying

degrees of economic and political effectiveness. Economic effectiveness

refers to the volume of pecuniary damage inflicted, while political

effectiveness refers to the degree of desired changes, if any, under-

taken by the target state. The thesis to be investigated is the propo-

sition that economic sanctions will cause sufficient disruptions of a

total economy to bring about the political changes desired by the

boycott initiators.

Boycotts: Theoretical Background

For over two hundred years the gains and benefits of international

trade have occupied a position of importance in both the economic policy

of governments and the theory of academicians. While exceptions have

been occasionally noted, the advantages accruing from the international

division of labor and specialization are recognized to have not only an

expansionary effect upon aggregate world product, but also upon the

national dividend of each participating nation as well. Over the years,

trade theory has been refined and sophisticated, from absolute advantage

to comparative advantage, from two-country, two-commodity trade to

multi-lateral, multi-product exchange. Emphasis has shifted from the

older concern with the direction of trade to a more recent preoccupation

with the volume of international transactions. The essence of the

theory, however, seems basically unchanged.1 Via specialization and

international trade, a nation can avail itself of greater amounts of

goods and services than it could by itself produce. In short, a

"country's access to a foreign market has a real income effect that is

essentially the same as if there had been an outward shift in its pro-

duction frontier."2

The benefits from trade basically derive from differing compara-

tive costs, which result from a variety of causes, the chief of which

See R. Harrod, International Economics, rev. ed., Chicago:
University of Chicago Press, 1958, p. 3.

Gerald M. Meier, International Trade and Development, New York:
Harper and Row, 1963, p. 18.

are unequal factor endowments, differing technologies, and diverse

utility and preference functions. The gains from trade will tend to be

greater, (1) the more domestic opportunity costs differ from correspond-

ing production costs in other countries, (2) the smaller any one country

is relative to its trading partners, (3) the easier it is to gain access

to foreign markets, and, finally, (4) the smaller the slope of the cost

gradients both at home and abroad.3

These benefits should perhaps be elaborated upon briefly. Inas-

much as trade is beneficial only to the extent that domestic cost ratios

differ from the corresponding foreign ratios, it is logical that the

greater the difference between the two, the greater the scope for gain

via specialization and trade. It will be economic for a nation to

import those goods for which it possesses a comparative disadvantage and

export those for which it has a comparative advantage. To the extent

that prices accurately reflect relative scarcities, the greater the dif-

ference between world-wide prices and a country's own prices in the

absence of trade, the more the benefit to be had. Along the same line

of thinking, it can be demonstrated that trade tends to dissipate when

the domestic price ratios (opportunity costs) become equal to foreign

ratios. In short, as domestic and foreign prices are brought into line,

the incremental gains from trade diminish. Since cost ratios are not

usually constant, but tend to vary with the volume of production and

Harrod, pp. 12-38.

See Murray Kemp, "The Gain from International Trade," Economic
Journal, December, 1962, p. 808.

degree of specialization, the more rapidly both domestic and foreign

ratios tend to change (the steeper the cost gradients), the sooner they

equalize. Conversely, the more slowly they come together, the greater

the scope for advantageous exchange.

It can also be seen that the benefits of trade are greater, the

larger the rest of the world is relative to the nation in question.

This is true because large nations tend to have greater populations and

other resource endowments which allow for much specialization according

to comparative advantage within their own borders. Small nations, on

the other hand, cannot carry the division of labor to as great heights

domestically. Thus, the smaller the nation, the greater the potential

benefits from international trade. A large population, then, has a

trade-reducing effect. Nevertheless, the volume of trade tends to be

greatest between the larger, industrially advanced nations rather than

among the less developed countries or between advanced states and

economically backward ones. This is true because the trade-reducing

effect is more than offset by the income effect which such size permits.

The expansion of economic opportunities made possible by (and concomi-

tant with) growth and a large national output open very great oppor-

tunities for mutually advantageous exchange. Recent work indicates

that the volume of trade between two regions tends to be directly pro-

portional to the national income of the areas and inversely proportional

to the distance between them. Finally, the easier it is to gain access

See H.,Linneman, An Econometric Study of International Trade
Flows, Amsterdam: North Holland Publishing Company, 1966. Of course,
distance in statute miles is not as important as the economic cost of

to foreign markets--either through a reduction in natural barriers via

transport or selling'innovations or through a reduction in artificial

barriers such as tariffs and quotas--the greater the sphere of gainful


In addition to these important reallocation effects, which are

quantifiable conceptually, although difficult to arrive at empirically,

there are other beneficial results from free international trade, these

being more of a qualitative nature, but nonetheless significant in their

impact upon real income. Following Adam Smith's famous dictum that "the

division of labor is limited by the extent of the market" it can be seen

that access to foreign markets, by enlarging product demand, can allow

the use of large-scale economies and new technology. Mass production

techniques would be uneconomic if an unsaleable surplus is the only

result. Disposal of high volume, low cost output via international

as well as domestic trade has a positive income effect upon both pro-

ducers and consumers.

Trade also serves to link markets together, thereby providing

increased knowledge of conditions, qualities, and prices--all of which

tend to make for a more efficient allocation of resources. Beyond this,

diversified trade "serves as a kind of safety valve or shock absorber,

allowing random economic disturbances in different places partially to

offset each.other."6 Perhaps.most important, it helps instill dynamism

transportation. A relatively short geographical distance may be
economically "long" if the terrain is difficult to traverse or there
are other encumberances entailing added economic expense,

Leland Yeager and David Tuerck, Trade Policy and the Price Sys-
tem, Scranton: International Textbook Company, 1966, p. 62.

and vigor which act as spurs to efficiency and innovation. In the

developing areas the foreign trade sector can act as a springboard from

which entrepreneurial abilities and functions spread into the broader

domestic economy. Moreover, the added competition from foreign pro-

ducers penalizes inefficiency and stimulates innovation in all economies,

advanced or developing. Lastly, but perhaps most importantly for new

nations, trade tends to produce a."demonstration effect" which can raise

national effort, attitude, and output by stimulating the level of

national aspirations and piquing a desire for achievement.7

Participation in international trade, then, has significant

economic effects. Both the reallocations which would result from a

static long-run equilibrium situation and the output effects of the

dynamic aspects of trade result in increases in real income. The neces-

sary conditions for static long-run equilibrium under completely free

international trade.are twofold: in the product market, equality of

prices (ignoring transport and marketing costs) of all economic goods

of a given quality in all countries, and in the factor market, the

earnings of the agents of production for supplying services of a given

quality must be the same. Fulfillment of these two conditions would

result in the real cost ratios in each nation being equal to each other

and to the price ratios of the goods produced. Such an equilibrium

.For enlightening account of the relationship between achievement
motivation and economic development, see David McClelland, The Achieving
Society, Princeton; "Van. Noltrand,. 1961.' .'. It should be noted that
political stability is a condition for economic development. To the
extent that growing aspirations are unmatched by (or outstrip) accom-
plishments, rising frustrations result, possibly leading to political
instability which retards economic growth.

would create an optimum distribution of the factors of production and a

maximum world output. That the world falls short of these conditions is

an obvious truism. Due to ignorance, immobilities and rigidities, and a

host of other factors, some contrived and others natural, the full bene-

fits of international trade are never realized.

Nevertheless, from the point of view of a particular nation,

imperfections in the outside world must be taken as given data. "Trade

offers a country worthwhile opportunities regardless of why world-

market prices differ (actually or virtually) from its own."8 As Harrod

has suggested,

Since we are considering . how any particular country can,
taking the conditions in the outer world as given, best utilize
her resources, the question of the conformity between the foreign
cost structure and the world price structure becomes irrelevant.
The best that a particular country can do for herself is to make
her own price structure correspond toher own cost structure and
to enter into such foreign trade as is consistent with that con-
dition and with the prevailing world price structure.9

This brief survey reaffirms the fact that the benefits from

international trade are real and substantial. Although there exists no

general agreement among economists concerning the distribution of the

gains from trade--in fact, great controversy yet prevails--it must be

assumed that in a situation of voluntary exchange all parties do receive

(or expect to receive) some benefit. "The logic of this case is beyond
criticism . ," although this does not necessarily imply that all

trade has historically been voluntary, and therefore, beneficial.

8Yeager and Tuerck, p. 37. Harrod, p. 43.

J0an Pen, A Primer On International Trade, New York: Vintage
Books, 1967, p. 38.

This dissertation is a study of international economic sanctions--

penalties which are intended to inflict economic losses upon the country

under sanctions. An international economic boycott represents a trade

embargo by one or a group of nations upon some other country. Secondary

boycotts may also be involved. Inasmuch as access to foreign markets has

a positive real income effect, an embargo or boycott which effectively

denies access to such markets may result in significant economic costs

and dislocations for the recipient state (and, perhaps, to the boycott-

ing nation as well). Three contemporary boycotts will be studied, each

representing a differing point on the spectrum of boycott possibilities.

The United States embargo of Cuba represents economic sanctions by one

nation to another closely tied to it both historically and economically.

The Arab boycott of Israel can be seen as an attempt at the economic

isolation of a country by all surrounding neighbors. Finally, the boy-

cott of Rhodesia by the United Nations represents an attempt at the total

economic isolation of a nation by the majority of countries on the globe,

several of whom have had very close economic and political ties with


This study will examine the economic impact of boycotts upon the

target nations, ignoring in general the many actual or potential costs

which the enforcing states may also experience. As such, it will con-

centrate upon boycott implementation and enforcement and upon patterns

of external trade, domestic development, and real income for the purpose

of determining if the resulting economic dislocations will be substantial

enough for political change to ensue. It should also be noted that for

the boycotted nation economic sanctions serve as a kind of involuntary

protection. To the extent that there exists infant industry potential

within that country, the boycott may produce economic benefits which can

partially, or perhaps even wholly, offset the cost of the embargo. This

possibility will also be investigated.

Historical and Political Aspects

The enforced economic isolation of a nation has long been recog-

nized as significant in military warfare. Naval blockades were used with

success during the European wars of the eighteenth and nineteenth cen-
11 12
turies.11 On the other hand, the tradition of boycotting has occupied

a minor role historically. One early example of a boycott in American

history derives from the colonial period during which time many citizens

of the American colonies refused to purchase certain British goods as a

political protest. Another occurred under the Jefferson administration

when an embargo against Britain was implemented. Remer enumerates at

least nine separate boycotts by Chinese nationals against the products

and trade.activities of other nations, although he suggests there
probably have been more.3 In addition, economic sanctions as a

1For a concise account of the economic impact of blockades, see
Francois Crouzet, "Wars, Blockades and Economic Change in Europe, 1797-
1815," Journal of Economic History, December, 1964, pp. 567-588.
1The term boycott is used in this dissertation to refer only to
international economic boycotts and not to the use of boycotts in
strictly domestic affairs. Although economic sanctions are sometimes
considered official acts, with boycotts being considered unofficial
undertakings by private parties, the terms sanction, boycott, and
embargo will be used interchangeably.
C. F. Remer, A Study of Chinese Boycotts, Baltimore: Johns
Hopkins Press, 1933.

coercive device to be used in lieu of military maneuvers were written

explicitly into the Covenant of the League of Nations during'the

earlier portion of the present century. Finally, Article 41 of the

United Nations Charter mentions the possibility of trade embargoes.

It would, perhaps, be of some interest to note the origins of

the term "boycott." In a book entitled Captain Boycott Irish author

Philip Rooney in 1880 described a time in the nineteenth century when

absentee English landlords controlled much property in Ireland, demand-

ing exorbitant rents from the tenant farmers. Captain Charles Boycott

was an agent representing an absentee owner for the purpose of collect-

ing these rents. Boycott refused to accept the payments made by the

farmers, declaring them insufficient and evicting many tenants. In

retaliation the people of the community pursued a policy of total iso-

lation, both economically and socially, against the rent-collector.

Despite Boycott's efforts at recruiting imported labor and several other

measures his total isolation proved too much. In the end he was forced

to return to England.

"The natural starting point in any study of economic sanctions

is . Article 16 of the League Covenant." The essence of the

article was that in certain circumstances the members of the League of

Nations were to cease all economic intercourse with a country committing

aggression. These sanctions were obligatory and were intended to pre-

vent aggression in advance or to make it doubly difficult once begun.

14J. F. Dulles, "Practable Sanctions," in Evans Clark, editor,
Boycotts, and Peace: Report by the Committee on Economic Sanctions, New
York: Harper and Brothers, 1932, p. 18. Dulles was here referring to
collective sanctions rather than individual.

Concerning their potential usefulness, the Report by the Committee on

Economic Sanctions optimistically stated:

The great advantage of economic sanctions is that on one hand
they can be very potent, while on the other hand, they do not
involve that resort to force and violence which is repugnant to
our objective of peace. If any machinery can be set up to ensure
that nations comply with their covenant to renounce war, such
machinery must be sought primarily in the economic sphere.15

Unfortunately, the implementation of Article 16 was fraught with

difficulties capable of frustrating its designs. Two possibilities

merit note. First, Article 16 demanded complete and total nonintercourse,

a measure whose incidence would fall unevenly upon the boycotting states,

some of whom might be so economically tied to the aggressor nation as to

make complete nonintercourse an act of economic suicide, This possi-

bility, therefore, acted as a deterent to the Article's being invoked

and a practical obstacle to full compliance, if invoked.

