America’s China Policy Is Not Working
The Dangers of a Broad Decoupling
THE main feature of the relations between Anglo-Saxon America and Latin America since the states of the latter won independence is the eternal conflict between economy and ideology. For more than a century the two Americas have been accustomed to the word Pan-Americanism; but sincere Pan-American sentiment has not synchronized with the reality.
In the first quarter of the nineteenth century a romantic "continentalism" dominated the Americas. The feeling originated in the spirit of that epoch, the age of revolutions against European states, when the New World was maturing and the air was full of idealism. This continentalism was a part of the general romanticism of that epoch, of its Sturm und Drang, much as the exodus to America had in itself been a protest against European conditions and habits. The New World wanted to become independent, to build a new structure on a new soil, and to avoid any interference from the Old World.
After their emancipation from the Old World the thirteen original states that formed the federal union of the United States began to pay more attention to their distant neighbors in the Western hemisphere than they had done previously. Their new attitude was based on the thought that all the American countries had been following a parallel development from relatively sparsely-populated colonies to the status of free states, and that all of them alike were unburdened by historical or racial prejudices. Thus the Western World seemed, in comparison with Europe, a new and isolated phenomenon, providing a common basis for the development of the common interests of the young states. Among these states there could never be strife in the way that there had been strife between the states of Europe. The attitude was well expressed in the famous letter of the Brazilian student, Maia, to Jefferson: "Nature in making us inhabitants of the same continent has united us in a common lot, in bonds of common patriotism."
Among the reasons for believing in a community of interests the following were always advanced: geographical proximity, a similarity in governmental structure (anti-monarchical and republican), similar foreign policies (directed against the European danger), similarity of origin as colonies of European states, and a common faith in the common future of the countries of the New World. Hamilton was a spiritual representative of this current of thought when he bade his fellow-citizens to think continentally. Henry Clay, as early as January 29, 1816, asserted in the House of Representatives that the United States might openly have to "take part with the patriots of South America" and spoke of the area "from Hudson to Cape Horn" as if it were a homogeneous territory. At that time--the first quarter of the nineteenth century -- it was proper to think in terms of continents.
From continentalism sprang the Monroe Doctrine. It was an expression of the will of the United States to erect a political wall between the Old World and the New, to find safety behind it, and at the same time to guard other states of the hemisphere against common enemies. It was a warning to Europe. This was the sense in which the Monroe Doctrine was understood in Latin America. The Argentine, Carlos Calvo, conceived of the doctrine as a "declaration of complete American independence;" the Peruvian, Maurtua, called it a "Pan-American Declaration." The Monroe Doctrine was an official declaration of the opinions and ambitions of continentalism.
The Panama Congress of 1826 stands as the mark in history of the close of the continental phase. This first attempt to hold a "Continental Congress" was a fiasco. An invitation to attend was sent to the United States, and accepted after some delay. Official representatives were finally delegated -- but never arrived. There were reasons why the United States showed so sluggish an attitude. It now was busy at home; the work of building the country had to go on; and material reasons for being interested in faraway neighbors, in "brothers " on the other continent, were still undeveloped. So the Latin American family was left to itself. Then followed the expansion of the United States, heralded by the Mexican War. A new chapter in history was about to begin.
The conflict in the period which I have called continentalism (in distinction to the later official title of Pan-Americanism) is obvious; the exalted ideology did not possess a corresponding economic background.
As a child of the early part of the nineteenth century, continentalism was a product of the political movements of the time and the confusion of ideas then current. It was sponsored in both North and South America. On the other hand, the official Pan-Americanism of the eighties, though officially a legitimate child of twenty-one states, was in fact an offspring of the United States only; the other twenty states merely refrained from protest, thus tacitly adopting it. Pan-Americanism inherited its theoretical program from continentalism. Its practical aims were suggested by the economic growth of the United States.
From the time of the Panama Congress the United States had always kept aloof from attempts of the Latin American countries to organize a union. It was not until after the United States had made progress in solving its own internal economic problems that Pan-Americanism was brought to the fore. After the Civil War the industry of the nation shot ahead. Growing industrialization called for new markets. The eagle was ready to fly, and took wings southwards.
