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    Dosal PEof Indiustrialization

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    ‘The Political Economy of Guatemalan Industrialization, 1871-1948: The Career of Carlos P. Novella Paul J. Dosal The Hispanic American Historical Review, Vol. 68, No. 2 (May, 1988), 321-358. Stable URL: bhutp:flinks,jstor-org/sici?sici~0018-2168%28198805%2968%3A2%3C32 1%3 ATPEOGIEAE2.0.CO%SB2-5 ‘The Hispanic American Historical Review is currently published by Duke University Press. ‘Your use of the ISTOR archive indicates your acceptance of ISTOR’s Terms and Conditions of Use, available at htp:sseww jstor org/aboutiterms.html. ISTOR’s Terms and Conditions of Use provides, in part, that unless you hhave obtained prior permission, you may aot download an entie issue of a journal or multiple copies of articles, and ‘you may use content in the ISTOR archive only for your personal, non-commercial use Please contact the publisher eegarding aay futher use ofthis work, Publisher contact information ray he abained at fpr jstororpoumnals-uke.ten Each copy of any part ofa JSTOR transenission must contain the same copyright tice that appears on the screen or printed page of such transtnission, ISTOR isan independent not-for-profit organization dedicated to creating and preserving a digital archive ot scholarly journals. For more information regarding ISTOR, please contact suppom@jstor org. hup:shvwwjstor.orgy Sat Jul 9 21:51:46 2005 ape hrc tel esos ‘Capmeho py Dde ey Ee eae The Political Economy of Guatemalan Industrialization, 1871-1948: The Career of Carlos P. Novella PAUL J. DOSAL the midst of a howibly violent crisis, Central American busizessmen and women ae naturally reluctant to divulge sensitive infoumation to inquisitive foreigners. Federica (Bred) Melville Novella, however, seemed quite willing to discuss the history of his fly's cement corapany, provided the interview didnot delay the disbursement ofthe paral checks which he was then signing. Equally eager to probe the history of one of Central Aerie’ largest i dustrial concerns, Uled off with a question about government eeatans Carlos Federico Novella Kige, Fred's maternal grandfather, founded Latin Amerie’ frst cement industry in 897 and developed a profitable exter» prise due partly to government contracts and fiscal exemptigns. Thus ex pecting Fied to praise goverwneat policies, (asked Fred to characterize his company’s relations with the Guatemalan goveranent. "Horrible, just horeble,” Feed shot bask! Fred should have answered “fine® and praised the goverument, His company liad received crucial tax exemptions and government contrasts, tveasires which, when conbined with 1991 strke-breaking pice intr vention and access to Feeign capital, accounted forthe companys suc ess. The Guatemalan government had permitted, indeed enenvraged, the. aceumolation of industrial capt i the hands of the: Novel fal. Yet here Fred was, signing paychecks and distiboting wealth, veveal- ing na series of anecdates the difficulties the family had encountered vith indifferent dictators, dagmati revolutionaries, and hostile military strongmen, To him, the government was not a benefictor but an obste cle. Obviously, this member of Guatemal's industrial bourgeoisie was not entivelysatised with is goverament's industrial development policy Wisely avoiding politically sensitive issues, Fred and hisuncle Enrique Novella Camacho sil managed to raise vially important questions about 1 Inewcw nth Fed Melle, Grates, Mag, 322 | sete | ae | eos. no. iniraclite divisions and state autonomy. In effect, they had challenged me fo develop mote sophisticated analysis of Guatemal’s politics! econ- tiny. More than 18 years ago, Cardo and Falletto had issued the same challenge to all Lat Ametezn analysts. In their lassie work om Latin Arwerican development, they urged researchers to adopt a methodology \hich anticipated diversity ard focused en “situations” of dependency and the dstne structures and prcesses which stain gen station. Cap talism developed in each Latin Arreiean coontry under unig bistrieal séreumstances, conitioned by the interactin of ruber af internal ad external facts. To explain the diversity underlying sopestal structural and historical sinanties, Cardoso and Felleto enenuraged research on “the diferent moments at which sectors af lel cases allied or clashed with foreign interests, organized diferent forms of stale, sustained die tinct ideologies, or tried te impleinentvavius policies or defined alteena- tive strategies ta cope with pera ciallenges in diverse moments af History”? ‘The objective ofthis artile isto highlight the nique processes and circumstances conditioning Guatemalan development by focasing on the evelonrent of a cement industry. {tis a mierdlevel examination of the Guatemalan situation of dependency. The history of Cartas Novellas cement industry shows how Guatemalan industrieeatian has been the product of cllaboration and competitian artong &mamber of forces, bath publicand private, national and foreign. No ind: vidual can accomplish the indostiliation ard ecsmomie diversification of Guaterals. Industria tia isa collective fat ivalvings rumber of complex and dynamie pli cal relatianships. The artele faenses therelre on tte poltcl-ecnmonse processes of Guatemalie develope, reasessing, slong the way, the de velopment policies ofthe Liberal tate (7.1944) andthe revolutionary slate gq41954) Boweves, this i acter a busines history nora case study of indus tvalization in a peripheral economy. Without access to canypany minutes and account books, one can hazdly cant an authoritative busines history Moreaver, no attempt is made here to subject something called “dependency theory” to empirical analysis. Dependency is rat a theory fo: a paradigm but real histviel processes and structures, thas cee tainly been reduced to quantifiable and testable propestions, and these constructions are far removed feom the povesty and marginalization in which most Guatemalans live What has been consumed as dependency “theory 1s, in