In addition, for humanitarian reasons it was doubted that the

actual implementation of a total embargo, one embracing foods, medicines

and other commodities vital to the civilian population and those uncon-

nected with military aggression, would be acceptable to world opinion.

As one writer has suggested, "For effectiveness, and for moral standing,

a really successful food embargo ranks well in advance of torpedoing

hospital ships and is somewhere near the class of gassing maternity

hospitals." These stern measures, however, have been defended on the

basis of their preventive capabilities. Such a "complete and immediate

5Ibid., p. 21.

1Edwin C. Eckel, "General Conclusions and Recommendations," in
Clark, p. 257.

severance of all relations may appear at first . to be too severe.

. . But it should not be forgotten that the aggressor is fully aware

in advance of the consequences of its act."17 What is thus apparent is

that for economic sanctions to be successful in preventing aggression,

the aggressor state must feel certain that a boycott will actually be

implemented and that it will be total rather than partial. Since the

full economic sanctions were never invoked, it is difficult to test the

hypothesis that world opinion would not tolerate a complete embargo.

Additional, and more significant weaknesses of League sanctions,

each of a very practical nature, merit discussion. Each member state

of the League had the right to decide for itself whether or not condi-

tions had come to the point where League sanctions should be invoked.

The strong likelihood of differing interpretations concerning whether

such a situation had actually arisen would have been likely to result

in partial and isolated attempts at boycotts, none of which would be

sufficient to stop aggression. In addition, embargoes harm the enforc-

ing states. Finally, the fact that neither the Soviet Union nor the

United States were members of the League left the possibility open for

the frustration of League boycotts via trade with these two nations.

Brief mention should be given to the two instances in which the
League of Nations did invoke Article 16. These concerned Italy8 and

Japan. On October 4, 1935, Mussolini's forces invaded Ethiopia after a

J. Whitton and M. Gonsiorowski, "Sanctions," in Clark, p. 95.
For an interesting account of the sanctions against Italy, see
Herbert Feis, Three International Episodes; Seen from E. A., New-York:
W. W. Norton and Company, 1966, pp. 193-294.

skirmish between Italian and Ethiopian forces in an isolated but

politically contested oasis in Eritrea. This action brought a storm

of protest from the other nations of Europe. The League Council met and

eventually declared that economic and financial sanctions be invoked.

These sanctions proved unsuccessful both in preventing the hostil-

ities and in bringing the aggression to a quick end. Mussolini had been

telling the Italian people for a number of years that their nation was

surrounded by other states bent on destroying Italy. The embargo pro-

vided a justification for an austerity campaign in which food and cloth-

ing were carefully rationed. Thus, domestic economizing in part offset

the effect of the boycott. At the same time, the actual embargo was not

total, but partial. Strangely, perhaps the two most vital items to a

war machine, oil and coal, were exempted from the embargo; however,

the fact that both England and France were large producers of coal

while British colonies produced oil, makes the decision of the Council,

of which both countries were members, more readily explainable. The

uneven effect of the boycott upon the implementing nations is also

brought to light by Britain's refusal to deny access to the Suez Canal

to Italy, Britain having a good deal to lose financially by such a move.

There were, of course, other important considerations which were non-

economic in character.

Finally, other nations defied the sanctions. Germany seemed

especially eager to provide supplies to Italy, probably because Italian

involvement in an African war meant that Austria was less threatened by

Italy and a more easy prey for Germany. Russia, too, carried on sub-

stantial trade with the Italians. Thus, due to open relations with

Germany, Russia, and the United States and barely camouflaged trade with

France and England, Italy was able to successfully defy League economic


In 1938 sanctions were imposed upon Japan for bombing Manchuria.

By this time, however, the weaknesses and inability of League boycott

efforts were so patent, the sanctions were almost immediately rescinded

when the British suggested that the League merely express its sympathy

to Manchuria and drop the entire matter. The ineffectiveness of League

actions in dealing with Italy seemed to mark the beginning of the end

for Woodrow Wilson's dream although it may have been destined to failure

almost from its inception.

It must be stressed at this point that the imposition of an

international boycott is a political actl9 utilizing economic weapons

as the coercive force. By reducing real income and the level of living

in the target nation boycotts are designed to bring pressures upon the

government for a change in its policies, or for a change in the form of

government or its leadership.

A successful boycott is one which attains the ends desired. A

boycott can, however, be effective without being successful. Effective-

ness refers to the degreeof economic damage inflicted, whereas success,

to the attainment of certain goals. Boycotts may be quite effective

in terms of creating economic dislocations and reducing real incomes,

1While this is generally the case, it is subject to exceptions,
such as the boycotts of Japanese goods before World War II, which pro-
tested "unfair competition" rather than specific political positions.


but they may nonetheless be unsuccessful in fulfilling the political ends

sought. This tends to suggest that while the threat of economic sanc-

tions perhaps possesses some preventive capabilities, the actual imple-

mentation of embargoes may nevertheless yield little or no change in

the unacceptable position of the boycotted state. In short, economic

effectiveness does not guarantee political success.



Historical Background

Cuba, often called the "Pearl of the Antilles," is the largest

island in the Caribbean. Its overall length is 760 miles and its aver-

age width, 25 miles. The coast line, approximately 2,000 miles long,

contains many natural harbors. Discovered in 1492 by Christopher

Columbus, the island remained a Spanish possession until 1899. Cuba's

history is most conveniently divided into three periods: the colonial

period (1492-1902), the republic (1902-1958), and socialist Cuba (1959

to the present). While only a brief survey of Cuban history will be

provided in the following pages, it is important to note that Cuba's

present political and economic arrangements emanate in large measure as

a reaction to socio-economic and political conditions deeply rooted in

Cuba's past.

Standing in sharp distinction'to the other Latin American

republics, many of which became independent in the early-portions of

the 19th century, Cuba did not become a sovereign nation until the first

years of the twentieth century. From the time of its discovery until

American Chamber of Commerce, Cuba: Facts and Figures, Havana,
April, 1955, p. 2.

the year 1899, Cuba was ruled by Spain. During the almost four centuries

of Spanish rule the original inhabitants became extinct, African Negroes

were imported as slaves, and relatively large numbers of immigrants,

particularly of Spanish origin, settled the island. "According to the

1953 census, 73 percent of the population are of unmixed European

ancestry, 26 percent are Negroes and mestizos, and 1 percent are


"While building its large empire in America, Spain paid scant
attention to Cuba. . ." This was mainly due to the mercantilist

policies guiding Spain at that time, policies which directed the great-

est energies of the Spanish government toward those Latin American areas

abundant with precious metals. After Cuba's scant gold deposits were

exhausted, economic activities declined into a dormant stage and a large

amount of white emigration occurred. In spite of the commercial activi-

ties of the port of Havana, Cuba's economic development was almost non-

existent and its economic status was that of a poor second to such West

Indian islands as Haiti, Jamaica, or Barbados. However, toward the end

of the eighteenth century, the increased production of sugar, coffee,

and tobacco coupled with the growing significance of the Havana port

raised Cuba's importance to Spain. The pace of economic activities

began to climb. Development had been stimulated by the temporary English

occupation of Havana, which began in 1762 as a result of a war between

R. J. Alexander and G. Convers, "Cuba," Collier's Encyclopedia,
Vol. VII, New York: Crowell-Collier Publishing Company, 1965, p. 535.

Cuban Economic Research Project, A Study on Cuba, Miami:
University of Miami Press, 1965, p. 2.

Spain and England. As opposed to the previous rigid control by Spain

the English allowed a limited degree of commercial liberty. Another

important factor was the enlightened policy of the Spanish monarch,

Charles III, which began to take effect by the middle 1760's. "These

events . served to break the old traditional molds of the colonial

regime, the chief characteristic of which, until then, had been monopoly
over internal and external trade." Nevertheless,

It was not until after the eighteenth century that the foundation
for the future economic structure of the island was laid. This
foundation was the increase in the importance of sugar production
which soon became its basic economic activity.5

As control of the growing-sugar industry increasingly passed from

Cuban ownership into Spanish hands and as the system of latifundia

developed, there emerged the beginnings of a struggle for independence.

This struggle emanated primarily from political oppression by the

colonial power, but in addition had important economic underpinnings and

corollaries. The struggle for independence appears as perhaps the over-

riding factor of Cuban history. Its roots lie in Cuba's colonial status

under Spain's domination, in Cuba's geographical proximity and economic

ties to the United States, and lastly, in the special political relation-

ship between Cuba and the United States which had evolved since the

Spanish-American War.

Successful revolts against Spanish rule in Mexico and South

America coupled with agitation over the slave trade sparked increasing

unrest in Cuba in the first quarter of the nineteenth century. "To



strengthen its hold, Spain in 1825 placed the entire island under martial

law, suppressed all civil rights . and placed many restrictions on

foreign trade." These actions, however, only heightened the basic

desire to end foreign domination. Rebellions and political opposition


The role of the United States in the Cuban struggle for indepen-

dence dates to the early years of the 1800's. The American position at

that time regarding Cuba's separation from Spain was rather indecisive.

This indecisionlwas influenced by the desire of some Americans
to annex an island so close to its own shores, and by the fear
of others that Cuba, once liberated from Spain, might come under
the influence of another European power.

The indecisiveness of the United States position proved inimical to

initial Cuban efforts toward independence. Some Cubans themselves,

in their fervor to be free of Spain, advocated annexation by the United

States. Most Cubans, however, seemed to prefer independence to annexa-

tion, many having hopes that America might lend its support to their


As time passed, a combination of the Manifest Destiny philosophy

and the idea that Cuba represented additional slave territory spawned

a growing American movement to annex the island. James Knox Polk, the

United States president, proposed in 1848 to buy Cuba from Spain for
$100 million. This offer was rejected. Nevertheless, the annexation

Alexander and Convers, p. 541.

A Study on Cuba, p. 3.

S. Morison, H. Commager, and W. Leuchtenburg, The Growth of the
American Republic, 6th ed., New York: Oxford University Press, 1969,
p. 574.

movement gained momentum, culminating in the issuance of the Ostend

Manifesto. This was a pompous document, perhaps representing the nadir

of American diplomacy, in which it was stated that Spain should either

sell Cuba or expect to have it taken from her. Concerning this document

and the general desire in America for additional territory, historians

have written the following:

This agitation reached a ludicrous climax in 1854 when the United
States ministers to Great Britain, France, and Spain met in the
stimulating atmosphere of Ostend, Belgium, and solemnly announced
to the world that the time had come for Spain to sell Cuba to the
United States or, failing Spanish acquiescence, for the United
States to take the island.9

Cuba's efforts toward independence from Spain intensified, while

at the same time a latent fear of American suzerainty developed. In

1868, the bloody Ten Year War began. Fought mainly in the eastern

provinces of Cuba, the war failed to gain Cuban independence. More than

once the United States almost became involved. Despite being unsuccess-

ful, the struggle "had the effect of strengthening the national con-

sciousness, the patriotic tradition, and the faith of the Cubans in

their own destiny."10 The war ended in 1878, partly due to promises by

Spain to abolish slavery, grant amnesties, and initiate political reform.

During the next seventeen years a precarious peace, interrupted by

revolts in 1879, 1883, and 1885, was maintained.

In 1895, under the inspiration of the patriot, Jose Marti, a

poet and warrior, Cuba's last war for independence from Spain began. In

1896 a new Spanish governor, "Butcher" Weyler, was appointed. Weyler

J. Rae and T. Mahoney, The United-States in World History, New
York: McGraw-Hill Book Company, 1955, p. 308.
10 dy n uba, 3.
A Study on Cuba, p.'3.

conducted a ruthless campaign against the insurrection, employing methods

to which the United States government issued vigorous protests. In 1898,

Weyler was replaced and partial home rule granted. These moves, however,

were too late and the revolt continued.

In the United States, President McKinley, like several of his pred-

ecessors, had attempted to avoid giving official belligerent status to

the Cuban rebellion. However, increasing indignation by Americans over

Spanish methods and tactics, disappointment with the failure to material-

ize of many promised Spanish reforms, and pressures by business inter-

ests and investors harmed by the fighting moved the American government

increasingly to the side of the rebels. Toward the end of January,

1898, in the midst of tense and uncertain relations between Spain and

the United States, it was decided that the U. S. battleship Maine should

make a courtesy visit to Havana. On February 15, the Maine was myste-

riously blown up in the Havana harbor, bringing the full fury of the

American public against Spain. During the ensuing two months, agitation

arose in favor of an independent Cuba. President McKinley's late March

message to Congress was directed at averting war. However, it was not

well received. On April 18, 1898, a Joint Resolution of Congress, later

approved by the President, recognized the independence of Cuba and

demanded that Spain renounce its control. An ultimatum was sent to

Spain, which then severed diplomatic relations with the United States.

