Before the U.S. military invaded Puerto Rico during the Spanish-American War, the United States was already the main buyer of sugar produced on the island and its principal provider of merchandise. This economic relationship became even closer from the beginning of the 19th century, when the Spanish empire relaxed trade laws to allow trade with foreign countries. Once it was integrated into the U.S. system, the continent totally absorbed the island economy. The Foraker Act of 1900, in addition to establishing a civilian government in Puerto Rico, organized the economy based on the needs of U.S. corporations, which dominated politics in Congress. With this political influence, they wrote laws favorable for exporting capital to underdeveloped regions and specialized in exploiting raw materials. The Foraker Act guaranteed free trade between the United States and the colony, which allowed U.S. capital into Puerto Rico.

The influence of corporate sugar interests was a determining factor in approving the law. To placate cane and sugar beet farmers in the United States, Congress established a limit of 500 acres on how much land could be owned for cultivation. This rule was not enforced until the 1940s, however, when the sugar industry had lost political power in the United States. Corporate capital, particularly in the sugar industry, but also in tobacco and needlework, caused significant changes in Puerto Rican society in terms of land ownership and distribution of income, as well as internal migration and ownership of the means of production.

By the 1930s, a third of the cultivated land was occupied by cane fields for producing sugar, which was the main investment of U.S. capital in those years. (Another third was for coffee and tobacco, and the final third was dedicated to growing produce for local consumption.) U.S. capital, with new technology and efficient management systems, revitalized the sugar industry in Puerto Rico. The old mills with their rustic presses were converted into modern sugar mills, large industrial complexes with the capacity to grind huge quantities of cane and extract, refine, pack and transport sugar ready for the U.S. market. In this setting, some Puerto Rican and foreign land owners were able to adapt to the new productive standards, but most could not invest in new machinery and became sharecroppers at the mercy of the prices paid by the mills. At the end of the third decade of the 20th century, almost half of the sugar cane grown on the island was ground in the mills of one of the four companies backed by U.S. capital: South Porto Rico Sugar Company, Central Aguirre, Fajardo Sugar Company and United Porto Rico Sugar Company. These were subsidiaries of the American Refining Company and the National Sugar Refining Company. These powerful corporations also operated mills in Cuba and the Dominican Republic.

The colonial government contributed to this dominance. It devalued Puerto Rican currency by 40%, which meant the depreciation of all property and island wealth. The Hollander Law of 1901, the first fiscal law for Puerto Rico, established higher tax rates on property to force owners to put them in production or sell them. In 1912, was founded the College of Agricultural and Mechanical Arts in Mayagüez. This college prepared agronomists and other technicians to work in the agriculture industries. Two years later, an irrigation system was built on the southeast coast that, because of its high cost, only the most productive farms could afford to use. The production of sugar during the first decade of the 20th century rose from 81,000 tons to 349,000 tons in 1910. The profits formed a colonial bourgeoisie.

Of the forty-one sugar mills operating in Puerto Rico, eleven were backed by U.S. capital and the other thirty by Puerto Ricans or foreign residents of the island. Georgetti, Roig, Serrallés, Fonalledas… these are some of the names associated with the huge wealth that sugar produced. There were also some 6,000 sharecroppers who were small and medium-sized producers and who sold their harvest to the sugar mill under disadvantageous terms. Many of these farmers lost their land and ended up working in the sugar mills because they could not pay their debts. The extraction of sugar wealth, however, fell mostly on the shoulders of between 100,000 and 120,000 poorly paid workers. About 90% of these workers were hired as cane cutters during the harvest, seasonal work that lasted five months and forced them to find other work in construction, small-scale farming, oyster fishing, or in the coffee or tobacco industries.

During the early decades of the 20th century, tobacco was the second agribusiness in Puerto Rico. Small farmers grew the ancient and aromatic leaf in the valleys and mountains of the interior of the island, around the municipality of Caguas. The American Tobacco Company, a U.S. corporation, was the buyer of almost all of the harvest, so it controlled the price. In the beginning, this tobacco corporation invested in local companies and even kept on local management, until it took control of all of the manufacturing of cigars and cigarettes.

Monoculture was the direct reason for the formation of businesses that provided supplementary services such as banking. A combination of U.S. and Canadian capital dominated the banking industry (such as the American Colonial Bank, Royal Bank of Canada, Bank of Nova Scotia and First National Bank). The American Railroad Company built and operated trains in the coastal zones to serve the sugar mills while Canadian capital operated the trolley and supplied electricity to the San Juan area through the Porto Rico Railway Light and Power Company. The Porto Rico Telephone Company offered telephone services. It was operated by two Danish brothers, Hernan and Sosthenes Behn, who later founded the communications business ITT (International Telephone & Telegraph). Local capital also provided some of the services, such as Banco Popular de Puerto Rico and a local electricity company.

The history of coffee, however, took a different course. Though it was the main industry on the island in the late 19th century, it did not attract U.S. capital investment. Free trade with the new colonial power did not provide advantages to Puerto Rican coffee. The United States had more profitable ties with Brazil and Colombia. The traditional market for Puerto Rican coffee in Spain and France was diminished by trade tariffs until it collapsed during the German blockade during World War I. Two hurricanes, San Ciriaco in 1899 and San Felipe in 1928, destroyed the coffee plantations and caused devastation and hunger in the island’s mountainous interior. Puerto Rican coffee producers constantly asked the U.S. Congress for protection and trade preferences for their project, but their requests were never met.

The entrance of U.S. capital also stimulated the industrialization of the manufacturing sector. With the loss of their traditional providers during World War I in Europe, U.S. clothing companies moved part of their production of embroidery, bobbin lace, needlework and weaving to Puerto Rico. The largest workshops were established in the Mayagüez region. Like tobacco preparation, most of the clothing workers were women. (Workers in both industries played key roles in the labor and women’s movements.) A large majority of the production, however, was done at home, and domestic employment was one of the main ways of supplementing the family income during the dead season in the cane fields. All members of the family often helped make pieces, for which they charged between 25 and 50 cents.

Contrary to common belief, during the first decade of the economic Americanization, the amount of property in small plots of cultivated land increased. However, this gradually declined during the following decade as many farmers couldn’t compete once sugar prices fell (although they were still higher than before 1898) and large-scale farming dominated. The island’s economy was strongly tied, however, to the ups and downs of the price of sugar. Sugar and tobacco corporations in Puerto Rico, as under Spanish rule, controlled credit and access to international markets, forcing small and medium-sized producers into a position of dependency. Similarly, as in any subordinate and colonial economy, the extraction of wealth by interests outside the island kept Puerto Rico weak, oppressed and dependent upon U.S. interests.

Author: Pablo Samuel Torres
Published: January 28, 2016.

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