fact, primarily a means of analysing, explaining, and ult 2 Fennatdo Meswigie Clo wed Ean Plats, Dependtcy and Beslan ats Anse, Mayor Stings Urguch tons. eles. , ECONOMY OF GUATEMALAN NDUSTRIALIZANION, WBrI-agiS 53 mately transforming Latia American seality. It is a question of seth odalogy: dialectical analysis of historical processes, contradictions, class ad intraclass struggles, sing politica allances, and the maintenance 2nd transformation of politial-economic structures? This essay on the career of Carlos Novella illustrates the historical circumstances promot ing and obstrocting indusrializaton and socineconamic transformation io Guatemala, Certainly, coffe and bananas have long dominated Guatemal’s econ ‘omy, and an agrornport elite ozs, both miitary and civilian, has domi nated the poltal institutions, Guatemala has never been, is nat new, or vill ever become & maar industrial poses. Nevertheless, persons af var ‘ons ideological persuasians have pramoted industilization as panacea for Guatemale's social ard economic problems 1947, Juan Jose Arévale declared indnstralization national emergency, ard enacted an Indus trial Development Law designed to diversify production, increase rational wealth, provide employment opportunites, and imparve the standard of Jiving Colonel Carlos Castilla Armas dismantled most ofthe revolution: ty programs begun by Avévaks but expanded Arévalo's industial incen- tives policy, hoping, with the generous support of his North American underinites, to make Custenala “showcase for capitalist development” vwithis ten yeas *Industilization isan imucoralGtear of prosperity and modernity for liberals, conservatives, reformers, and revolutionaries ‘Aévalo and Castillo Arenas didnot erate ether the dream or the pal cies; they ony intensified the dieatn and aceslerated established policies In terms of industrial development poliy, the reond shows surprising continuity. Guateral’s eassical Liberal ditatos pursued an industria development poliy that foreshadowed the import substitution strategies popularly exdited to Arévalo, Continuity in policy is also evident in a negative sense, State policies have never been entirely supportive of in dustrialzation, Bareauerats and poltcians, like national ad foreign cat talists, have developed institutions] and personal interests which they promote and defend. The Guatemalan state, whether liberal, conserva- 2: Te Cad, many Rat Ames tnd dred wri depen dency, eins snot nwa ert the cre ‘fdipendony bol or a See Carn, The Connon Depedesn Ths ithe Unde Sey” Late darian Rech Bete, gp tra. the de Tenney app ins rn tpt, Sepedey pps yee ‘leas on onde erm reves etice. ee Peter Ba,” Mer Dept fess Stair of Cs, Stead Indes,” Lain imoean fase Rene sas shh a9, 1 Aledo anges, nuclides hat on Gator (Guster Gry 17 strep im ey, fof i itary of oat (Bs, a | mau | wa [eau J poset five, or talica, has often obstructed entrepreneurial efforts with delays, indifference, and hasty. Guatemela’s industrial bourgensie has never been wholly “in bed” with the poltial elite: nor has the industrial bour sevice been an exemplary, progressive fore, Industraists have often Contributed to or acquiesced inthe repressin of lett political and economic aspirations ofthe working classes by appasing wage increases, labor andes, and social secomty legislation. Consequently, Gentral Amer~ tea remains largely dependent and impaversked, whale a few persons, lke Caos P. Novella, cccumulate great wealth and power Tris significant chat Novell ccanmalated his ferture befre the advent of Aréval, Casa Atmas, and the Central American Common Market Goatemal’s industriel bourgeoisie dates back to the late nineteenth and carly twentieth centuries. Industiization began with the Liberal Re- forma of 1871 and the subsequent establishment of a wechanized texte factory at Cantel, From 3871 to 1944, Guatemalan entrepreneurs, king salvantage of sal incentives offered by Liberal dctatars, initiated the manufacture of teil, cigarettes, bee, aleohl, soaps, and cement, By 192g, aecording to Vitor Bulner-Thownas, these and other light industrial produdts accounted for 14.4 pereet of Guatemala’s gross damestie prod uct (GDE}* Given the fact that Guatemal’s industrial sot, sinee 1929, has rarely eccounted for wore than «6 percent of the GDR, the conic- bution of Guatemala’s industri pioneers to econnmc diversification has hardly been surpassed. ‘A coll cil of Guatemala’ industrial pioneers vould certainly rot im press North Americens familar with the exploit of industval giants lke Rackefller or Camegie, Relatively speaking, however, men tke Mariano Castillo, Rua Thargien, Federico King, and Carlos Federica Novella Klée exerted an equally siguficat influence over the cowse of Guate- rnal’s political and economic bistory. Today, the Castillos, Ibargens, Kings, and the Novellas are the leading files of Guatewalas indus- tral bourgeoisie, and the industries established by their fovetathers dowi- uate key ecoromie sectors. Moreover, bath ce industial bourgevisie and the proletariat have challenged the hegemony ofthe ag-oexport elite by Inteeducing new demands, interests, and Wealogies. These geoups are particaaely important in the revlutionary moveinent of 1944 and their challenge tothe sytem has not baen resolved. Indusialists and the state have filles far short oftheir expectations, bu theaugh the efforts of indus- toa pioneers ike Carlos Navella, Guatemalan poltial economy has been reformed substantially Vie ler Thema, "Cet Americ the later Wa Pein Lata Aeris tn th oe Th fe fe Perigo nWrtd Cr, Reema Trp New Her hg [ECONOMY OF GUATEMALAN INDUSTRIALIZATION, 181-1948 a5 Ata tcwe when aa amay of forces worked to perpetuate Ctemal's monacsltural export ezonainy, Novella and his associates inated the transformation of that economy. Dusing Novelli’ Mfetime, the conver gence of a nurtber of forces implanted the structures of classical de. pendency, in which Guatemalins typeilly praduced and exported only cealee and imported manufactured products with the foreign exchange theteby acquited. Based on the exploitation