This led to a declaration of war by Congress.

The Spanish-American War, fought in Cuba, Puerto Rico, and the

Philippines, was short and one-sided. The American victory was decisive.

The war was officially concluded by the Treaty of Paris, signed in

December, 1898. To their great disappointment, the treaty did not

recognize the belligerency of the Cubans, with whom Spain refused to

deal. Spain ceded all rights in Cuba to the United States and withdrew

her armies; American troops remained and a military government was

established. Thus, rather than independence, Cuba came under military

occupation and political control of her great neighbor to the north.

Nevertheless, true independence seemed closer than ever due to the

Teller Resolution in which Congress had declared that the United States

would not annex Cuba, but would instead allow the Cubans to govern


It should, perhaps, be noted that the Spanish-American War marked

the emergence of the United States as a world power, with possessions in

the Caribbean (Puerto Rico in addition to Cuba) and the Pacific (Guam

and the Phillipines). This war may be viewed in part as a continuation

of the Manifest Destiny philosophy. Since no further territorial

acquisitions on the continent were possible, pressures for overseas

"adventurism" developed. Thus, in addition to strong American sympathies

for the Cuban people, there were interests in the United States which

geared for war almost with gusto. The dangers of a policy of expansion-

ism were a plank in the platform of William Jennings Bryan when he ran

against McKinley in the election of 1900. Bryan's issue, however, was

that imperialism was likely to lead to domestic despotism. McKinley,

nevertheless, was swept into office, giving endorsement to the expan-

sionist policies. Although many Latin American nations had often

expressed some apprehension concerning American policies and practices,

the imperialism issue did not become full blown in the Western Hemisphere

until the advent of Castro. Thus, the dangers which Bryan had pointed

out were very real, although he.perhaps misplaced them in citing the

domestic scene rather than the international in which they would be most


During the period of American military intervention in Cuba

(1898-1902), much progress was made on a number of fronts. American

forces aided in providing food, repairing roads, buildings,general

reconstruction, reorganizing the administrative sector, educational

system, and sanitary conditions. The chief achievement in the latter

field was the conquering of yellow fever. "In the economic sphere,

however, the traditional vices of colonialism, latifundism, and mono-

culture became more acute,"1 this being the case despite substantial

improvements in public works and social overhead capital. Economic

diversification, particularly in agriculture, and some kind of land

reform were two vital areas in which steps might have been taken to put

Cuba on a sounder long-run basic economic structure. Whether the United

States had either the capacity or the right to implement such policies

is, or course, difficult to determine.

In 1900 Cuba adopted a constitution patterned after that of the

United States. In 1901 the Platt Amendment was imposed upon Cuba by

the United States Congress, thereby severely limiting Cuba's sovereignty

even after it began self-rule. The three major points in the Platt

Amendment were as follows:

A Study of Cuba, p. xvi.

1. Cuba was not allowed to enter into any foreign treaties

which might threaten its independence.

2. Cuba granted the United States the right to establish naval

bases on her soil.

3. The United States reserved the right to intervene in internal

Cuban affairs for the purpose of protecting life and property

or Cuba's independence.

Cuba, in short, became a virtual protectorate of the United States.

Given the above constraints, the American military government relin-

quished power to an elected Cuban administration in 1902. Later that

year preferential tariff rates were concluded for trade between both

countries. It must be stressed that the Platt Amendment left a perma-

nent imprint, perhaps a permanent dislike is more descriptive, for the

United States in the minds of many Cuban patriots. Having secured their

long sought freedom from Spain, Cuba became a freer nation, but not the

master of its own destiny. In short, independence without sovereignty

proved a bitter pill.

The Palma regime, the Republic of Cuba's first government,

experienced many difficulties. Corruption--a legacy from Spain's admin-

istration--was rife, factional disputes arose, and violence erupted.

When an armed revolt occurred, the Palma government, under the Platt

Amendment, requested military intervention by the United States. This

intervention began in 1906 and lasted until 1909, during which time an

American governor ruled the island. Unfortunately, "Following the

pattern established by the first intervention, this second intervention

did not undertake a fundamental re-organization of Cuba's economy."12

Beginning in 1909 Cuba again resumed self-government, although

intermittent revolts and political upheavals were a recurrent feature of

the system. The new administration of William Howard Taft brought a

change in the United States policy toward Cuba, a change which resulted

in relatively rapid economic and technical advance in Cuba. As is

often the case when economic development quickens, the distribution of

income became progressively more unequal. In addition, as time wore

on the political elite became more and more interested in their own

aggrandizement and less concerned with the general welfare.

Although Cuba did not actively participate in World War I, the

nation stood with the Allies. Cuban sugar sales, at controlled prices,

provided a guaranteed supply. During the 1919-1920 period the produc-

tion and sale of sugar were returned to free market forces, the result

being extraordinarily high prices for sugar. This initiated a brief

period of prosperity, "The Dance of the Millions," which, when sugar

prices fell, ended in an economic crisis.

Further details concerning.Cuban politics through the 1930's and

1940's are not important to this study and can be found elsewhere. The

pattern tended to repeat itself. Political instability, corruption,

and increasing dominance of American capital and economic interests in

the Cuban economy became a way of life. It was not until 1934 that

President Roosevelt, as a part of his Good Neighbor Policy, abolished

Ibid., p. xvii.

the Platt Amendment, thereby giving.Cuba full political sovereignty.

The American naval base at Guantanamo was retained, ironically even into

the present with-Cuba under a socialist regime, although the base itself

has not been used for purposes of intervention.

Batista's rise to power should be noted. In 1933 a general

strike paralyzed Cuba, and the Machado regime was deposed by an army

coup. Much political unrest and turmoil occurred during the next seven

years, the chief political power during the period being an army colonel,

Fulgencio Batista. In 1940 Batista was elected President and governed

for four years in a more or less democratic manner. He failed at re-

election, losing to his arch political enemy, Dr. Ramon Grau San Martin,

whom Batista had himself overthrown some ten years earlier. Despite

increasing corruption, even gangster-like activities, the constitutional

continuity of the Republic continued until Batista's second coup, this

time just a few weeks before the scheduled Presidential election of 1952.

The Batista regime proved both morally and politically corrupt, ruth-

lessly oppressive, and spawned the seeds of its own destruction. Opposi-

tion to Batista seemed to mount geometrically and again an underground

struggle for Cuban freedom gained momentum. This movement, of course,

culminated in Fidel Castro's rise to power, with Batista fleeing the


If we are to make a summary of the relevant factors highlighting

Cuban history, we must list the drive for independence, sovereignty, and

freedom as most significant. Without question, much of the historic

resentment toward Spain was transferred or reappeared and directed itself

toward the United States, particularly as a result of the Platt Amendment

and the subsequent interventions. In addition, the continued corruption

in government left another imprint upon the minds of many Cubans. To

the extent that the United States gave recognition to and supported

corrupt and oligarchic regimes, again an antipathy, although often

latent, developed toward this country. A good example of this view is

the following statement by an American Marxist. Justifiable or not,

this feeling is without doubt held by many Latin Americans, not just

Cuban socialists.

The U. S. government was unconcerned about what it meant for the
Cuban people to live under a dictatorship. What the U. S. govern-
ment wanted in Cuba was "order," "tranquility," and "favorable
investment climate" required by American business. Whenever these
conditions could best be attained by dictatorship the United States
supported dictatorship. In Cuba this meant supporting dictatorship
most of the time.13

Finally, the dominance of American interests as well as the

general direction of the economy--one geared to the great state to the

north--evoked antagonism. As Alexander and Convers state,

Foreign firms and individuals--predominantly from the United
States--owned sugar mills processing 35 percent of the country's
output of cane. U. S. and Canadian banks handled a large part
of the financing of the sugar crop. The tourist hotels and
gambling casinos were largely built to serve the needs of visiting
Americans, and many were owned by U. S. citizens.14

The omnipresence of American capital, ownership, products, and direction

of exports, coupled with an understandable resentment of the Cuban upper

income strata--which appeared as a kind of foreign enclave, more American

than Cuban--stood as continual sources of resentment to a people living

E. Boorstein, The Economic Transformation of Cuba, New York:
Monthly Review Press, 1968, p. 10.
14Alexander and Convers, p. 538.
Alexander and Convers, p. 538.

in great poverty and experiencing highly unstable employment conditions.

Perhaps more importantly, these sources of anti-American feelings left

serious imprints on many potential leaders, leaders who found in the

writings of Marx and Lenin a gospel which fitted their experience and

appealed to their hopes and aspirations.

The Pre-Castro Economy--An Overview

During the 18th century the sugar industry began to experience

sustained growth. Table 1 presents the volume of sugar exports for the

period 1786-1850. From 1786-1800 the average yearly sugar exports more

than doubled. Most of the output increases recorded were the result of

the rapid growth in the number of sugar mills rather than productivity

advances. By the end of the first quarter of the 1800's, however, new

industrial techniques, borrowed particularly from European beet sugar

production, were introduced and utilized successfully in Cuba's cane

sugar industry. The quality of the sugar produced improved considerably

as did the price obtainable. As the table indicates, the average yearly

volume of exports increased more than sixteen-fold over the sixty-five-

year period.

By the middle 1800's sugar cultivation and milling had begun to

dominate the economy. The cultivation of sugar soon became divorced from

the industrial processes and a distinct cleavage between agrarian and

industrial sectors was evident by 1880, thus creating a dependence by

the farmers on the sugar mill owners. During the 1880's the first

significant American investments in the Cuban sugar industry were made.

One of the problems involved in a sugar monoculture--susceptibility to



Spanish Long Tons
Year Total Yearly Average

1786-1790 60,850 12,170

1791-1795 84,515 16,903

1796-1800 127,977- 25,595

1801-1805 165,438 33,087

1806-1810 168,540 33,708

1811-1815 161,760 32,352

1816-1820 201,542 40,304

1821-1825 273,734 54,746

1826-1830 373,177 72,635

1831-1835 440,489 88,097

1836-1840 566,325 113,265

1841-1845 718,063 143,612

1846-1850 1,042,994 208,598

/ /
Source: Jacobo de la Pequela, Diccionario Geografico, Estadistico,
Histdrico de la Isla de Cuba, Madrid: Imprentas del Establecimientb de
Mellado y del Banco Industrial y Mercantil, 1863-66, pp. 61-63.

fluctuations--became evident after the middle 1880's when competition

from beet-producing areas became acute, forcing many marginal sugar mills

to close. Another characteristic of the sugar sector which must be

noted was the tendency toward concentration.. Technological innovations,

most associated with the centrifugal sugar process, changed the structure

of the industry, enlarging the size of the optimum productive mill. In

addition, primarily via the destruction of hundreds of small mills, the

Ten Year War (1868-1878) accelerated the concentration process. This

trend, in turn, accentuated the already growing dependence of small

farmers upon the mill owners.

In addition to sugar, other industries of significance were

tobacco, coffee, cattle, mining, fishing, and distilling of alcohol.

Tobacco was once the island's leading crop and export, although by 1895

the value of sugar exports ranked first.5 Foreign capital, particularly

from the United States, was injected into the tobacco industry at the

end of the 19th century. By the early 1900's the industry was marked

by a high degree of concentration--three groups controlling 60 percent

of all exports, the bulk of which went to the growing United States

tobacco market. Foreign investors had also shown interest in Cuba's

iron ore possibilities and both American and British capital stimulated

growth in the industry in the 1880's. Like tobacco, this production was

geared almost wholly for support.

To summarize the island's economic development prior to 1900

"it may be considered safe to affirm that Cuba by 1868 had outgrown the

15Cuban Economic Research Project, Stages and Problems of Indus-
trial Development in Cuba, Miami: University of Miami, 1965, p. 12.

stage that Rostow calls 'traditional society.'"16 From the 1820's until

early 1890 Cuba enjoyed a prosperity interrupted by few serious down-

turns except when severe fighting broke out.17 The sugar industry

became the economy's leading sector, introducing technical and indus-

trial advances which spread to related fields. By 1894 "sugar production

in that year, 1,054,000 Spanish long tons, represented a per capital

production only slightly inferior to that of the crop of 1960. ... ."18

Thus, economic advance had been significant. However, political oppres-

sion coupled with fluctuations in the sugar market prevented a self-

sustaining growth. In addition, military activities and insurrections

laid waste to a great amount of accumulated capital. By the end of the

nineteenth century, the combination of these and other negative factors

had yielded an actual retardation in development. In fact,

the situation at the end of the Spanish rule could not be compared
with that which existed 30 years before when.Cuba's economy
seemed to be at the point of achieving a firm economic founda-
tion . . In conclusion, the Cuba of 1898 seemed to be closer
to the phase of the traditional society than to that of the take-
off toward higher levels of well-being.19

During the period of American occupation (1898-1902) a general

reconstruction was undertaken. The military government placed its

primary emphasis on the human factor--upgrading health, sanitation,

education, and administration. Unfortunately, recovery was hampered by

falling sugar prices.