When interest in Latin America began to grow in the eighties it became necessary to take account of the strong competition to be met with there on the part of Europe, and especially of Great Britain. The position of the United States for coping with this rivalry was not very favorable. Among Europe's distinct advantages were the fact that geographically she was nearer to South America, traditionally she had a better knowledge of the markets, and financially her position was more powerful. The United States, goaded on by the pressure of its expanding industry, nevertheless entered the fight. James G. Blaine, then Secretary of State, seemed to recall the words of Emerson that "the world is founded on thoughts and ideas, not on cotton and iron," and attempted to find the thoughts and ideas underlying cotton and iron.
The official arguments used in favor of Pan-Americanism in the eighties sound continentalistic indeed; Blaine's ideas were practically those of Henry Clay. But the position of the United States in world economy had meanwhile undergone a considerable change. New motives for the restoration of the old concept had come into play. These new motives, economic in character, were so important that in inviting Latin American states to the Pan-American Conference which eventually met in Washington in 1889 the United States included an invitation to the Brazilian Empire, although to do so weakened the hope of erecting a Chinese wall between Europe and America by continually emphasizing the republican character of the New World.
When one compares the economic problems discussed at the Havana Conference in 1928 with those which had been before the First Conference in Washington in 1889, the decadence of the movement becomes evident. Even the resolutions adopted at the conferences never were translated into realities. This is equally true of those of prime and those of secondary importance; it is as true, for instance, of the resolution concerning the Pan-American bank or of the proposal for a Pan-American coffee congress as of the decision to erect a monument to Henry Clay.
The economic background was prepared only on the side of the United States. The attitude of the Latin American states was different. Like the United States, they had adopted the unrestricted romantic continentalism of the beginning of the nineteenth century (with the exception of Argentina, which from the beginning showed an anti-continental policy and an inclination toward Europe); in the middle of the century they shared the continental indifferentism of the United States, which in Latin America replaced continentalism (Argentina and Brazil excluded) by an embryonic Hispano Americanism, strengthened by the creation of the Peligro Yanqui doctrine. They also shared formally in official Pan-Americanism. But on the side of the United States, as has already been noted, the official Pan-Americanism of the eighties had economic motives. These motives were strange to the peoples of Latin America, since their investments, immigration and culture came from Europe. Further, the methods of expansion adopted by the United States created deep political distrust in Latin America, and after the turn of the century cries were continually raised against the Peligro Yanqui. Central America and Mexico were the chief instigators of this attack; but the Antilles, the states of the Pacific Coast, Argentina, Bolivia and Uruguay all joined in.
The Great War deeply modified the relations between Anglo-Saxon America and Latin America. It stimulated a revival of the old romantic continentalism and created an economic background for it. It was a unique period of synchronization of economy and ideology in the Americas. The changes in trade and investments that took place during the war are well known. The forced emancipation from Europe united Latin America temporarily to Anglo-Saxon America by economic and financial bonds. The idealism of Wilson prepared a favorable sentiment and brought forth talk of "el nuevo Pan-Americanismo." As Mr. John Barrett pointed out: "Never before have the people in each and all of the American nations said so many sympathetic and kind things to each other as they are now doing."
In this period both continents believed for the time being in the old continentalism of the early nineteenth century, preached the unity of America, and failed to note that while it was true that for the southern continent the United States had become the chief buyer, purveyor and financier, for the United States, on the other hand, South America was only one of several great economic divisions. For during the war all quarters of the globe depended upon the United States. Europe for the moment was held in greatly diminished respect, due in part to the contradictory propagandas of the belligerent parties. Professor Percy A. Martin emphasized that "Pan-Americanism ceased to be a mere rallying-point, a diplomatic shibboleth. Under the stress of war it became a dynamic force." It was not the official Pan-Americanism, however, but a revival of the old continentalism.
This epoch was not of very long duration. The end of the war, the new world position assumed by the United States, the rapidly spreading alarm about the Peligro Yanqui -- all this accelerated the breakdown of the continental spirit. Despite the existence of a ready apparatus in the form of official Pan-Americanism, which had been active since the nineties, the ideals of continentalism could not be realized. Continentalism had lost its motive power due to the changes in basic factors; the revolution in transportation had destroyed the geographical argument; time had removed the political motive. Today the common past is no longer anything but an historical memory, and no one longer gives credence to a common future. Under the impetus of the World War continentalism had a re-birth, but it was only to survive an hour.