oflabos and dependent on fr- eign markets, the syten hoked dynamic mechanisms for selfsussiing, sutackthonas growl, Natiozal and foreign elites profted from the sjs- tem, sustained vt through a varey of eptessve measures, and either obstructed or ignored industralization. The 2ccumulaton of industial copital ina casially dependent economy, some say. sceats “in spite of ‘he interests af the dominant lite”? ‘The fac thatthe cement industry developed during the period of elas sical dependency, however, suggests that atleast ection af te dominant elite favared industrialization and that classical dependency is @ sel Iransforming process. The proponents of socinceasamic transformation ae oft those saine persons vith a vested intees in the maintenance of a classically dependent ecanouny: Thus, the process s inherently limited and industrial capital accumulates very slowly, In the histry of Caslos Novell, one sees thatthe processes by which classical dependency is reaintained, and in part reduces, involve callaboration and competition among and between the landed elite, the industial bourgeoisie, the prole- tava, the Guatemalan state, foreign capitalists, and even foreign over ‘ments. Hence, many falar fices and practies will appear: United Fruit Garopany andthe Fnternational Ralways of Central Areriea, Minor Keith and Jorge Ubico, and dollar diplomacy and labor repression. Novella’ sents ay prevail fw his ability to create working allfances with those same frees whieh had crested and prespered urder classical dependency ‘This article seeks neither to excavate nor to eulogize Carlas Novel bot to learn from his experience. The forces with which he collaborated and competed still cnditian Guatewal’s enonomie development. By fo ‘using on the eiechanisms which altercately promoted and obstructed Thr, ve may find lessons appliesbe to those Cental Atnerians stil trying to strengthen their county's economic independence an improve their living conditions, The Libor Revolition of 72 In Jone 17, revolutionaries commanded by Miguel Garcia Granados and Justo Rufino Barcos overthrew President Viceate Cerna, the band 4. Pole Bua, Depend Dry: Th Abas of Mutat, Site, and Lael epi nr (Prmcrtan, 298) a6 | wate | Ma | PaUL J COst picked successor of the Conservative caudila, Rafsel Carrera. Carcia Granados and Banos subsequent'y implemented legislation desigued to accelerate cafee production, promote infastrucural developeent, aad encourage foreign investment. The Liberals aimed at nothing Nes thas the complet restructuring of Guateral'ssoicecononc scuctore along Wester, capitalist lines. By n9 means did the Liberals intend to fasten on Guatemala monocultural eeonomie dependency, thowgs that was the net result oftheir policies. In their long-term plan, Laberals expected entlee revenues o finance industialiation, They believed, as Ralpt Lee Woad vward explains, that “expanded procuctvty and exports would spark an industrial evolution which would lead them int the same soc of sophis ticated economies exjayed by Western Europe andthe United States."* Nevertheless, Guatemalan Liberals eatized that increased cafe reve nes would not necessarily finance industcalization, The scarcity of re. sources limited the possiblities for industial development. Those few persons with capital found industrial investments unathsctive, cr mate precisely, less altractve than agricultural investments, Consequently the state intervened, patially and inconsistently, to channel eofee revenues into industrial smvestmen’s. Contrary ta popular belies, Guatemalan Lib- catals did not accept the “natural destiny” 25 3 supaliey of agricultural commodities to the intentional capitalist sysiem, Uneatalogued Minis- teria de Fomento documents inthe Archive General de Ceatro Amética testify 20 Liberal efforts to indostrlize and diversify their economs* All Liberal goveroments, from Baris through Jorge Ubieo, promoted and protected Guatemala industry, using fiscal incentivesand, i some cases, tariff protection ‘The Liberals snote their industrial development paliey directly into the 1879 constitution, Asticle 0 guaranteed the freedom of mdustry,pro- bubiting wonopolies and special prisleges. At the same time, t authorized the chief executive to grant lex-year concessions to persons intreducing new industries © This article contains the duslity of Guatemalan atti- tudes toward industrial developmest On the ore hand, Liberals wanted to destroy monapolistic Spanish practices and incorporate free market principles ino their econoac polices. On the thet hand, te Liberals accepted the notion, argued by José Ceeilo del Valle earlier in the cen tury, that, in omer to survive an prosper, Guatemalan industry needed 8. Ral Lee Woon e, Crail dance A Nation Died, eo York 185) 85 9, The celerntdeetnann inthe Arne epee Cento Ase, Caster iy (here teas ACCA) are 8g, gs. poor tana aL sa0g 2808, to. At Bnglth ice athe ty entree be Fond Kalan Sve, Gunite Shy GeosraresNew Ores, a5) 9-208, [ECONOMY OF GUATEMALAN INDUSTRUALIZATION, 171-1948 337 special government proéection.* This buitein ambiguity resuled in nv merous controversies over industrial concessions. Many entrepreneurs ‘requesting exclusie en-year gaveromenteoneessigns invoked Article 20 ‘justify their request. Jus 25 easily, competitors invsked the same atcle ta oppose the same request, citing the eostituton’sexpliet guarantee for the freedam of industyy The Guatemalan govenment usualy resolved the controversies by granting concessions only to entreprenens planing, (a install produetive flies peevionsly unkown in, Guatemala, tut 35 an the eae of Carlos Novell, it renewed protective measures fr speaiie sndustees Very few entrepreneurs actly followed through with their grandiose Industrial proposals. The Ministero de Fomento autharized far more projects than were actually eazed, but those few industees that sue ceeded had a lating lupact on Guateral’s economy. In a8S0, under the provisions of Article 20, the government authorized tafree imports oF snachinery and supples to the foundess of Cautel the Scher family Jn addition, the