The first quarter of the twentieth century witnessed substantial

progress. Population doubled and real income almost tripled, the leading

A Study on Cuba, p. 141. 17Ibid., pp. 139-140.

18Ibid., p. 97. 19Ibid., p. 144.

sector being an expanding sugar industry. Growth provided more than

adequate employment conditions and labor was attracted from other West

Indies islands. In addition to sugar, the output of tobacco, cattle,

and several other products increased significantly. Nevertheless, it

was the sustained sugar expansion throughout the first quarter of the

century, and a little beyond, which was most important. Table 2 pre-

sents the statistics on Cuban sugar production from 1911-1954. As can

be seen, until 1930 sugar output experienced a rather strong and con-

tinuous expansion.

This dominance of the sugar industry has imparted to the Cuban

economy a large measure of instability resulting from the inherent

nature of a one-crop orientation. Fluctuations within the industry

were essentially a function of (1) weather and natural conditions,

(2) changing world sugar prices, and (3) the seasonal nature of the

industry. Oscillations within the sugar sector--especially in their

effects upon value of output, employment, and foreign exchange earnings--

were carried in a multiplier fashion to the rest of the economy. Thus,

the vicissitudes of sugar imparted uncertainty and instability to the

entire island's activities. Table 2 indicates the price fluctuations

to which sugar was subject. The Dance of the Millions during 1920

represents the classic example of rapid price changes. Prices averaged

almost twelve cents per pound in that year, yielding a total value of

close to one billion dollars. By 1921 the average price had fallen

almost 75 percent and continued to fall into 1923. During the 1930-

1935 period sugar averaged barely above one cent per pound.



Average New York
Value Cuban Price C & F
Production Including (Cts.,per lb. Price
Year (Spanish Tons) By-products at warehouse) Cents per lb.






TABLE 2 (continued)

Average New York
Value Cuban Price C & F
Production Including (Cts. per lb. Price
Year (Spanish Tons) By-products at warehouse) Cents per lb.

1948 5,876,761 592,000,000 4.78 5.045
1949 5,073,968 507,839,157 4.345 5.307
1950 5,393,541 572,874,924 4.63 5.432
1951 5,589,232 682,998,709 5.08 5.557
1952 7,011,393 672,069,955 4.129 5.765
1953 5,006,960 458,743,811 3,893 5.787
1954 4,746,156 408,850,795 3.755 5.589

Source: Cuba: Facts and Figures, p. 126.

The relative prosperity of the first quarter of the 20th century

was brought to a complete halt by the onset of the world depression.

The period 1928-1940 was one of the low levels of activity and very

depressed conditions. Table 3 presents a summary of major economic

indicators. Index numbers using 1940 magnitudes compared to base year

(1928) figures reveal that except for.population and the public debt,

each variable enumerated was substantially lower in 1940 than in 1928.

The period 1940-1958 marked a return to a general prosperity.

Significant development took place and per capital income rose sub-

stantially. Initially the effect of World War II upon Cuba's economy

was negative. Foreign markets were lost, unemployment resulted, and

imports were curtailed. However, the increased demand for raw mate-

rials by the Allies and the purchase of the 1942 and 1943 sugar crops

by the United States paved the way for an economic recovery which by

1944 was well under way.

Significantly, government policy by this time had become somewhat

growth oriented and efforts at agricultural diversification and indus-

trialism were undertaken. In addition, until 1952 the constitutional

continuity of government was maintained and reasonable political stabil-

ity achieved. Expansion was aided by the accumulation of foreign cur-

rency reserves during the war, an accumulation resulting from heavy pur-

chases by the Allies who were not in turn supplying goods to Cuba due

to their preoccupation with the war. The lack of foreign manufactures

prior to 1946 coupled with moderate tariff protection gave rise to the

establishment of new industries. These, in turn,were.aided by the

imports made possible in the second half of the 1940's by the



Population Production Foreign Trade
Year (Millions) (Millions of $) Exports Imports

1928 3,506 $215.6 278,070 490,887
1933 3,961 53.7 84,391 126,752
1940 4,291 110.1 127,288 231,148

Indices for 1940
(1928 as base)

+22.37 -48.93 -54.22 -51.20

National Income

Budget Public
Revenues Total Debt
Years (Thousands) (Millions) Per Capita (Thousands)

1928 $81,972 $604 $164 89,964
1933 43,986 446 109 167,646
1940 77,559 548 119 198,444

Indices for 1940
(1928 as base)

-5.38 -9.27 -27.64 +120.58

Source: A Study on Cuba, p. 411.

international reserves on hand, reserves which by 1950 had been more

or less dissipated. The Korean War brought another brief accumulation of

currency reserves which again allowed increased imports. In addition,

much of the period witnessed a sugar bonanza in which the expanding

sugar industry acted as the leading sector.of the economy. Finally, in

terms of human capital, Baklanoff reports that "Cuba in the latter

nineteen-fifties had already evolved an important professional, technical

and managerial middle sector and a substantial pool of skilled workers.20

Despite the many advances made, industrial development was still

weak, the sugar monoculture imparted instability to the entire economy,

productivity levels were quite low and both labor and land were under-

utilized. In the following discussion the weaknesses and problems of

the economy will be stressed since they are important as factors leading

to Castro's take-over and to the orientation of his regime.

Although Cuba's per capital national income generally ranked third

or fourth in Latin America during the 1950's, its industrial sector more

closely resembled that of the lesser developed Latin American republics

rather than the more advanced ones such as Argentina, Brazil, Mexico,

Uruguay, or Venzuela. Almost 55 percent of industrial production was

concentrated in food, beverages, and tobacco, while the percentage
accounted for by metals and machinery was rather low. In terms of

2E. Baklanoff, "The Creative Impact: U. S. Business Investments
and Economic Development in Cuba, 1946-1960," Intercollegiate Review,
Fall, 1968, p. 27.
2Department of Commerce, Joint Publications Research Service,
Translation No. 36090, p. 2., "The Industrial Development of Cuba,"
Cuba Socialista, May 1966.
NOTE: All subsequent references to the Joint Publications
Research Service technical translations will be designated JPRS.

rates of growth in industrial production, Cuba ranked again among the

lowest (fourteenth out of eighteen) as is indicated by Table 4. Exces-

sive reliance upon sugar had resulted in many bitter experiences during

the 20th century and the desire for industrialization was strong. In

this area, then, Cuba's performance was disappointing.

Sugar production generally accounted for at least 80 percent of

Cuba's exports and roughly one-fourth of the national income. "Economic

activity oscillated between the zafra, the grinding period, and the dead
season, when unemployment normally reached a level of 20 percent,22 or

higher. Thus, much rural unemployment and poverty existed. In addi-

tion, a substantial disparity in standards of living prevailed between

the rural sectors in general and the more prosperous Havana urban area.

Therefore, despite Cuba's relatively high mean income, the modal and

median incomes were significantly lower, with extreme poverty character-

istic of many rural provinces.

In terms of land use, over 50 percent of all cultivated lands was
devoted to sugar cane, and land ownership was extremely concentrated.

The latifundia situation was accompanied by underutilization of the

land; a 1950 study reported that while 60 percent of the total farm

land was cultivatible, only slightly over one-third was actually under
cultivation.2 According to the findings of Cuba's Ministry of Foreign

Relations, almost 65 percent of all farmers worked on land they did not

2Baklanoff, p. 28.
2Andres Bianci, "Agriculture," in Dudley Seers, editor, Cuba: The
Economic and Social Revolution, Chapel Hill: University of North Carolina
Press, 1964, p. 80.
International Bank for Reconstruction and Development, Report
on Cuba, Baltimore: Johns Hopkins Press, 1951, p. 87.



Nation Growth Rate Rank

Brazil 10.3 1
Mexico 8.1 2
Venezuela 7.7 3
Costa Rica 7.7 3
Panama 6,7 5
El Salvador 6.6 6
Guatemala 6,2 7
Peru 6.1 8
Colombia 6.1 8
Honduras 5.7 10
Ecuador 5.6 11
Nicaragua 3.9 12
Argentina 3.7 13
CUBA 3 4a 14
Chile 3.2 15
Paraguay 1.2 16
Uruguay 1.0 17
Bolivia -4.3 18

aMax Nolff, "Industry," in Dudley Seers, editor, Cuba: The Eco-
nomic and Social Revolution, Chapel Hill: University of North Carolina
Press, 1964, p. 288. This figure is for the period 1953-1958.

Source: Economic Commission for Latin America, Economic Survey
of Latin America, 1965, Part III, New York: United Nations, 1966, p. 60.

own and the latifundium generally cultivated only 10 percent of their
total holdings. This underutilization of both land and labor in a

country where so many were desperately poor not only made the masses

receptive to revolutionary activities, but created a situation in which

such activities seemed bound to appear. Castro and those who rallied

around him were particularly sensitive to the plight of Cuba's rural

population. The feeling existed that the urban areas, in conjunction

with foreign interests, were exploiting the rural masses. This view

was best expressed by Castro himself, whose words sound very much like

those of John Stuart Mill a century earlier.

If you came to Havana in those days, you saw a city with many
businesses . neon signs . advertisements . automobiles.
Naturally, this could have given the impression of a certain pros-
perity; but what it really signified was that we were spending
what small resources were left to us to support an elegant life
for a tiny minority . Such an image of prosperity was not
true of the interior . where the people needed running water,
sewers, roads, hospitals, schools . and where hundreds of
thousands .. lived in the most horrible social conditions imagin-
able. You had the paradoxical situation that those who produced
the wealth were precisely the ones who least benefited from it.
And the ones who spent the wealth did not live in the country side,
produced nothing, and lived a life that was soft, leisurely, easy,
and proper to the wealthy. We had a wealthy class, but we didn't
have a wealthy country.26

Despite many past innovations, Cuban sugar operations were highly

inefficient. The sugar industry, although the world's leading exporter,

ranked only seventeenth in sugar cane yield during the 1950's relative

Ministry of Foreign Relations, Profile of Cuba, Havana: Gov-
ernment of Cuba, 1966, pp. 117-118.
Lee Lockwood, Castro's Cuba, Cuba's Fidel, New York: Macmillan
Company, 1967, pp. 85-86.

to all other major cane producing areas.27
irrigation techniques was very limited and research almost nonexistent.

Thus, the industry seems to have possessed much unrealized potential,

again a source of continual irritation to those hopeful for a prosperous

Cuba.> In terms of the participation of Cuban workers in the income of

the sugar sector, as a percentage of total crop value they received

56.5 percent in 1948. This figure dropped steadily until 1953 when it

attained the 1948 level, then fell to a little over 50.0 percent, where

it tended to remain up through 1958. Thus, the 1958 percentage of total

crop value going to the sugar workers (agricultural and industrial) was

six points below the 1948 figure and had more or less remained unchanged
since 1953.28 In terms of food output, "domestic production supplied

about 70 percent of Cuba's food consumption,"29 although the potential

existed for a much larger figure. Therefore, despite Cuba's progress,

the nation still required significant policy changes and enormous eco-

nomic advance to bring the island a truly general prosperity.

United States Investment in Cuba

Prior to the Spanish-American War United States investments in

Cuba had occurred unevenly and in limited volume. They were channeled

primarily into sugar and secondarily, into mining. By the middle 1880's

the centrifugal sugar process gained in.acceptance and the optimum sized

2Bianci, p. 91.
2Stages and Problems of Industrial Development in Cuba, p. 103.
Baklanoff, p. 27.

fabricating unit for raw.sugars increased. Since there was a scarcity

of domestic funds to finance new investments, American capital was

attracted and flowed into the island. Nevertheless, in 1898 "Americans

did not own any considerable part of Cuba, except in the mining industry

where they controlled the concessions which had proved to be valuable."30

After 1898, Cuba's freedom from Spain and the special political

relationship between the United States and Cuba which evolved as a

result of the American victory and the imposition of the Platt Amendment,

greatly encouraged the entry of American capital. During the period of

American military occupation much direct United States investment

occurred. This was the result of three factors: (1) the impoverished

state of the island in general due to the war, and the mortgage and loan

obligations of property owners in particular, (2) the lack of sufficient

domestic financial and credit institutions which could provide interim

financing, and (3) the new political situation which made.Cuba a safe

rather than uncertain area for American investment. Thus the need for

capital was great and American reluctance to provide it overcome. Inas-

much as there was no legislation limiting the sale of land to foreigners,

a great deal of Cuban property was sold at bargain prices to the United

States investors. Rapidly expanding trade between the two nations encour-

aged even more American investment. By 1914 the value of United States

direct investments was approximately $253 million, an increase of $209

million over the 1897 figure.31

3Leland Jenks, Our Cuban Colony, New York: Vanguard Press, 1928,
p. 37.
3Economic Commission for Latin America, External Financing in
Latin America, New York: United Nations, 1965, p. 15.

During World War I "the value.of U. S. business holdings in Cuba

doubled, and investments continued their advance during the decade of the
nineteen twenties." By 1919 American investments had accounted for

40-50 percent of the total value of the sugar industry assets.33 In

terms of value of output, the figure was about 50 percent.34 The next

year brought the Dance of the Millions and the sale of large volumes of

Cuban assets to American corporations.