Today the most discussed problem of inter-American relations in Latin America is not Pan-Americanism. It is the Peligro Yanqui. This really is a part of a more general conception, the "American danger" -- a conception which, it should perhaps be emphasized, is also apparent in other parts of the world. Each great nation has its day of world power. Always it is accompanied by discussion about the danger involved for the rest of the world. Was not the French danger the talk of Europe at the time of Napoleon, and was not Napoleon fighting against the British danger? And we well remember the German peril, the Russian peril, the yellow peril. The period since the World War has seen wide propagandizing of the American peril.
Simultaneously opposition to official Pan-Americanism has been growing. Spanish America participates in Pan-Americanism, but places neither faith nor affection in it. A revolt against it is in the making. Frequent speeches are heard about "the dead body" of Pan-Americanism, about the "useless principle" involved, about its "dangers." A revolt is even starting in the "Hofburg" of the organization -- in the Pan-American Union itself. The demand is made that Pan-American congresses be replaced by racial conventions. The present conferences are called "congresses of mice presided over by a cat," or "meetings of opposed brothers;" the organization in Washington is called the "Ministry of Colonies;" Pan-Americanism, it is said, is no more than a "Pan-Yankeeism," or the "manifestation of North American imperialism." Latin Americans would prefer under these conditions to stand aloof. They are not inviting foreigners to join in "family quarrels." Moreno Quintana suggests a Latin American league.
As early as 1895 there had been a new attempt to convene a Hispano American Congress. In 1914 and again in 1917 it was proposed to found an "American House" in Paris, the idea being to create in Paris "an association similar to the Washington Pan-American Union" under the auspices of all the nations which had colonized America. Rafael Reyes considered the Ibero-American Union in Madrid a future parallel to the Union in Washington. A project has also been under discussion to coördinate Latin American diplomatic activities in the various capitals and to organize local congresses in each. Nor must we omit to mention the attempt that was made to transform the Pan-American Scientific Congress at Lima in 1924 into a purely Latin American occasion. The Panama Congress of 1926, in commemoration of the First Congress of 1826, impressed Professor Clarence H. Haring as being "in reality a purely Latin American gathering, the United States being tolerated because of its bigness, and the political and economic power it wielded, but rather as a spectator than as a participant."
"La dansa de los milliones" and the economic collapse followed the morrow after the Armistice. In no other epoch has so much been said in the United States about Pan-Americanism, and in Spanish America about the "American Danger," as in this twofold period of prosperity and collapse. During it the last traces of the continentalism temporarily revived by the war disappeared entirely.
The attempts of Europe to regain her lost position in Latin America, and the accompanying European propaganda; the new world position of the United States in general and its financial dictatorship in particular; the rush of capital from the United States into the foreign field and its acquisition of the new rôle of greatest customer, supplier and financier of the Latin American countries -- all that, but above all the rapid tempo, caused fright. The psychological changes were strengthened by the economic discontent which later occurred on both sides. When the coincidence of world and domestic crises aggravated the situation in the Latin American countries, the United States would not and could not finance them any longer; they on their side found reasons to be disappointed about the ways of the previous financing. A series of suspensions of debt services, and the well-known events of the last two years, have poisoned the atmosphere still further.
The old continentalism is dead; Pan-Americanism exists only in Washington (of course the Pan-American Union performs a series of important and useful functions); and as no help and support is to be expected from Europe in such difficult times the European tendency, and especially Hispanism, is quiescent. Instead there is a growing tendency toward nationalism in the Latin American countries.
When Latin America started to examine her own ideology two tendencies became crystallized. In the great Atlantic countries of South America a rapid growth in economic nationalism took place; in several other countries, especially Mexico and the Pacific states, occurred a revival of Indianism. The economic nationalism of the stronger states is optimistic, looks to the future, and aims at industrialization and at securing emancipation from native economic peculiarities. The revived Indianism of the weaker states is pessimistic, harks back to the past, and attempts to develop the concept of "Ameríndia" or "Eurindia," to use the word coined by Ricardo Rojas. In this it is influenced superficially by the talk about "Eurasia."