government protected certain texte manufacturers with, Smpert taxes ranging from 2 to 195 percent inthe 1gges. Federico Kong also developed his soap industsy with a signfeant degree of tail pro- tection, Mariano and Rafael Castillo established the Cervecesia Centra Americana wit a gvernment fsa] euncesson in 1855, and subsequently eliminated Heir competitors chanks toa tan stricture which penalized the, smaller brewers, Novella reteved his fist coneessio in 1goa, ard the goveanmient renewed i several times, although Novela larked adequate tan protection." To be sure, the tax exenrpions normally ofered only a one-time ex cemption (which enuld, nevertheless, ansooat to a considerable savings), and only well-developed produet lines received tai protection. More ver, the government never intervened to the extent necessary to promake the banking facilities and market conditions desired by Gustemalan in ostealiss. Liberals did vot implement the full range of pllees vow associated with a complex set of policies termed import substetion. fx the modem era import substituting mustaliztio GST) refers toasate- iected attempt to replace foreign manufictwed goods with domestic production by erecting protective tani and granting scl incentives to local industry. To prowote ISL, statestave also pusued regional economic integration, financed development banks, aud engaged ix some long-term, Miles L Worn Compan and Sait Catal Aeris, 680-8 Nes York gah a8 "a 2a ase intemston onthe deep af hee tl eta, se Pal Dal, “Depauiast, Rewhitn, un dita Deeignoen Grates. 21-988" (GPRD. de, Toa Unies. 8, sae, ps | ain [sew | AO BOSAL ‘ecovomie planing. The econowic rationale behind ISL steategy is that, given government protection and incentives, «local industry may develop and eventually compete with foreign wamufactired goods." Clearly, the economic policies pussaed by the Liberal governments contained only a few elements of [SE sraegy. A few firms teceived tax ‘exemptions an an adequate measore ftv protectin, but all industries sullesed froma lack ofan adequate banking system, The ideal of substitut ing manufactured imports with domestically produced goods appealed to the Liberals, yet they refused to intervene to the extent necessary to pro mote rapid industilization and diversification. tn any case, ther selective use af tax exemptions and fal protection pereritied the development of hey indusvies and far fortunes. ‘Too many scholars denigrate the Liberals’ economic deseloprrent pol icy, angung that they offered no incentives for industrial development Aledo Guerra Barges, autor of the nly book on Guatemalan indus: tral development policy, cli that, “[blefore the 1944 resolution, the ‘Guatemalan state had not followed any industrial development policy. The idea that prevailed was that, by destiny, Guatemala was an agricultural ‘country He vas not until 1g¢7 thatthe fis aw extalishing Hse incen tives fr industsel development vas promulgated." On closer alysis of Liberal policy, itis evident that Arévalosindus- teal poley drew on Liberal antecedents, Fr nearly 70 years, Liberals had used fsal incentives and tar protection to nurture certain industries Avésalo’ “frst” industuial development policy, therefore, merely system- atzed and complicated a policy that had been parsued ivegulaly and erratically by his Liberal predecessors ‘The fact that an industrial revolution didnot occur during the eeign of Liberalise in Guatemala does not reflect 2n absence of government cfiort. Instead, we should look atthe period 1871-1644 a5 the period of ‘easy industralzation” within Guatemala and throughout Central Amer sea During this tine, Central American entrepreneuts and recently rived European immigrants established the industries whose capital, Jabor, technology, and resource requirements coud be retin Gustemala Quite naturally, the frst induces to develop én Guatemala processed agricultural products—cotton, grains, and vegetable oils—into light con- sumer produets—teatiles, beer, and soap, And since production af these items did nat require heavy capital investment aud high technotogy, the limitations ofthe market did no adversely affect peat margins (given, of 15, Mutu Tan, Eeseone ene i th Th orl, Me York 198th 4a Fearne Set, Zeon Devoe Latin Aeris Mew Yat, 278 eee Guar Bora, Ealearin de pita cl DOONOMY OF GUATEMALAN INDUSTRIALIZATION, 1871-298 9 cous, the ability ofthe goverament to suppees labor. The only inteeme late industry te develop belore 194, the Novella eement company, had thealvantage of abundant natural resources ana railroad line connecting it to the only majar market—Guatemala City. Bven so, the Novela plant used labor-intensive techniques and operated far below capacity before ods. Guatemala stil lacks heavy industries, due to a paueity of cod, mineral resources, and capital, soit ist suprising that none developed under the Liberals The fac that sch industries dd not develop primar: ily reflects the stracturallnitahons ofthe Guatemalan economy. Trdeed even to develop light and intermediate industries, a skilled and deter rrined entrepreneur required timely assistance from the goverwnent and Foreign capital The Founding of the Goment Industry, 1896-1914 Born ox April 8, 871 to a Geran mother and ae ttalan imum _wrant, Carlos Novella developed into an enterprising, nationalistic, and ‘ery wealthy Guatemalan indussst. His parents sent him to prest- gous European universities, including the University of Brussels, where Fre abtained a degree in civil engineering, While in Brussels, he acquired an interest in cement manufacturing, for Belguin possessed rare supplies of natural cement, His degree in hand, Novela vetuened to Guatemala in 1896, hoping to discover natura! cement resomoes and establish his ‘va manufacturing operatin. Eatler that year, vo Ttaan geologists discovered some natural cement neat Guatemala Ci, but judged the supplies inadequate is terms of quality and quantity? Nevertheless, Novella, a stl youthful and enesgeie 26 year old, pro ceeded with his plans. If Gustemala did not have naturel cement, he could