In May 1920, the price of raw sugar climbed to the unprecedented
level of over 23 cents per pound, only to fall to a low of 3/12
cents a few months later. This wide swing of the market brought
ruin to the sugar industry and practically destroyed the Cuban
banking institutions. As a consequence of this collapse, many
sugar properties went into the hands of the American and Canadian
Banks that had financed them.35

Thus, the transfer to United States ownership again occurred at a time

when Cuba was under.particular financial duress. In addition to sugar

holdings, there were very substantial American investments in other

sectors of the economy. Table 5 summarizes these investments for the

years 1906, 1911, 1924, and 1927. As is indicated, sugar ranked a

clear first, having experienced enormous expansion relative to the

first decade of the twentieth century. Investment in railroads and

public services followed, ranking second and third respectively by

1927. Real estate, tobacco, and government debt were other important

areas into which funds were channeled.

3Baklanoff, p. 29.

33The National City Bank of New York, Cuba: Review of Commercial,
Industrial and Economic Conditions, New York, 1919, p. 3.
34A Study on Cuba, p. 238.

35Ibid., p. 240.



1906 1911 1924 1927

(millions of dollars)
Sugar industry $ 30.0 $ 50.0 $ 750.0 $ 600.0
Railroads 39.0 25.0 110.0 120.0
Public Services 3.5 25.0 100.0 115.0
Real.Estate 14.0 20.0 90.0 65.0
Tobacco 30.0 -- 50.0 20.0
Commerce -- -- 30.0 30.0
Mines 3.0 25.0 35:0 50.0
Banks 4.0 5.0 20.0
Land 6.0 15.0 25.0 --
Other 30.0 10.0 40.0 40.0
Government debts 37.0 30.0 110.0 100.0

Source: A Study on.Cuba, p. 267.

Although this infusion of American capital allowed increased

imports and was accompanied by entrepreneurial skills and technological

advances, "the passing of key economic activities into foreign ownership

constituted a psychic blow to Cuba's national posture ..,36 a blow

which left an imprint of significance.

Having established a firm foothold in the Cuban economy in the

early 1900's via venture capital, American investments were augmented

by reinvestment of earnings, the aforementioned instances of forced-

sale purchases and foreclosures, and the potential for investment which

attracted more American firms. It is difficult to convey the pervasive-

ness of United States interests using absolute figures alone. In the

year 1927 Americans owned over 20 percent of all fertile land in Cuba,

controlled 90 percent of Cuba's utilities, 75 percent of the banking

business (jointly shared by three American and three British banks),37

over 60 percent of the value of sugar output, and numerous retail and

wholesale establishments.

The economic benefits of these investments cannot be quantified,

but they were enormous. Most developing nations encounter great diffi-

culties creating the necessary infrastructure which is a springboard

to rapid and sustained growth. Social overhead projects by their very
nature are not likely to attract foreign capital,38 so the task is that

much greater. Cuba, however, enjoyed a rather unique situation in which

3Baklanoff, p.j29.
3Stages and Problems of Industrial Development in Cuba, p. 40.

38See D. Losman, "Foreign Aid, Socialism, and the Emerging.Coun-
tries," Duquesne Review, Spring, 1967, p. 57.

huge volumes of American investment developed not only the island's

major industry and exchange earner, but ventured into the social over-

head requirements as well. Thus, by the end of the 1920's "U. S.

capital had created an islandwide electric power system and organized

and financed a substantial fraction of Cuba's railways.."39

During the 1930's American holdings contracted significantly and

continued to decline through 1943. After that year an increase in

American investment occurred, although the great levels of the late

1930's were not again reached until 1959. Table 6 presents a summary

of direct United States investments in Cuba for six selected years from

1929-1954. The significant decline in the value of sugar assets during

the depression years resulted in public utilities investments overtaking

sugar as the chief locus of American capital. Thus, from 1936 onward

utility investments outweighed those in agriculture (principally sugar).

In the period 1956-1959 Cuba's financial stability, continued close

relationship with the United States, and its economic potential again

created fertile ground for an inflow of American funds. The value of

direct United States investments, which followed a diversified pattern,

increased by 73 percent over this period, amounting to $956 million by

1959. Perhaps surprisingly, almost one-fifth of the postwar increase
was added during 1959, Castro's first year in power.0

To summarize the pervasiveness of United States economic interests

in Cuba, the remarks of J. Wilner Sundelson will be quoted. He stressed

3Baklanoff, p'.'29.
40. 31.
Ibid., p. 31.



Economic Sector 1929 1936 1946 1950 1953 1954 1958

(millions of dollars)
Agriculture 575 265 227 263 265 272
(refineries) 9 6 15 20 24 27
Manufacturing 45 27 40 54 58 55
Public Utilities 215 315 251 271 297 303
business l5\ 15 12 21 24 35
Other industries 60 38 8 13 18 21

919 666 553 642 686 713 861a

aEstimated total.

Source: Stages and Problems of Industrial Development in Cuba,
p. 157.

the importance of American capital not only in the sugar industry, but

elsewhere, writing that:

United States interests in Cuba were in rubber, chemicals, pharma-
ceuticals, fertilizers, textiles, leather products, building mate-
rials, glass, furniture, petroleum and its derivatives, metal
products, machinery, and matches. United States oil companies
are reported to have spent $25 million prospecting for petroleum
S. The United States government put a total of $90 million in
the Nicaro complex. The names of the companies involved in Cuba
read like a Who's Who of American business . . In 1960
United States investments in Cuba stood at approximately $1.5

Nevertheless, it is important to note that despite this great

absolute value of American interests, a process of "Cubanization" had

been occurring for some time, chiefly in the areas of sugar, banking, air

transport, and insurance. Private Cuban groups had succeeded in gaining

control over significant portions of economic activity hitherto dominated

by foreign--more specifically, American--interests. Table 7 indicates

the nationality of ownership and percentages of production in the sugar

industry for the years 1935-1958. Significantly, since 1935 the per-

centage of total production owned by Americans has continuously declined

so that the Cuban dominance by 1958 roughly approximated that of the

United States 33 years earlier. In reading this table it should also be

noted that some United States-owned mills were corporations which had

important Cuban investors. In the banking sector, the crisis of 1920-21

had forced 20 Cuban banks to close, leaving the industry almost wholly

in foreign hands. By 1955, however, "Cuban-owned banks held 60 percent

J. W. Sundelson, "A Business Perspective," in J. Plank, editor,
Cuba and the United States, Washington, D. C.: Brookings Institution,
1967, p. 101.



Cuban United States Others Total
% of % of % of % of
Produc- Produc- Produc- Produc-
Years Units tion Units tion Units tion Units tion

1935 50 13 70 62 59 18 179 100
1939 56 22 66 55 52 16 174 100
1952 113 55 41 43 7 2 161 100
1955 118 59 39 40 4 1 161 100
1958 121 62 36 37 4 1 161 100

Source: Stages and Problems of Industrial Development, p. 157.

of the nation's deposits." A similar trend occurred in the insurance

industry, while the nation's leading air transport firm, previously an

American subsidiary, came under Cuban ownership.

The contribution to the Cuban economy by American capital was
enormous and has been ably demonstrated in a recent article. Unfor-

tunately, the fact that Americans also benefited and the fact that the

investments tended to be capital rather than labor-intensive evoked much

resentment. Thus, the contribution to total employment was not as great

as many Cubans would have liked and this tended to obscure the technical

and entrepreneurial skills which came with American capital, the amount

of taxes paid, and the tremendous volume of foreign exchange earnings.

To some degree, also, the sugar monoculture and a failure to diversify

was blamed on the United States, although the foundations of the economic

structure had been laid well before American investment ever occurred.

To the extent that American capital and markets meant that sugar pro-

duction was profitable and that the free market led toward increased

rather than less specialization, this was not the fault of the United

States, but rather the Cuban government which did not actively pursue

diversification. Ironically, the Castro regime itself found that

diversification entails great costs and has returned to an emphasis

on sugar as the crucial sector--in this instance, without any pressure

from American capital or the United States government. In similar,

fashion, the transfer of dividends and a portion of the profits back to

the United States tended to be magnified out of proportion when in fact

42 43See
Baklanoff, p. 33. See Baklanoff.

rates of return were not particularly high; indeed, they were lower than

corresponding earnings on American investments in Latin America as a

whole and in Western Europe. As Baklanoff states, "The burden of evi-

dence suggests that the earnings of U. S. business investments in Cuba

were a modest price to pay for the growth-promoting impacts. . ."

American investment also produced important balance of payments

effects. As has already been indicated, rates of profit were relatively

low rather than exorbitant. In absolute figures the earnings were fall-

ing in the late 1950's, from $73 million in 1957 to $46 million in 1958

to $28 million in 1959. In addition, a portion of these profits were
reinvested in Cuban operations.45 The last year in which full data are

available is 1957. "Directly contributing to Cuba's foreign exchange

earnings were export sales [by U. S. owned firms] of $273 million and
capital inflows from the United States of $88 million."46 From these

inflows must be deducted the outflow due to the imports of these firms

and their income.and royalty remittances, which approximated $156 million

(ignoring.petroleum imports). On balance, then, "the investments

accounted for a net direct foreign exchange gain in 1957 on the order
of $200 million." In addition, the volume of import substitutes pro-

duced by American firms represented a considerable savings of hard cur-

rency. Thus, over 85 percent of American-owned manufacturing establish-

ment sales ($150 million in 1957) were domestic, a very large portion

44Ibid., p. 34.

4National Foreign Trade Council, U. S. Business in.Cuba, New
York, 1950, p. 3.

46Ibid, 47Ibid.

of which would otherwise have been spent on imports.48 Lastly, it should

be noted that of the products imported by American firms a very substan-

tial amount was capital equipment, which came almost wholly from the

United States. In terms of balance of payments effects, then, American

direct investment in Cuba provided a very substantial positive contri-

bution, despite profit remittances.

In spite of the facts presented above, the investments themselves

tended to evoke a negative or nostalgic response, even from those most
favorably disposed to the United States. And, of course, there is

always a lag between the facts as they are and the facts as perceived

and understood in general. Thus, American dominance and power remained

the clearest imprint in many Cubans' minds, while the notions of a

growing "Cubanization," of the nonexcessive rates of profit by American

firms, and the widespread benefits emanating from American capital

remained in obscurity. It was felt that economic pressures from Ameri-

can businesses coupled with political pressures from Washington had

influenced corrupt Cuban governments to undertake policies inimical to

Cuba's best interests. It was alleged that American business had forci-

bly created an inequitable trade relationship between Cuba and the

United States and that the severe retardation of industrial development

and the failure to diversify were direct results of the dominance of

4Ibid., p. 4.
4Thus, in A Study on Cuba the authors note that as early as 1927
"The Cuban entrepreneur . no longer served as the mainspring of the
national economic activity . it is regretable so large a part of its
[Cuba] productive wealth passed from Cuban to foreign hands" (p. 283).
A careful reading of this excellent study will reveal several instances
in which some bitterness or latent resentment due to private or govern-
ment actions by the United States comes to the surface.

American economic interests. In short, "exploitation" rather than

"contribution" was the imprint felt by many, particularly those associ-

ated with Castro's 26th of July movement.

The scope and impact of American capital and technical investments

cannot be overestimated. In perhaps no other foreign country has Ameri-

can capital ever been so dominant. For this reason, it was resented,

despite its benefits. For this reason also, the United States embargo

had a much greater impact and disruptive effect than would normally be

expected, as will be demonstrated.

International Trade

In terms of external trade, the mercantilist policies followed

by Spain restricted the possibilities of selling Cuban products to other

countries, while at the same time requiring that the bulk of Cuba's

imports come from that nation as well. In the second half of the 1700's

trade became considerably liberalized, encouraging production of tobacco,

sugar, and coffee. Complete freedom of trade for Cuba was declared in

1818 and this gave impetus to a large amount of exchange with areas

other than Spanish possessions, particularly with the United States,

although commerce between the two countries had already shown rather

substantial increases after American independence from Britain.

Until the end of the eighteenth century, Cuba's balance of trade

had generally been unfavorable, chiefly due to the limitations upon

exports resulting from Spanish policy. Due to the existence of exten-

sive smuggling, the actual deficit was smaller than trade figures

indicated. Commerce with the United States and England increased

enormously during the first half of the 1800's. Coupled with Spain,

these three nations received 73 percent of Cuba's exports in 1848.50

Table 8 presents the import and export volume with these countries in

the middle 1800's. The overall trade turnover (imports plus exports)

placed the United States in the position of leading trading partner.

As is indicated, the level of Cuban imports during the 1846-1859 period

was more or less equal from both the United States and Spain; however,

Cuban exports to the United States were clearly most important.