Putting the two ideas in terms more familiar to the American reader, it is the conflict between the "Middletown" of Robert S. Lynd and Tepoztlan as painted recently by Stuart Chase. Middletown is the aim of the economic nationalists, Tepoztlan of the Indianists. Each side considers its program as a policy of defense against the influence of foreign capital in general, and especially against the Peligro Yanqui. The first fights it by opening the doors to it and adopting its methods, remembering the lessons and example of history to the effect that economy in the process of development produces its own antitoxins; it acts on the belief that industrialization is the insulin to counteract the foreign virus, and that the process is facilitated by foreign capital itself. Indianism prefers to avoid the influx of foreign capital, even though that means sacrificing the possibilities of material development. We see a tendency of the kind in the United States today; but it is a sort of literary game, an intellectual protest against "Middletown," against the domination of the material side of life. For Latin America, however, "Middletown" is economically still a faraway ideal.
Parallel with the changes in ideology some new political tendencies are seen in Latin America. Thus we notice that the economic nationalism of the larger states leads to a quest for wider markets as a preliminary condition of large-scale industrialization. Despite internal political struggles and difficulties, this tendency can be clearly seen in the recent history of the two great states of Latin America, Brazil and Argentina. Argentina, for example, has developed a "local imperialism," as evidenced by her economic penetration of her neighbors, Paraguay, Uruguay, Bolivia, and even the Brazilian state of Rio Grande do Sul. Indeed, Argentina has changed her traditional anti-continental policy and is on the way to becoming the leader of Spanish America. Buenos Aires is now the center of the movement for a Spanish American union (or at least local federation), the movement against the United States and favorable to Europe. Among the symptoms of an intelligent and planned Argentine policy in this direction is the new attitude of Argentina toward the League of Nations; she obviously expects to become the recognized speaker there for all of Spanish America. Other evidences of the tendency toward coöperation in Spanish America were seen at the economic parley in Montevideo and the Central Bank Conference in Lima in 1931.
It is impossible to state if the time is at hand for the formation of the big federations in Latin America predicted by the late Archibald Cary Coolidge. But it is beyond denial that the means of communication and the technological progress brought to Latin America by foreign capital are powerful factors operating against the centrifugal forces which have been at work there ever since the proclamation of independence. Indeed, the twentieth century seems to offer strong possibilities for the integration of those parts of Spanish America which set off on separate courses one hundred years ago.
As already related, there are many circumstances which make the present position of the United States in Latin America difficult and complicated. In the United States there also have been events which have made the feeling toward Latin America as a whole much less friendly. The same sections of public opinion in the United States which always used to be pro have now become outspokenly contra in connection with the suspension of debt service by many Latin American countries and the destruction of the Latin American bond market in Wall Street.
The fact is that in the situation in which Wall Street found itself in 1931 any careful investigation of the problem was out of the question; and the general confusion affected the situation of Latin American securities still more pronouncedly. The campaigns in press and Senate were directed not against foreign bonds in general but chiefly against Latin American bonds. The man in the street feels he has been hurt by "those South Americans." Many elementary mistakes were allowed to pass muster in these discussions. Critics neglected to take into account the process of repatriation of these bonds and the large demand for them which there had been in Europe. They forgot that not all of the countries suspended debt service, and they lacked the perspective to make a historical comparison with the events on the London bond market one hundred years ago. Their behavior was that of "freshmen" in investments. Needless to say the repercussions of this campaign did not better feeling in Latin America.
The two Americas are bound together with ties stronger than sentiments, existing or imaginative. The United States is a partner in Latin American economy, and Latin America needs this participation for her own economic development.
That being so, it is high time for the United States to make an attempt to construct a program of realistic economic policy toward Latin America, a more businesslike policy than its present policy, one like that of Great Britain, which does not play with sentiments but appeals to sound self-interest.[i] Such a program would have to take into account the different aspects of the Latin countries on the northern and southern continents, and pay attention to the fact that a transfer of the center of interest to South America took place as a result of the post-war evolution.[ii] An attempt to draw up a constructive program will show that the interests of South America and of the United States are not in conflict; both need an improvement of the financial situation of Latin America as a whole. But post-war experiment has shown that it is impossible to make a country financially sound by means of technical reforms. It is of no use to reorganize the financial structure when the economic background has not yet been even investigated. To introduce the most modern forms of income tax into Peru or the principles of the Federal Reserve System into Bolivia is useless. We must not forget that the South American countries are simultaneously living in different economic stages, that they present a living museum of economic history, that the frontier is still moving in some of them and has really not yet moved at all in others, that the development of national economy means the end of monoculture and industrialization, that this development will form the background of a new financial organization, with new taxpayers and new fiscal possibilities. The right economic program for South America needs for its accomplishment a continuation of direct investments from the United States, which have already contributed largely to the process of modernizing Latin America.