sti! produce portland ceenent, an artificial mi of limestone and clay superior to natural cement, Ths, in 1897, he formed C.F. Novella y Cia. with several Gustemetan associates andl acquired La Pedvera, a huge finea just outside Guatemala City with a seemingly inexkaustible supply of limestone. Fortultonsy, an ezlir attempt to establish a cement plant {alle ate the oumers had arexdy impotted soe all German machinery. Novella purchased his prieutive machinery and begen producing cemeat in igor. With this, Novella entered the world of international capitalise, ia which Guateralan typically produced only cofee or bananas and pur- chased all oftheir manufactured products, including cement, from North, 25 “Las Naas ludnsuta de Cts’ Dario de Cor Adria | Coste), Sep 26,1017, p Obie nesiges ed alps in Guatemala ity 6 thd ae | sar tay | AOL | DOsAL Americas and European producers who had grester acces to capital, technology, and siled labor. Without goverment protection, any Guate- relan industry could collapse if confronted with tough feign competi dion, and within Guatemal’s even borders pawerfl forces worked against ‘ndustilization, As Novela sean reaized, foreign interests controled the only pert, :alosd, and electrical power plant. Strategically postioned, these foreign interests could make econaiic life very nncossfortable for say industrialist I this context, Gusterlans fund it more eosvenient snd econoricl to import cement and many other zoanofactured produets Success in industry toereforerequited the collaboration ofthe Guate- raalan government ard, better yet, of those freign interests who con- trolled the eeonomie infrastructure, Thus, Novella solicited government relief in the form of ax impott tax exemption on umported machinery ‘The priitive machinery he began with did aot ueatly have the produc: Live capacity to satisfy Guatemalan demand, By 1goa, he had couvinced Ministerio de Fomento bureaucrats that his industrial project deserved 2 government concession inde the aucorty of Article 20 ofthe constitu tion. On April 1s, gee, President Manvel Rstraa Cabrera granted to Carlos F. Novella y Cé 1) Aconectine exemption from Asc and munity tates fr imports of machinery, petroleum, cherical material, and sacs; 2) A Bve-year exemption fm Esc and municipal txes onthe factory its products; and 4) Peacetine military exemption fo all enployees ofthe Factory Enideatly, however, the Novellaceatent plant operated ona very sal scale for another 15 years. The fim: stil required sang injection of capital and machinery. To make this feasible, Novell on September 29, 1gi0 requested ever Incaer concessions frm: the Ministerio de Fomenta Complaining ofthe great nancial scrfes he hat made ove the past tex years but not yet dissuaded from his project he stil intended to produce ‘enough cement to satisfy Goatenalan demand. He estimated that Guate- mala tported sx thousand to eight thousand bares of cement anivally lone barrel = 380 pounds), representing @ payment to foreigners in the sum af gp.ace ta 40,000 geld pesos. Novella argued that these pesos, If spent in Guatemala, would strengthen it foreign exchange positon and that his company could save the goverment shout 2 percent on pub lie wos projects. Novela therefore requested a 15 year exemption from impart tases and any other fon of tation on atechinesy, gunpowder, dynaunite, chemical matexials, pocking sacs, and tols. As soon as the 17 Guaeaale, Minstena de Fanentn, Menara de ls Secretaria de Fawedo presen ad a Aas Natl Lege em 393,18, COWOMY OF GUATEMALAN ExDUSTALALIZATION, Bp.-iy8 33 government verified the high qualty of Novela cement, Novella requested the impostion of high tarts on insparted cement and asked the govern- rueat to use his cement io all puble werks projets. In etura, Novella cffeed to sell to the government at 2 wo-pecent diseaunt and pay an annual fax of one hundred gold pesos to charity houses. His proposal provoked instant apposition ax several fronts. Juan 1 de Jongh. inveking the interests ofthe Guatemalan public, argued agenst the, Novella request. canning that Novella roe natural, aot portiand, ‘coment. Further, de Jongh lard that Now's offered inset means to verify product quality. He feared thet the concession would cose the door to the establishment of another cement plant. De. Jongh reminded the government of the fiscal lsses the proposed concessen represented, calelatng that Novella had asked the government io wave 8,500 gold pesos in part teas. Seon ater de Jongh’s protest, the U.S. minister to Guetemalefnter vened. By a letter of November 24. 1910, Miniser Plempoteniany B.S itt informed the U.S. secretary of state that ifthe Guatemalan govern: rent auihorized a conoessin that included taiff protection, US. cement ‘expos io Guatemala would cease. Echoing the complaints of de Jongh, Hitt passed on the charge that Novella produced poor quality natural cement. On December 19, 1gta, the State Department instewcted Hitt, to oppose the Novella eoncession, and that same cay Hitt personally protested to Guateak’s ating minister af foreign affairs: Having pre: sented the US, position, Hitt expected the Guatemalan government to reject Novella’ request. ‘Meanwhile, the Ministerio ce Fomenta transmitted Novell’ request thovgh normal goverment chamels, The Gnatemalan minster directed the general director of mines, industry, ar commerce, Mamie! Lemus, to acalyze the Novela petition. Contrary tothe clans of de fongh and Het, ems found che quality of Novels poeta cement equal or soperon to ‘any import: Lemus reported thatthe factory already occupied an impo tant postion in the Guotemslan eomnany. Furthermore, Lemus afrned Novella’ contention thatthe factory required» lege capital expenditure and expansion in order ta satisfy Guatemalan demand, Convinced of the fins positive economic inpaet, Lemus urged authorization of the con- cession, with afew wndifictions, Uf the goverameat approved Novell's 8 Gules F New e Mini de Foment, Sep. 3, gu, AGA, Bess eg sa e=p 17 ng, Jeans Jogh to Ministre Feet, Ot ad Now 3), 910, AGCA, Boag leg 30098, xp 137 te, vey