"From the beginning of the nineteenth century, trade had been

the best index of the economic situation of Cuba, and it showed wide

fluctuations."51 In only eleven of the first 60 years of the 19th

century was the balance of trade favorable to Cuba, although the trade

balance with the United States was consistently favorable, and by a

considerable amount. This was a source of some unhappiness for Ameri-

can policy makers who felt that Cuba could have imported more were it

not for tariff impediments. Thus, the United States had become the

principal market for Cuban exports in the middle 1800's, although it

was not Cuba's major supplier until much later. Table 9 presents

Cuba's foreign trade with both the United States and Spain for the

years 1891-96. Even then, Cuba still enjoyed a considerable export

balance with respect to United States trade, while the balance with

Spain, due to high levels of import, was unfavorable.

A Study on Cuba, p. 129.

5Ibid., p. 131.



Cuban Imports
Year From: U.S. Spain England To: U.S. Spain -England

(thousands of pesos)
1841-45 6,200a 33,639 17,645 5,282a 19,403 36,158
1846-50 27,838 27,210 21,682 37,426 16,957 35,105
1851-55 35,978 44,729 31,991 61,817 17,727 42,388
1856-59 40,308 31,042 29,406 68,339 20,974 37,294
Total of
1846-1859 104,124 102,981 86,079 167,582 55,658 114,787

a1842 only.

Source: A Study on Cuba, p. 129.




Spain United States
Cuban Imports Cuban Exports Cuban Imports Cuban Exports
Year- from to from to

(thousands of dollars)
1891 22,168 7,193 12,224 61,714
1892 28,046 9,570 17,953 77,931
1893 24,689 5,697 24,157 78,706
1894 25,592 7,265 20,125 75,678
1895 26,998 7,176 12,807 52,871
1896 26,145 4,257 9,632 42,314

Source: A Study on Cuba, p. 234.

Table 10 indicates the commodity composition of Cuban-United

States trade for the year 1893. Sugar was by far the most important

Cuban export, the United States having been Cuba's chief sugar cus-

tomer since the early 1800's. Tobacco ranked as the second leading

export, while lard, wheat, and machinery headed the list of imports.

It is important to note that commercial policies strongly

influenced the trade patterns of Cuba. The first, of course, were the

mercantilist policies of Spain. After 1818, when free trade was allowed,

commercial relations were controlled via tariff manipulations. However,

the trade relationship between the United States and Cuba did not

smoothly develop due to tariff impediments from both sides. In order

to discourage much of the triangular trade which had developed--specifi-

cally, the import of American flour into Cuba and its subsequent re-

export to Spain--the Spanish authorities in 1820 increased the Cuban

duty on American flour. The United States retaliated by increasing its

duty on'Cuban coffee, thereby nearly destroying an industry which heavily

relied on American purchases. The Cubans, naturally, resented tariff

manipulations--both Spanish and American--which affected them so

adversely. In attempting to placate dissatisfaction on the island,

Spain on several occasions made the tariff more reasonable, which led

to increased American-Cuban trade. This, in turn, resulted in upsurges

in Cuban economic activity, usually later dissipated by tariff surcharges

and other hindrances. Despite mounting protests, "Spain unheedingly

dictated a new tariff in 1892, containing such limiting provisions that

the instrument gained the character of a national scandal."52

52Stages and Problems of Industrial Development in Cuba, p. 17.



Exports to the United States Imports from the United States

(thousands of dollars)
Sugar 60,637 Lard 4,032
Leaf tobacco 8,940 Wheat flour 2,822
Manufactured tobacco Machinery 2,792
and cigarettes 2,766 Lumber 1,410
Fruits and nuts 2,378 Hams and Bacon 1,377
Lumber 1,071 Charcoal ore 931
Honey 1,081 Corn 582
Iron ore 641 Potatoes 554
Hides 279

Source: A Study on Cuba, p. 234.

When the McKinley Tariff of 1890 lowered American customs duties

and granted free entry for many foreign products, the Aldrich Amendment

was incorporated into the law. Due to the unbalanced trade of the United

States with several Latin American countries, including Cuba--trade which

was biased by a customs policy against the United States in favor of

Spain--this amendment denied such countries the new low tariff rates

unless reciprocity was extended. Under tremendous pressure from Cuban

interests, Spain agreed to the Foster-Canovas arrangement by which Cuba

and Puerto Rico were granted the full benefits of the McKinley tariff

in exchange for tariff concessions for American products. Although trade

in both directions increased substantially, with the absolute increase

in Cuban exports outweighing the increase in imports from the United

States, in relative terms it was imports which grew most rapidly. The

potential for mutually beneficial exchange can clearly be seen from the

actual trade which resulted when the Foster-Canovas Agreement was in

force. By 1893 American exports to Cuba had risen so significantly that

they equalled about three-fourths of the total exported to other Latin

American nations.53 Purchases from Cuba, principally sugar, "constituted

10 percent of the total value of the imports of the United States, and

were surpassed only by imports from Great Britain and Germany."54

In 1894 the Wilson Tariff replaced the McKinley law and the Foster-

Canovas Treaty expired. The reciprocity treaties were terminated and the

American market became a considerably more protected one. The duty on

53A Study on Cuba, p. 134.


sugar imports .was made 40 percent ad valorem, with an additional charge

on refined sugars for the purpose of encouraging.-domestic refining.

Hawaiian sugar continued to enter the United States duty-free, putting

Cuba's sugar producers at an additional disadvantage. As Table 9, page

56, indicates trade between the two countries significantly declined.

Cuba's imports from-the United States fell by about 40 percent from

1894 to 1895, while experts to that market declined 30 percent. These

decreases continued the following year .

The impact upon Cuba was very great. The increased difficulties

of selling in the American market resulted in decreased sugar production.

On top of this, sugar prices had begun to fall. In addition, the

restored duties of the colonial system plus a decrease in exchange earn-

ings meant higher price levels within Cuba. "The difficult economic

situation which arose was just one more reason for the increasing

friction between the Cubans and Spain, and helped to consolidate the

desire for independence."55 The significance to Cuba of American com-

mercial policy and its effect upon Cuba's independence movement of the

late 1890's is aptly described by L. H. Jenks,

If a master-mind had been in charge of the affairs of the United
States in the early nineties, seeking for his own ends to foment
rebellion in Cuba against Spain, it would not be difficult to
guess the course of action most likely to bring results. He
would have sought to exaggerate the inconveniences of Spain's
colonial policy for Cuba, in the face of Cuba's commercial depen-
dence upon the United States. He would have manipulated American
tariffs to show the Cubans how prosperous they could be if trade
restrictions were removed; how serious was their situation if the
colonial policy continued to prevail . . Reduced to barest

55Ibid., p. 137.

outlines, this is exactly what took place in the relations of
Cuba and the United States from-1890 to 1895.56

"It is important to note that since the middle of the 19th

century, Cuban economic spokesman fsic] had voiced the necessity of

maintaining close and mutually satisfactory trade relations with the
United States." Commerce between the two nations had weakened con-

siderably in the years just prior to 1898 and then came to a halt during

the Spanish-American War, The period of American military occupation

plus the resulting new political relationships created stimulated

exchange between the.two countries.

It was recognized within Cuba that access to the American market

was vital to Cuba's economic well-being. Inasmuch as a protectionist

current was quite strong in the United States, Cuba sought guaranties

of access to American markets after independence, although it should be

noted that there were some Cubans who warned at that early date of an

excessive reliance upon the American market. A Reciprocity Treaty was

finally ratified by the United States Congress in late 1903, probably

more due to political than economic reasons. Mutual preferential tariff

reductions were enacted, the result being that Cuban sugar had gained a

preferred position in the American market, In turn, American imports

were granted tariff preferences which resulted in Cuba's imports from

the United States increasing enormously, so that American participation

56Jenks, p. 137.

57Stages and Problems of Industrial Development in Cuba, p. 17.

in Cuba's import market increased "from 42.75 percent in 1904 to 53.73

percent in 1913."58

This increased share, it should be noted, was the result not of

the displacement of the products of other countries, but rather the

large absolute increase in the volume of American exports, while other

suppliers more or less maintained their existing amounts. The increased

sugar prices for Cuban producers which the reciprocity agreement had

allowed expanded income greatly, and with it, the demand for imports,

most of this increased demand going to American producers. Nevertheless,

the resilience of prior trade patterns is significant to note. Thus,

The consumer habits of the Cuban people, the commercial relations
long in existence, and the level of prices, were the factors that
determined the persistence of the old interchange pattern in spite
of the considerable advantages obtained by the United States by
virtue of the Reciprocity Treaty.59

It should also be noted that although the new agreement created a

price premium for Cuban sugar above the world market level, Cuba's tariff

concessions allowed easy entry of many American products which might

have been replaced by domestic production if stimulated by only moderate

tariff protection. In addition, the general tariff structure which the

United States had adopted discriminated more heavily against processed

and manufactured goods, a practice common in developed countries. The

purpose, of course, was to allow easy entry of raw materials which can

be processed and sold domestically (or resold to the original suppliers)

rather than having the latter process the raw.materials themselves and

58A Study on Cuba, p. 285.


compete in American finished goods markets. Thus,, Cuban diversification

and industrialization was inhibited by the preference arrangements.0

In fact, the sugar monoculture became more firmly entrenched as profits

and investments became overly geared to sugar. The volume of tobacco,

minerals, cattle, and non-sugar exports as a percentage of total exports

declined steadily from 1913 through 1919.61

The overwhelming dominance of the United-States since 1902 as

Cuba's leading trade partner is clearly demonstrated in Table 11.

Imports from the United States rose continuously from 1902 to 1919,

increasing from 41.67 percent of Cuba's total imports to 76.13 percent.

The dislocations caused by World War I had decreased the share of imports

coming from Europe, although the Cuban market was partially regained

during the 1920's. Nevertheless, the American share exceeded 61 percent

each year. In terms of export markets, Cuba's reliance upon the United

States was fantastic, averaging close to 80 percent of total exports

for the 1902-1927 period. In 1909 the figure reached almost 88 percent;

however, after that date higher American tariffs forced Cuba to seek

.other markets.

The protectionist policies assumed by the United States under the

Hawley-Smoot Tariff of 1930 increased the duty on Cuban raw sugar to two

cents per pound and had disastrous effects upon the island's economy.

6For an astute analysis of the negative effects of the tariff
policies of the developed nations upon the development of the "have-not"
nations, see Harry Johnson, Economic Policies Toward Less Developed
Countries, New York: Frederick A. Praeger, 1967, particularly pp. 72-

61Stages and Problems of Industrial Development in Cuba, p. 27.



Cuban U.S. as % Cuban U.S. as %
Exports of Total Imports of Total
Year to U.S. Cuban Exports From U.S. Cuban Imports

(thousands of dollars)




























Source: A Study on Cuba, pp. 286-87.


Cuban sugar exports to the United States, which accounted for
58 percent of the total American consumption in 1924, were
reduced to slightly over 25 percent in 1933 . Parallel with
the decrease in Cuba's participation in the American market,
there was an increase in production in Hawaii, the Philippines,
and Puerto Rico, and to a lesser degree, in the continental beet
and sugar cane areas.62

Accompanying the great decrease in exports to the United States was an

even more rapid decline in imports, which fell by approximately 80 per-

cent over the 1929-33 period (see Table 12). The Gentleman's Agreement

of 1930 and the Chadbourne Plan of 1931 represented attempts at stabil-

izing both world sugar prices and Cuba's position in the American

market (Gentleman's Agreement).63 Neither of these measures were suc-

cessful in helping Cuba's export sales.

Franklin D. Roosevelt's administration modified the protectionist

policies somewhat, reducing duties and introducing the use of sugar

quotas (the Jones-Costigan Act). Later, a bilateral trade agreement,

aimed at restoring the former large volume of trade between the two

countries was signed, supplementing the first Sugar Act (Jones-Costigan).

The duty on Cuban sugar was reduced, while that on other countries was

not, thereby increasing Cuba's preferential margin. This resulted in

a higher price for Cuban sugar producers, although the volume. of sugar

imports could not increase since it was now limited by a quota. In

addition, the quotas were assigned according to the participation of

foreign suppliers in the American market during the years 1931-33, when

A Study on Cuba, p. 333.
63See Boris C. Swerling, International Control of Sugar, 1918-
1940, Stanford: Stanford University Press, 1948, for a complete account
of sugar stabilization efforts during this period.



Cuban U. S. as % Cuban U.S. as %
Exports of Total Imports of Total
Year to.U.S. Cuban Exports From U.S. Cuban Imports

(thousands of dollars)
1928 202,535 72.84 129,349 60.78
1929 208,754 76.63 127,051 58.76
1930 116,074 69.38 91,872 56.55
1931 80,074 74.94 45,940 57.35
1932 57,482 71.26 27,653 54.20
1933 57,112 67.78 22,674 53.53
1934 81,094 75.26 41,225 56.15
1935 101,534 79.31 55,686 58.33
1936 121,899 78.72 66,494 64.42
1937 150,149 80.69 88,847 68.57
1938 108,363 75.95 75,152 70.89
1939 111,182 75.29 78,381 74.04
1940 104,906 82.42 81,042 76.66
,I, M I ,, I I I I,,| ,

Source: A Study on Cuba, p. 399.