The United States has vast invisible investments in Latin America. They are invisible because only a few of them have been accompanied by the issuance of securities, and very few of these are listed on the Stock Exchange. Who are these investors? Why do they not complain about the defaults? The peculiarity of this kind of American capital exportation is that it is concentrated in a few hands. The limits of national enterprise have been extended by the great industrial corporations of the country through the formation of foreign affiliates. They are the reflex of the pressure for new outlets, of the desire to divide the risk geographically, to be insured against the uncertainties of local natural phenomena, not to be limited by the raw material supply of one country, and to be freed from its cyclical fluctuations.
Each of the giants of industry seeks to obtain world domination in its own specialty and to secure thereby a rationalization of its activities. That is why the Standard Oil fights for a monopoly, the International Telephone and Telegraph for cable lines and centers of communication, General Motors for distributing facilities and outlets. That is why Ford is securing future supplies of rubber through concessions in Brazil, and why Firestone is entering Liberia. For the same reasons capital from the United States has been invading Bolivia ever since the exportation of tin ore to the United States from the Federated Malay States was prohibited by a heavy tax.
These investments and not the bonds held by investors have formed the backbone of the growing trade of the United States with Latin America. To make this plain let us compare the structure of foreign trade with South America with that of direct investments in South America. The exports from the United States are in the main composed of a few articles of modern mass production -- motor cars, radios, phonographs, machines of various sorts. These are products of newly organized large-scale industries, manufactures mainly for the satisfaction of new wants and symbolizing the technological culture of our times. Who produces these articles? In the main the same big industrial corporations which direct the investments. The imports of the United States from South America are mainly vegetable or mining raw materials, such as coffee, petrol and tin. Who produces them in South America? Mainly the affiliated organizations of the same big corporations of the United States. In other words, much of the foreign trade of the United States with South America is dominated by the same firms which are regular investors in local industries there. Trade with South America and direct investments there are an appendage of the industry of the United States. The chief figure is not the New York financier but the world-wide corporation with main offices in the United States.
This exportation of capital has not entirely stopped even now. Of course the South American subsidiaries of United States corporations suffer from the world and local crisis; the head offices are not authorizing enlargements of plant and equipment. But the conditions of the foreign exchange markets in the different countries often force the investment of accumulated local currencies in local enterprises. When the Standard Oil Company is unable to get its money out of Brazil, as a result of the exchange situation, the only possibility of saving it under present conditions lies in letting it go to work where it is. The legal position of these investments is ownership and not a promise to pay. Management is by specialists. Practically they possess a capitalistic monopoly. From the standpoint of the United States economy they move the borders of the domestic market and of domestic production.
The economic situation of the United States requires concentration of effort on the elaboration of a national economic policy. There must be capitalistic planning in the field of foreign investments. Thus it seems logical to believe that a National Council on capital export policy would be very busy with Latin American problems. An organized and well-planned offensive in this part of the world would open up new possibilities not only for industry but for commercial overseas banking (where the opportunity now exists to replace the pound sterling with the dollar), and later on for the investment banker too. The development of this program, by enabling South America to reorganize its financial structure, would lead per saldo to the repayment of the now frozen investments of the man in the street.
This program, if developed in coöperation with local forces, would have the support of the "industrialists" in Latin America, who remember the rôle played by foreign capital in building up British industry, in the development of French railroads, in the growth of railroads and industry in the United States, and in the industrialization of Japan. It need hardly be emphasized that for this economic program to succeed there would have to be developed simultaneously a political program which would take into account the new tendencies in Spanish America, and treat individually the countries of Latin America.
[i] See Lord D'Abernon's report of 1930 as a model in this connection.
[ii] Incidentally, the special bond problem is mostly that of South and not of Latin America.