Exttvdinny a Miniter eiptetry RS. Hi te etary fe, Ionia Boe 4, 1g US Naonl Aces Pte oda N6 S465 sae [puso | stay | eAoL J. DosaL proposal, Lens argued that the fetery sould inevtably expand and revolutionize the construction industry, due toa significant redveion in ‘cent prices However, Lemus recognized the lists Attiele 20 of the Guatemalan constitution placed of the government’ authority. The government could offer no more than aten-year exemption, and he eenmmended regulations tn cement prices in exchenge for tarf protection. Size the Novella po. pose invlved a reduction in government revenues, Lemus asked Novella to submit a complete lst ofall the commodities for whiet his company had requested duty-free import. In an effort ta ratfonalize policy muahing, the Ministerio de Fomenia routinely cequested fiscal impact reports fom custaras officials The Ministry weighed short-tersa revenue losses xgainst longterm economic benefits, and subsequent analyses coufiemed Lenmuss assessment that the lng-tern Benefits ofa national cement industry out weighed the shor-tern osses Significantly, Novela stil had to demonstrate the value af his industry to another sovereign government. Sharly ater the U.S, minister pre sented his protest tothe Guatemalan government, Novella personally in formed hit that his eompany had merely requesed an amplicaton of an cxisting coneasion. The company kad planned do enlarge and modernize its operations and needed this eincesion, he argued, to justify he invest rent. Novela stressed the fact chat Daniel B. Hovlgsdon, a US. etizen and general manager ofthe International Rays of Centr Areca, ad 4 lary interest in C. F. Novela y Cia. (Novela desperately needed ‘apis anda ralrod line sevieing the factory and had therefore entered into parnership with Hodgson } Revelation of these facts dd not help Novella neutralize U.S. apposition, Minister Hit informed Novella that the United States objected to the concession yriarily because af the great damage it would inflict on US. cement exports to Guatemala. f Novella remaved the “monopolistic” features af the request, i. the tari protece tion, Hitt promised to withdeaw the protest. Perhaps in deference to the influence wielded by a U.S, minister, Novella prepared another draft of the coneessian, which he wanted the State Department to approve before the submitted it to his osm government # Icis indeed a sad comment on Guatemnal’s political independence to report that « mater of domestic ezonomie policy now passed to the US State Department, At least one US. kmesucrat asked io report on the proposed concession, realized the impropsety of che entice afar. Mr. Os a Regt of Manuel Lemus, Dacia General de Mee, Ind, y Comer, Decl, ris, ACA, Bae, eg amy op 0) 2 etary fate Mar ob 3, WA, Bg Bg [HOOVORLY OF GUATEMALAN INDUSTRIALIZATION, 1871-1948) 333 home ofthe Department of State's Bureau of Trae Relations argued that the “United States cannot justly deny to Guatemala the right to build up an industry by tari duties or other privileges 40 long as t does nat Aiseriesinate against this country 2s compared with other untries."® Secretary af State Philander C. Keor, however, remaselesly exe- «ated dollar dglomscy. Knox beleved that the protectin and promotion af North Americus, Financial and ecomoane interests in the entire Carib- ‘bean region served the interests ofboth the United States and the Carib bhean. Scholars commonly associate dlls diplomacy withthe acquisition of Caribbean tanks and casioms houses, but it also involve an attempt to promote trade andl investment generally Dollar diplomacy was rat simply an efort to promote francial stability by using CS. backs and leans. Dolla éiplocy fostered North American esonomie penehation in the Canbean. Novels propos! to establish a cement industry, Roe beleved, obstructed US. economic expansion. Carlos Novella realized that U.S. oppesiton theeatened the suecess of bis enterprise. Novella had deleted the provision by which the government coplicitly agieed to protect ihe cement industry ageinst foreign compet- tion but had left open the vagve possinlty ofthe government supporting the industry in an “exclusive maanet” Knox therefore ordered Minster Hat. "You may inform Mr. Novell that fhe wll ever eliminate Article 1 or redraft itso a to show cleanly that the support toe kent ‘nan exclu sive manne” by the Government of Guatemala wil not cause substantat injury tothe importation of Portland Cement from the United Stats, the Depattment wil withraw its protest agsinst the concession “* opingto placate U.S, diplomas, Novella rewrotehis propos. [n carly August 2911, Novella met with the US, chargé ¢'faires in Gate mala City to discuss resised revision. The contaversial article now pro vided that: “The Government ofthe Republic shall give no concessions ta any other mamufacture: of Netwal Portlard Cement or anything similir tort, for aterm af ten years” Novella expected the (S, government to approve ths statement» Finally, Me. Lepper in the Burean of Trade Relations injected some sanity into the proceedings. Pepper reminded the seeretary of state that cot one US: offical had eaeulated the true inpact an American cement 2, Memarnds of bse to Dodge, Ape 25, yt and Degen Oskore, ApS 34 1g NA, By a9 Tester DL, Ths Cre See ane Catena de Tei Cocurg eben, 580) 35, Hard Mahe, US. Pi Turd ate America: Fre Raine Globe avin 185, sj Polder. Koon Ht, Mey 61, A, 84 869. 