Cuba's participation had been very low (28 percent). "Largely as the

result of the new commercial policy of the United States, the Cuban
sugar industry had been saved from further decline,"64 although the

increased earnings were not as great as expected. There were, however,

two drawbacks from the Cuban perspective. In its 1927 tariff Cuba

had attempted to give moderate protection to local industry for develop-

ment of import substitutes and diversification. However, the bilateral

agreement also gave.preferential status to American products which

entered in increasing number, thus hampering domestic industrialization.

More specifically, the agreement resulted in American concessions for 35

separate Cuban items, while Cuban concessions covered 400 items. In

addition, the Sugar Act "paralyzed the development of the Cuban sugar

refining industry,"65 by heavy effective protection for refined sugar.

Finally, it should be noted that the Reciprocal Trade Agreement of 1934

and the Jones-Costigan Act

ushered in the age of managed sugar markets and controlled compe-
tition. Henceforward, the United States government, rather than 66
private interests, determined Cuba's share of the American market.

Table 12 shows Cuban-United States trade during the 1928-1940

period. The increases in trade beginning in 1934 should be noted. Via

the new agreements, American participation in the Cuban market increased

from 53 percent in 1933 to 76 percent in 1940, while the percentage of

Cuba's exports going to the American-market increased from 67 to 82

6Stages and Problems of Industrial Development in Cuba, p. 40.

A Study on Cuba, p. 334.

C. Barnet and W. MacGaffey, Cuba, New Haven: Human Relations
Area Files Press, 1962, p. 180.

percent. Thus, despite the several bilateral agreements which Cuba had

negotiated with other countries, trade with the United States became even

more concentrated.

It should be noted that in both world wars of this century the

United States has negotiated arrangements by which Cuba provided a

guaranteed sugar supply to the United States. Thus, the 1917-1918

sugar crop was sold almost exclusively to the latter nation and its

allies, and the 1918-1919 crop again almost wholly to the United States.

Such bulk sales had a highly stimulating effect upon Cuban economic

activity and foreign exchange earnings.

With American entry into World War II, sugar demand in that

country rose substantially and the quota system was manipulated so that

increased imports from Cuba were made possible. "The flow of large

volumes of sugar, mainly from.Cuba, helped maintain an adequate level

of supply in the United States and was intended primarily to check an

excessive increase in prices," although prices still were not

stabilized at a satisfactory level. Under the need for increased sugar

imports, an arrangement was negotiated whereby the entire 1942 Cuban crop

was to be sold to the United States, which also considerably reduced the

tariff on sugar--both raw and refined. Although the "fairness" of the

price agreed upon is subject to debate, the result was a 1942 crop whose

value more than doubled that of the previous year (it should be noted

that this increased dollar value was in part negated by the increased

prices on imports from the United States).

A Study on Cuba, p. 478.

This purchase had the effect of greatly encouraging sugar produc-

tion and related efforts within Cuba. However, in the spring of 1942

sugar rationing was introduced in the United States and the 1943 negoti-

ated purchases were considerably below the.previous year's level.

This abrupt change in purchasing policy created very serious problems

for the entire. Cuban economy. Similar bulk purchases were made for

1944, when an increase over the 1943 crop was negotiated, and for 1945,

1946, and 1947. Beginning with 1945, an "escalator" clause was included

in the arrangements. This provided that an increase in the American cost

of living and price level would result in higher sugar prices for Cuba,

an arrangement which considerably improved Cuba's real gain from the

transactions. Unfortunately, the lack of consistency in American policy

had accentuated the instability of the Cuban economy. Thus, the 1943

purchases, being rather low, discouraged plantings and cultivation.

This, in turn, resulted in poor harvests for the 1945 and 1946 crops.

Commenting on the situation, Timoshenko and Swerling state that:

What Cuba had most to contend with was lack of continuity in
official policy . . Sharp reversals in American wartime
policy became demoralizing to Cuba producers and contributed
to the postwar shortage. Although Cuba had been encouraged
to extend its plantings in 1942, under the contract for the
following year the exportable crop was limited to 3 million
tons, and about one-third of the cane acreage was left un-

Over the years 1942-1947 Cuba had supplied almost 45 percent

of America's annual consumption. .Despite the instability which shifting

6V. P. Timoshenko and B. C. Swerling, The World Sugar, Stanford:
Stanford University Press, 1957, p. 175.

A Study on Cuba, p. 485.

United States policy had engendered, the bulk sugar purchases coupled

with remunerative prices had brought Cuba a general prosperity. Cuba's

ready cooperation with the United States during times of emergency also

created a feeling among many Cubans that the United States should be

expected to reciprocate--that commercial policy between the two nations

should be geared to allow,Cuban diversification and import substitution

while at the same time maintaining Cuba's share of the American sugar

market. The relative failure of diversification, coupled with increasing

imports and a declining share of the American market produced a patent

uneasiness within Cuban financial circles by the 1950's. Without

doubt, some bitterness was also engendered.

When both the United-States and Cuba became contracting parties

to the General Agreement on Tariffs and Trade in 1948 the prewar pattern

of commercial policy was altered. The.purpose of GATT was the removal

of restrictions upon trade as well as the attempt at universalizing

tariff reductions. This orientation directly conflicted with the desires

of the sugar industry to maintain their preferred position within the

American market and the desire of nascent industry for protection. Cuba

signed the GATT only after negotiating an Exclusive Agreement with the

United States by which many mutual preferences were retained. Thus, the

essentials of the past preference system were retained. Protective

tariffs for certain Cuban products were increased in return for conces-

sions for American exports. These latter arrangements gave "the United

70See the speech of Dr. Louis Machado, February 9, 1955, pub-
lished in The Present Status of Cuban-American Trade Relations, Havana:
Lions and Rotary Clubs of Havana, 1955, especially pp. 14 and 21.

States a 20 to 90 percent reduction of tariffs applying to other

countries,"71 thus making entry to the Cuban market of non-U. S. pro-

ducts quite difficult.

The United States Sugar Act of 198 and the Exclusive Agreement

had a mixed effect. On the positive side, they improved Cuba's position

considerably as a supplier as compared to the situation under the 1934

and 1937 legislation. However, the duty effecting sugar was raised

and Cuba's margin of preference reduced. At this time, however, "the

price of sugar was so high and the future outlook so optimistic .

Cuba accepted these modifications without strong protest."72

Table 13 indicates Cuba's share in the American sugar market for

the years 1909-1954. With only four exceptions, during the 1913-1927

period Cuba supplied over 50 percent. During the 1930's the figure

rarely reached one-third. The 1940's, of course, witnessed a resur-

gence in the Cuban share, but by 1947 it had reached a peak and declined

steadily. Thus, the initial optimism concerning the agreement gave way

to still further disappointment and bitterness as time passed. A leading

citizen of Cuba in 1955 stated the following:

Cuba gave preference and special guaranties to American production
in the Exclusive Agreement, but did not get . protection for its
sugar . . It is evident then, that the modification of the
Agreement must be negotiated, and if it were not possible to achieve
this by mutual agreement, it should be far better to denounce it,
despite all the difficulties and troubles this course might entail
us, in actual practice . .73

7Barnet and MacGaffey, p. 180.
Stages and Problems of Industrial Development in Cuba, p. 62.
7Guillermo Belt, in The Present Status of Cuban-American Trade
-Relations, p. 68.



Cuban Sugar Cuba's Share
Exported to U.S. Sugar of the U.S.
Year the United States Requirements Sugar Market


(English Short Tons--Raw Value)




TABLE 13 (continued)

Cuban Sugar Cuba's Share
Exported to U.S. Sugar of the U.S.
Year the United States Requirements Sugar Market

(English Short Tons--Raw.Value)
1944 3.616,000 6.941,000 52.1%-
1945 2.800,000 5.996,000 46.7%
1946 2.280,000 5.657,000 40.3%"
1947 3.914,000 7.758,000 50.8%'
1948 2.924,000 7.080,000 41.3%
1949 3.108,000 7.580,000 41.0%
1950 3.267,000 8.249,000 39.6%
1951 2.979,000 7.965,000 37.4%
1952 2.979,000 7.965,000 37.4%
1953 2.716,000 8.482,000 32.0%
1954 2.723,000 8.250,000 33.0%

Source: The Present Status of Cuban-American Trade Relations,
pp. 14, 16.

These were the words not of a revolutionary or a socialist, but simply a

responsible and educated Cuban national who felt his nation was not

faring well in its trade with Cuba's large neighbor to the north. Che

Guevara's words are more typical of the attitude of Castro's followers.

The American Government used the quota system . not only
to protect her own sugar industry, as demanded by her own pro-
ducers, but also to make possible the unrestricted introduction
into our country of American manufactured goods . .. Under
these conditions of competition, and in view of the proximity
of the United States, it became almost impossible for any foreign
country to compete with American manufactured goods.

The U. S. quota system meant stagnation for our sugar pro-
duction . .74

Despite these statements, Cuba did receive some genuine and sub-

stantial benefits, although it is a moot question as to whether the bene-

fits outweigh the sacrifices. Cuba's sugar preference coupled with the

American quota system--which raised United States domestic sugar prices

above world prices--resulted in Cuba's earning an export premium in the

1950's of approximately $100 million annually.75 Although this amount

would have been even greater had their market share not fallen, it is a

very considerable sum for a country in Cuba's economic position. While

it is also true that a large part of this amount represented a subsidy

to American sugar interests in Cuba, these interests employed local

factors of production and did reinvest a portion of this subsidy. More

importantly, by the-1950's, the major.portion of the industry was in

7Ernesto Che Guevara, "The Cuban Economy," International Affairs,
October, 1964, p. 590.

7Boris Swerling, "Financial Alternatives to International Com-
modity Stabilization," Canadian Journal of Economics and Political
Science, November, 1964, pp. 532.

Cuban hands and this represented a subsidy from the United States govern-

ment to Cuban nationals.

Barnet and MacGaffey have provided an objective and reasoned

summary of the liabilities for Cuba involved in Cuban-American trade


The commercial polity in effect until the Castro regime,
designed primarily to favor the United States in return for
advantageous sugar sales, had two unfortunate effects. The
tariff discriminated unnecessarily against exporters in
countries other than the United States, including those coun-
tries with which Cuba had a large export surplus. Moreover
the close trade ties with the United States reduced Cuba's
economic independence and, in effect, forced Cuba to forego
tariff protection for nascent domestic industry. Although
diversification of domestic production was concentrated in
import-substituting products, producers found it-difficult to
compete with American manufactures because of the strong influ-
ence exerted by sugar and importing interests over economic
policy. In addition, the proximity of the United States and
Cuba's large dollar reserves made the importation of goods
attractive, and the government feared that Cuba might lose its
special advantages in the United States market, on which it
greatly depended.76

A brief examination of Cuba's balance of payments position is

now in order. Historically there have been several rather consistent

trends. The first is that the balance of trade has been favorable.

Secondly, these trade surpluses tended to be partially offset by

deficits in most other accounts--transport, insurance, remittances, and

tourism. Cuba was an export-oriented economy without a merchant marine,

a capital importer, and until 1956 a nation whose net tourist revenues

were negative--all of which resulted ingnet outpayments) Lastly, the

current account balance had, nevertheless, traditionally been favorable

due to the sizeable trade surplus which exceeded the intangibles deficits.

7Barnet and MacGaffey, p. 182.

"Partly responsible for this favorable balance of payments was

the remarkable flexibility in adjusting imports to export receipts,"77

a traditional tendency since the first reciprocity agreement with the

United States in 1903. Whenever revenues from sugar exports declined,

importers cut their orders in the knowledge that domestic income would

soon decline. Similarly, transport costs, insurance, and tourist out-

flows also fell. Thus, reasonable international payments balance was

maintained and the government had little or no recourse to import or

exchange controls except during emergencies such as World War II.

The decade of the 1950's, however, witnessed a departure from

historical trends. On the positive side, the tourist account had by

1956 become favorable as the volume of American tourists increased.

Nevertheless, except for 1953, unfavorable current account balances

characterized each year of the 1950's, mainly due to a deterioration

in the balance of trade. Imports consistently rose as a fraction of

exports (again except for 1953 when the Korean war had increased sugar

prices), narrowing the trade surplus until 1958, at which time a trade

deficit appeared. (The deterioration of the current account position

was primarily due to a newlinelasticity~of imports which broke the

traditional import sensitivity to export changes.) Two factors came

into play here: (1) the increasing downward rigidity of wages due

to(prganized labor's opposition) which meant that wages were no longer

easily reduced when sugar prices were low, and (2) the compensatory

spending policies of the Batista regime which inflated incomes and

77Ibid., p. 175.

tended to maintain imports despite slumping sugar prices. Both factors

maintained imports when they otherwise would have fallen. By the end of

1958 balance of payments considerations led to the government's requiring

exporters to exchange a large portion of their foreign currency earnings

for Cuban pesos. In addition, the 1950's generally witnessed a depletion

of international reserves>in order to finance the payments deficits.