2% Novlla to US miter in Gera Cy, dg 5 1 NA 4 Os a | sas | ay {soy Dosa ‘exports, In fact, insignificant quantities of cement were expaited to Guate- mala. U.S officials, peshaps already conditioned to think as unperilsts, had been fighting an ilusory baie all along. Moveaves, 2s Pepper cot rectly perceived, wonepalstic concessions were “ao departure” Fram the standard Guatemala paliy and “in accordance with the practice of Spa ish American enuntrs." In September 1gi, the LS, minster withdrew his protest ‘The Guztetialan government stil presented serious obstacles. Novela had requested a lage tax exemption, and gowrament bureaucrats did tot easly valve government reveayes. On December 12, igi the eos toms dcectr finaly reported on the projected lasiesrepresoted hy the Novella concession, which he valued a 485,50 pesos aver a ten-year period." The government coutd waive these taxes, however, inorder ta promate domestic eaneat production ard strengthen the balance of pay: rents. Consequently, the Ministerio de Fomenta passed the proposal on to the Council of Sate,» presidental aviary bod. on Janszey 4, 1932 Unsatisfied with the Ministry's analyses, the Comal of State inated its own investigations. In Match 1a, the Council of State's alysts v- ported favorably on the proposed eancessons, and an June 24,1932 che {all council appreved it Instead of suing the eonesssion on for presi dential approval, the counil retuned itt dhe sinister of develient, ‘eho in turn refetred itty Manvel Lemus, sho had reported favorably on the concession back in Devers 1gu0. These: professional bureaucrats obviously valued efficiency. AUthis point, President Estrada Cabrera must have entered the pro- ‘cess, Novela ad requested, amang may other items, permission to m= port dye, which he requined fr his quatrying operations. Estrada Cabrera shared Novellas desire to industrialize Guster, but faciitat ing the acquisition of explosives by his constituency hardly served his presidental ambitions, The president bad recently siavived an asasin’s bomb, and in his shell-shocked state he sil ad enoogn sense to tightly regulate the use of rns aud strmuttian. The dysanite cul, afer ll, undermine his model demacracy Carlos Novella had na choice bt to eourt the secwity- 1gts, Novella, Hodgsdon, and Keith reongs nized Novella y Cia. asthe Novella Censent Compan, inconporated in [New York, with a paid-in capital ef 250,000 US, dollars, and an autho: sized capital of 5,100,000 dellrs. Keith held fo percent of the, shares Sn the newly formed company, transforming Latin Ancerea's fest cement indestry into an American multinational” By no means was this teansformation a hostile acquisition by a foreign capitals. The reneganization served the interests ofall patties involved, and Navella retained management ofthe fre In practze, the Novel cement company continued to operate as 2 Guatemalan fer, with Novela ‘exercising considerable autonomy, Fein Novellas perspective, moreover, the economic context mardated cose cllaoration with org interests LURCO cortralled Goatemas’s only Caribbean outlet, Poets Barc, as well as radio and telegraph facies. The Intemational Raiways of Central America IRCA], a UPCO affiliate, controlled the only raiload line lead ing to Puerto Barrss. And in ig, the Electric Bond ard Share Company ‘of New York (EBASCO) aquired Guaterte's eesti power plant. With foreign interests controlling these pivotal points Inthe Guateralen economy, any industrial entrepreneur had to placate of, at best, neu tralize the foeign terest Al industries required inexpensive and rel: able access transportation ad communication facilities, and particularly electrical power. Novela therefore callaboated with all ofthese foeign subsidiaves, even purchasing preferential stock in EBASCO, which gave him 2 discount on electrical serves." Thus, distinguishing feature of 8 Oral Siael, “Taramtinal Cail ad Nua Diiepratag in Lain owion” acl and Eeotomi Std201 fa agp) 488 ain Noh Avert Congres on Latin Aner, Cuatral tbls 9) pics ws Ene Novell, Jone 2 18, Lat nuevas nd de Gate rele Dir de Centr Ambre, Sept of 9h, 4 "Alonso Baer Pa, Cian opie open yong en Cetra: Bl case de Gwen Mees Ci, 198,89 a8 | was wa | amp Dosa Guatemal’ early industiizaton i the degree to which foreign interests ‘eanditioned the rate ec extent of industaiztion ‘As we shall see, Novella also challenged the foreign interests when necessary The processes af callaboratin and competition are an inherent pat of industatization in 2 dependent society. Foreign elites have not deteranned the rate and extent of industiatzation, though one ean, jus tifably assert hat foreigners conditioned Guatemalan industrializtion Guatemalan entrepreneurs aternately elaborated and competed with foreign elites, and have maintained considerable autonomy in cera in dustrial sectors, a the histary of Catlos Novella dereanstrats Reawgantaed with an injection of foreign capital, Novela modernized cement production. Besides machinery, the Novella Gerent Company required acess to the cewly constructed ralaad, to faite the trans pottation of goods and suplis to and fren. tke Factory. With connec fans tg UECO and IRCA, constriction ofa branch line presented na sinsursauntableobstces. On September 8, 11g the government granted, Novella and Hlodgsdon permission to construct branch line fom La Pe- ‘ders tothe main IRCA line Just asthe entire maderntzation program neared completion, the Min isteria de Forento presented ane fl mpeciment. The Ministry denied Novela certain vights and exemptions stipulated is his 14 enneessen, such as axfree petroleurs imports. Pxasperated with bureaucrat ie ciency, Novella wrote yet another letter appealing directly to President Estrada Cabrera far his wise and just intervention. Wiehout his interven: tian, Novell pleaded, “the industry that you crested inthe county, with your backing, will collapse at its bith..." Moved by Novellas fatery the president ardesed the Micistry to resale the iste quik By September 117, the line had been completed and new machinery insted. In that ont, a group of jauralists from the Dizrio de Cen. iro América visite the modernized factory. They witnessed a rare. and spectacular sight inthe land of eofice and Maya Indians — powerful” snc “gigantic” machinery producing a high-quality cereent. However, any a ‘han of the nearly two hundred wotkers operates the. newly acquiced machinery, Most of the workers labored lang and hard in the nearby ‘quarry, where they sledged timestone rocks into small pieces and then Inaded thers into wheelbaerows for delivery to the machines. By such inefficient and labarinteasive methods, the Novella plant produced an average of five hundred gg pound sacks of cement per day. 1 Hesracde Secretarial omens 35, 298 4 Novell to PrelentEsteada Cares, Og 17, AGGA, Boge tg op sus “y "Muss dais de Goes 1 As as 47, Nola eerste [ECONOMY OF CUNTENALAN INDUSTRIALIZATION, 1871-1948) a8 ‘These methods certainly produced enough cement to satisfy Guste- mmalan demand, Novella anticipate and actually prorated the expansion of his market and subsequently maderaited his operations to keep pace swith market trends, In the long run he hoped ta gain access ta ather Gentral American coustres, Inthe meastiee, Guatemala Gity, specif cally the Guatewalan government, constituted the blk: of Novela’s max Jet. Tied contractually to the goveromeat, Novella naturally hoped for ‘an nerease ip public works peojects, bu‘ he also anticipated « boost in sales due to a boom in low-cost housing. At the time, most Guaterals City resideuts built their houses and businesses of adobe. Novella ad ‘vied unsnecessfully o substitute his cement forthe popular adobe, for the sake of eompany profits as well a public safety. It would only take one strong, earthquake to demmnstate the fagility of adobe and the supe city of portland cement The demonstration caren January 3. 19:8. The earthquake leveled Guatemala City, leaving three prominent buildings Sn command ofthe lzndscape, all of them built with reinforced concrete produced by the Novella Cement Coropany * Business boned into the 1920s. ‘To Novella, demand for his cement must have seemed insatiable. His, productive capacity barely kept pace with consumer demand, sa he tried to convince Minor Keith to finance another modernization effort. De- spite the sptaling demand ang the boor in the post-World War I Cente ‘American econonty, Keith rejected Novell's proposals. Apparently, Keith ‘vas quite anxious to divest hizself of his Genteal American investments Keith eld 500.000 dallas of Novel ston but Novella persuaded hi to scoept debt settlement of 150,000 dlls, The exact reasons fo Keith's generosity inthisease axe not ye clear. According tohis biographer, Keith oftex lavished financial gifs en frends and struggling businesses, partly to assuage his ego. On the other hand, he was a sharp and euthless bot vessman who accuraulaied a fortune of 1 to go malin dolls * Pechaps Novell's friendship and business velatonship with Hadesdon and IRCA placed him in a postion to exect favorable cancessions from Keith, It may alo be significant that ia November 1ge8 Keith resigned as pres- den of IRCA and soldat east a portion ofisinterests-* Further, he bad ‘been embroiled io biter negotiations with the Guatemalan goverament iets phan eta een cent, asoning aap pepe ba Noh eens eng es see ©. Cine Monet Roh Susy of Cana ‘Cheng, ta) as-at «Bea Ente Noel e298, 5 Wat Seon ah out Cos Rew & Boge Sd of Mle Cog Ket {aloe a 58) 1 Sl ony, hag ies ae, to sect of ale, Noe 2,866 na ba r95 uo | ass | sa | eats 5. 00st «over the settlement of government aesounts with IRCA. As public oppost- tion to Keith and other foreign invests mounted duving the 1gz0s, Keith ‘nay have lot some of is fighting spitt ad decided instead t divest and rete Whatever the motivaton on Keiths pat, the debt settlement, accord Sng to Enrique Novela, constituted the lave del negocio. With 2 wun ber of Guatemalan investors, Carlos Novela pursed Keith’s shares on ccedit in 1927, becoming rajorty owner once again, Novels reorganized. the company as Novella y Cia, Ltda., 2 Guatemalan fim. with the rare distinction of having acquired the property of@ North American mul ‘ational corporation, thanks te the genetostty ofa mltiionaire* In 1928, Novella secured anther gevernsient concession that wally ‘ecagnized the company’s de fata monopolistic status. President Cac granted arother tex-year tax exemption on imports of machinery, pe froleum, sacks, and other materials, Novella sil lacked adequate ta protection, but the government canract escouraged foreign a national competition. Article 6 ofthe 1g28 contract stipulated tht, during the hfe ‘ofthe contract, any rights nd exemptions granted 2 another cement com pany that were cot already included in Navel’ contract would be, igsa facto, conceded to Novela as well. At the sare time, Novella received government permission to constuet another railroad line, improving his ‘transportation nezwork with IRCA.#Thus, othe eve of the ward deres- sion, Novella began avolher expansion programm and incurred substantial new debts. Business conditions seemed to justify Novella’ optimism. In 1924, Novela output said 72 peeent of Goatemalan demand, a level which, It would seem, allowed for some eorpetition-” However, wth the ex- ception of the Quezaltenango region, Novella had captured the Gust malan market. Only high transportation costs kept Novella cement out of ‘Quezaltenango, where Mesiean coment expotters enuld still nderprice it Elseshere, Novella dominated the macket ard cauld, if necessary to discomage competition, increase production and lower prices, since he still opezsted far below capacity. In addition, Novella had the “security” ‘of 4 government contact, by which the goverment purchased large and steady quanbties of Novella ecment ata 1o-peroznt discount. However, Novella seriously miscalulated the strength of his poston Novell's consumers, particularly the Guatealan government, depended, ‘on the contiued growth and prospeity of the Guateralan economy, 45 leven wit Bue Novella, ioe 2, 188 FF Cincesio ped m I Gaston Sept 5 ge, pp inane 4p Uated Neos, ConisiuKeondaves pro dies Lt, Earle canny te Geena sia Oy, 5.58. [ECONOMY OF GUATEMALAN INDUSTRIALIZATION, 1871-1948 an which va, of couse, highly dependent by this tine on cole exports to the United States. Should that matket collage, Novellas market vould collapse with it, Novella evidently calculated thatthe high growth sates of the 1920s would continve through the 1930, enabling him fo pay of is foreign creditors. Novella’ fortunes boomed and busted along with the test of the Guatemalan economy. n just a few years, Novella faced total suin, national and foreign competition, and, forthe fist time, « sttong

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