Table 14 presents a summary of the balance of payments for the years


In terms of the direction of trade, the 1950's brought some

broadening in Cuba's trade patterns with the rest of the world. In the

pre-World War II years more than 75 percent of Cuba's exports went to

the United States. During 1940-1948 period this figure rose to 77.5

percent. During 1949-1958, however, the American share fell to 67.2

percent, largely due to increased sales to a reconstructed Europe) the
Soviet Union, and other areas. Thus, some diversification of exports

markets did occur, although the United States remained the overwhelmingly

dominant market for Cuban products.

As for imports, an even greater dependence upon the United States

can be seen for the 1950's. During the 1953-1958 period roughly 73 per-

cent of all imports came from American suppliers. In addition, the

traditionally favorable Cuban balance of trade with the United States

had changed to a deficit, as Table 15 indicates. Thus, from 1950

onward Cuba sustained a deficit each year except for 1953 and 1954.

Between 1949 and 1958, trade with most of the Western Hemisphere also

A Study on Cuba, p. 607.



1955 1956 1957 1958 1959

(in millions of pesos)

Current account:

Exports (f.o.b.)
Imports (f.o.b.)
Foreign travel (net)
Transportation (net)
Investment income (net)
Other (net)

Capital account:

Private donations and
Direct investment in
Official donations
Official and bank
Loans to official
Monetary gold

Net errors and commissions

- 3.0
- 56.9
- 40.9





- 81.4

- 57.9

- 60.5
- 50.6






- 70.4
- 65.6



- 69.8
- 47.9

- 57.3
- 5.9

- 20.9 102.8


66.9 187.9







- 39.8

- 33.3 44.3 39.9 53.9

Source: Barnet and MacGaffey, p. 346.


IMPORTS 1950-1958

Imports U.S.
Exports from Trade Total As % of
Year to U.S. U.S. Balance Imports Total Imports

(millions of dollars)
1950 380.9 407.1 515.1 79.0
1951 417.4 492.2 640.2 76.9
1952 407.3 462.0 618.3 74.7
1953 392.3 370.2 + 489.7 75.6
1954 367.9 366,7 + 487.9 75.2
1955 400.6 423.1 575.1 73.6
1956 429.7 486.9 649.0 75.0
1957 466.4 577.2 772.9 74.7
1958 490.0 542.5 777.1 69.8

Source: A Study in Cuba, pp. 607, 614.

showed a deficit," although trade surpluses with Europe generally

outweighed these deficits.

Table 16 presents the geographical distribution of Cuba's foreign

trade for the ten years prior to Castro. America's position as the

overwhelming supplier and market is again immediately obvious. The

United States and Latin America together supplied almost 80 percent

of Cuba's imports, a consideration which will become most important in

analyzing the boycott. Imports from the Soviet Union, Communist China

and their satellites accounted for less than one-half of 1 percent,

although their share of exports was four times that amount. This indi-

cates that the proceeds of the sales to these nations were used mainly

for the purchase of Western Hemisphere products rather than communist

output. The same situation, on a larger scale, characterized trade with

Europe, where proceeds from the export balances were again spent on

sources of supply geographically closer to Cuba.

The commodity composition of trade should now be examined. Table

17 presents a breakdown of imports by type of good for the year 1954.

As can be seen, foodstuffs are the leading import, followed closely by

raw materials. The leading food imports were cereals and flours, fats,

and oils, and fish. Household articles and fuels were other leading

imports, although substantially below foodstuffs and raw materials.

Table 18 presents another breakdown on imports, this for the

period 1949-1958. It is significant to note that the trend was for an

increasing percentage of imports to be capital goods rather than

79Barnet and acGaffey, p. 177.
Barnet and MacGaffey, p. 177.


1949 to 1958

Amount %

United States of
Latin America
Europe (non-
Soviet Union
Communist Europe'
Japan d
Communist China
Other countries

Amount %

(thousands of dollars)








$597,669 100.0

$664,279 100.0

aNot including Puerto Rico.

Europe, excluding the Soviet Union and
footnote (c).

countries included in

CAlbania, Bulgaria, Czechoslovakia (90 percent of imports),
Estonia, Hungary, Latvia, Lithuania, Poland, Rumania, East Germany and

Includes Manchuria.

Source: Stages and Problems of Industrial Development in Cuba,
p. 188.






Item Amount

(in millions of U.S. dollars)
Consumer goods:
Clothing 1.5
Household articles 34.7
Automobiles 25.6
Luxury 2.1
Foodstuffs 139.9
Medicines 11.1
Tobacco 1.1
Beverages 6.2
Other 4.2
Total 226.4

Production goods:
Sugar industry 2.6
Other industries 51.2
Agriculture 13.4
Transport 12.8
Construction goods 17.7
Fuels 33.7
Raw materials 130.1

Total 261.5

Grand Total 487.9

Source: Adapted from Department of Commerce, Bureau of Foreign
Commerce, Investment in Cuba, Washington, D. C.: Government.Printing
Office, July, 1956, p. 140.











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consumption items. Thus, capital imports represented slightly more than

52 percent of total imports in 1949, but rose to almost 61 percent by


Table 19 indicates the value of principal exports for 1953 and

1954. As would be expected, sugar dominated the picture, with tobacco

a far distant second.

To summarize, it is evident that Cuba vitally depends upon foreign

trade, with the ratio of imports to gross national product probably one

of the highest in the world, close to 30 percent in the middle and late

1950's. Trade was extremely heavily concentrated with the United States

and export earnings (about 80 percent of the total) essentially depended

upon one product, sugar. All these conditions point to an extreme

vulnerability to economic sanctions.

Political Pre-Conditions to the United States Embargo

The nature and origins of Castro's movement have been well docu-
mented elsewhere and need not be detailed here. It is important,

however, to recognize that Castro's revolution was the product of

instabilities long in evidence in Cuban society. The 26th of July

movement simply crystallized a revolutionary process characteristic of

most of the present century and, perhaps, earlier. Political discon-

tent, governmental instability and corruption, economic fluctuations,

8See Theodore Draper, Castro's Revolution: Myths and Realities,
New York: Frederick A. Praeger, 1962; Waldo Frank, Cuba: Prophetic
Island, New York: Marzani and Mansell, 1961; Barnet and MacGaffey, pp.
211-271; Jules Dubois, Fidel Castro: Rebel, Liberator or Dictator?
Indianapolis: Bobbs-Merrill, 1959.



Commodity 1953 1954

(in thousands of U.S. dollars)
Raw 439,785 333,386
Refined 62,723 68,511

Blackstrap 21,416 12,051
High-test 822 13,516

Invert syrup 3,726 4,063
Tobacco (unmanufactured) 34,540 34,311
Cigars 7,202 6,766
Nickel ore 14,119 12,756
Manganese ore 11,184 6,964
Copper ore 8,828 8,337
Iron ore 2,159 1,073
Chrome ore 1,093 123
Rayon tire cord 4,137 4,307
Rayon fiber and yarn 2,580 3,966
Yarn, other 2,248 494
Henequen fiber 1,449 1,298
Pineapples (fresh and canned) 3,107 2,696
Other commodities 19,226 24,430

Total Exports 640,344 539,048

Source: Department of Commerce, Bureau of Foreign Commerce, World
Trade Information Service, Basic Data on the Economy of Cuba, Washington,
D. C.: Government Printing Office, March, 1957, p. 18.

and intermittent, but significant, acts of violence characterized the

domestic scene, while internationally Cuba was under the political and/or

economic suzerainity of the United States. Cuba's client status and
82 5
the many blunders in American policy evoked much antagonism as did

the scope of American investment, however beneficial it might have been.

American paternalism had both altruistic and selfish motivations, neither

of which engendered positive feelings toward the United States. Thus,

the struggle for freedom, stability, and progress can be seen against

a background of strident nationalism and a desire to come out from the

shadow and tutelage of the "colossus to the North."

In addition, a strong resentment against the United States,

probably overdeveloped in Castro and some of his followers, rested on a

moral issue. Camilo Restrepo, a Colombian journalist has succinctly

described this conflict.

It is obvious that one of the factors of discord with regard
to the United States, which appeared among the basic arguments
for repelling Yankee influence on the island, was the fact that
Cuba had converted itself into the playground of the North Ameri-
cans: casinos, cafes, and women of easy virtue. Some writer
called the island the big brothel of the United States . .
Even more, during the Batista era, Havana had become an outpost
of American gangsters who shared their profits with the dictator
and the high functionaries of that regime.83

Fulgencio Batista in'his first revolt had achieved domestic

popularity via ardent nationalism and some Americans even feared The

81See E. S. Stokes, "National and Local Violence in Cuban
Politics," Southwestern Social Science Quarterly, September, 1953,
pp. 57-63.
82See Henry Wriston, "A Historical Perspective," in Plank, pp. 1-44.

83JPRS 40,609,.Camilo Restrepo, "A Colombian Looks at Fidel
Castro's Cuba," Cromos, February 6, 1967, p. 19.

was a communist. However, he became progressively more conservative and

was particularly careful with regard to American interests in Cuba.

Batista's second revolt just prior to the elections of 1952 broke the

constitutional continuity of the two previous administrations. He was

a dictator:and usurper of power, but again most compatible in his

relations with the United States government and American business. As

the years went by his regime rapidly deteriorated. Thus, graft and

corruption, misuse of government power, political oppression, and inhuman

cruelties became progressively more frequent. By the late 1950's the

regime had alienated itself from the bulk of the.population. With

increasing defections from his military, Batista's government was

doomed. Perhaps the regime's last base of support was the United States,

although by late 1958 no American actions short of military intervention

could have expected to save Batista from ouster.

It is significant to note that neither the American government

nor the business community appreciated the magnitude of Cuban discontent

nor the anti-American potentialities within the population and revolu-

tionary leadership--at least not until it was far too late. Thus,'in

an exhaustive study for American investors in 1956 the Department of

Commerce mentioned nothing concerning.Cuba's potential political insta-

bility, but simply some problems concerning Cuban labor. Despite the

1957 United States-Cuban agreement to implement the Investment Guarantee

Program, not one contract had been signed and only two applications were

under consideration by the time.Castro's expropriations began. The

8Department of Commerce, Investment in Cuba, Washington, D. C.:
Government Printing Office, 1956.

United States was thus unprepared for the advent of a new regime,

particularly one of Castro's character and philosophy.

When Batista's inevitable downfall became clear and doubts existed

concerning Castro's suitability for leadership, the United States rather

clumsily attempted, via a private citizen intermediary, to get Batista
to yield power to a junta of moderates. This effort bore no fruit.

At the end of 1958 Batista fled the country and Castro assumed power on

January 1, 1959. Belatedly, some interests in the American business

community had offered Castro support, "but such support was too late and

too small to have any favorable influence, assuming any such influences

on Castro was at that time possible."6

Batista policy which the United States attempted to follow in the uncer-

tainties of the 1957-1959 period.) While continued diplomatic and other

support was given to Batista, some actions were also taken which aided

the rebels as well. Nevertheless, great antagonism was created due to

continued American ties with the Batista regime. As Herbert Mathews

has written,

We [United States] finally put an embargo on arms to the regime
in the spring of 1958--but we left our military missions. Our
officers in Cuba went on hobnobbing with some of the most hated
associates of Batista, and our officers in Washington dined and
decorated these men. The bitterness that this caused in Cuba is

8See Communist Threat to the United States Through the Caribbean,
Hearings, 86 Cong. 2 sess., Washington, D, C.: Government Printing
Office, Sept. 2 and 8, 1960. Pt. 10.
86Sundelson, p. 102.
Sundelson, p. 102.

incalculable. To the Cubans we were teaching Batista's henchmen
how to kill other Cubans--and honoring them in the bargain.87

In retrospect, it does not appear likely that any moves by either

the American government or the business community would have made a sig-

nificant imprint on Castro--at least not enough to change his essential

attitudes and probable actions. In fact, "Castro's emotionally unstable

and unpredictable character . made him basically unapproachable."88

Nevertheless, the United States promptly granted his government recog-

nition and attempted to woo the new regime.

Whether Castro was or was not a communist prior to this take-over

is a moot question, although it is doubtful that he was. Nevertheless,

this question, however it is answered, is rather irrelevant since most

of the subsequent political events are likely to have occurred and

evoked the same responses regardless of Castro's particular ideological

commitment. "Fidel Castro has been described as an eternal rebel, a

romantic idealist, a messianic zealot burning to reform the world regard-
less of cost."89 His goal was a new Cuba--independent of foreign powers,

socially just, and economically prosperous. Many of the actions taken

by his regime were likely to have occurred whether or not there had been

an organized Cuban communist party or communist devotees amongFidel's

closest associates. It was economic nationalism which prompted the con-

fiscations of many businesses and the introduction of planning. The

8Herbert L. Mathews, "Diplomatic Relations," in The United States
and Latin America, second edition, H. S. Mathews, ed., Englewood Cliffs:
Prentice-Hall, Inc., 1963, p. 166.

88Sundelson, p. 104.
89R. F, Smith, "Castro's Revolution," in Plank, p. 60.
R. F, Smith, "Castro's Revolution," in Plank, p. 60.

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