From Colony to Superpower: U.S. Foreign Relations Since 1776 (73 page)

The business of America is business, Calvin Coolidge famously proclaimed, and indeed, in the absence of any compelling strategic threat, economic issues assumed primacy in the 1920s. Many business and political leaders recognized the growing interdependence of the world economy; some appreciated that America's new creditor status opened promising opportunities and imposed urgent responsibilities.
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Americans voraciously devoured the world's resources. The United States consumed 60 percent of the world output of eight critical raw materials and 40 percent of ten others; by 1922, it used 70 percent of the world's rubber supply.
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Industrialists and government officials naturally worried about the nation's growing dependence on foreign sources for vital raw materials such as rubber, silk, nitrates, and especially oil to fuel the burgeoning automobile business and keep the navy afloat. The United States still relied on foreign trade for a smaller share of its gross domestic product than any other major economic power, and the more nationalist business leaders believed that the economy would grow even if Germany and France were in recession. Many businessmen and political leaders continued to view overseas trade and investments as important to American prosperity, however. They also believed that the spread of liberal capitalism would help promote a stable and prosperous world order by improving living standards in other countries and eliminating the conditions that bred revolution. Some business leaders fervently believed that the expansion of American corporate culture could help modernize "backward" areas, thereby promoting prosperity and order as well as lining their own pockets with profits. Without international trade, the high priest of American capitalism, Herbert Hoover, warned, "not a single automobile would run; not a dynamo would turn; not a telephone, telegraph, or radio would operate." Commerce was "the life blood of modern civilization."
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More than at any time in the past, business and government worked hand in hand through informal cooperative arrangements to promote the general interest, often in ways that "blurred the lines between public and private sector operations."
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Recognizing the importance of markets and investments, Congress passed in 1918 the Webb-Pomerene Act and in 1919 the Edge Act exempting exporters and bankers respectively from antitrust provisions and permitting them to combine to engage in foreign trade and lending, giving them more resources and limiting their risks. Hoover's Commerce Department energetically searched out and furnished to eager businessmen information about opportunities for foreign trade and investment. Consuls and diplomats vigorously promoted the Open Door policy to ensure equal access for American exporters, investors, and exploiters of foreign raw materials. Where expedient, the U.S. government also sanctioned exclusive arrangements between American and foreign businessmen to share markets and raw materials. Even in the crucial new areas of cable and radio operations in America's hemispheric area of influence, under the watchful eye of the State Department, U.S. and British businessmen worked out cooperative deals to avoid wasteful and costly competition.
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In an age where any sort of political commitment was anathema, government also relied on unofficial agents, often businessmen, economists, or bankers, to negotiate or implement agreements with other nations or serve as financial consultants to other governments.
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The results, at least in terms of numbers, were impressive. After the recession of 1919–21, the U.S. economy boomed. Trade flourished; exports jumped from $3.8 billion in 1922 to $5.1 billion in 1929, and finished manufactured products expanded to 50 percent of total exports by the end of the decade. Automobile exports represented 10 percent of the total and assumed an increasingly critical place in the overall economy. Other major items included cash registers, typewriters, sewing machines, agricultural equipment, tires, and petroleum products. By 1929, the United States was the world's leading exporter, with Western Europe, Canada, and Japan the major recipients of its products. Despite the high rates imposed in the Fordney-McCumber tariff of 1922, imports also increased, from $3.1 billion in 1922 to $4.4 billion in 1929, oil and rubber being among the key items.
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Those who had traditionally looked to European and especially British bankers for capital after World War I of necessity turned to the United States. Investments in the form of loans rose to more than $15 billion by the end of the decade, most of them long-term loans to debtor nations. Private U.S. lenders poured huge sums of money into Latin America and Japan. American loans played a crucial role in stabilizing the warshattered German economy. They helped create a favorable balance of trade and permitted other nations to buy U.S. products.
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Even more significant was the vast expansion of direct investments resulting in the construction of American factories abroad. Such investments rose to $4 billion in the 1920s, the first great age of the multinational corporations. These institutions would assume growing importance in the world economy and play crucial political roles in nations across the world. American businessmen were drawn overseas by proximity to markets, avoidance of high tariffs, and cheap labor. They often cut favorable deals with friendly local governments. The practice was most extensive in Europe, where investment more than doubled in the 1920s and more than 1,300 firms were established. Corporations such as Ford and General Motors dominated the automobile industry in Europe and Canada. Firms like General Electric and International Telephone and Telegraph took over utilities and communications services across the world; by 1930, GE had invested $500 million in eleven Latin American countries alone. International Business Machines and Remington Rand dominated the production and sales of office equipment. Oil companies built refineries and expanded marketing operations across the world. The notorious United Fruit Company bought up plantations and controlled railroad and port facilities throughout Central America and the Caribbean. Wealthier than most of the so-called banana republics in which it operated, it also wielded enormous political power.
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By 1930, U.S. direct investment exceeded that of France, Holland, and Germany combined.

American multinational corporations also exploited crucial raw materials. Lured by the prospect of riches "beyond the dreams of avarice," the Guggenheim family, with government support, negotiated a highly favorable arrangement giving it control of the extraction of Chilean nitrate.
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The government in its quest for independent supplies of desperately needed rubber also encouraged industrialist Harvey Firestone to lease
Liberian lands on which rubber trees could be grown. It further supported Firestone by arranging a quasi-official loan that required U.S. "advisers," in the mode of the Central American republics, to assume responsibility for Liberian finances.
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Alarmed by the prospects of an oil shortage, Americans, often with government backing, mounted a global drive for the precious commodity. The State Department pressed for an open door in the Middle East and declaimed against British and French deals dividing Mesopotamia. Eventually, with State Department backing, U.S. oilmen cut themselves in on the "Red Line Agreement," sharing with European firms the bountiful new resources discovered in Iraq. The government also supported oilmen's efforts to regain control of confiscated oil fields in Mexico and the Soviet Union or at least secure reasonable compensation. Additionally, Americans took full advantage of the cruel and venal dictator Gen. Juan Vicente Gómez's generosity with his country's natural resources to exploit the vast oil deposits discovered in Venezuela in the 1920s. The frenzy continued until the location of new oil fields in Texas turned the anticipated shortage into a glut.
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The rampant economic expansion of the 1920s brought unprecedented U.S. involvement in the world and fueled a short-term prosperity, but it did not always serve the broader national interests. Despite talk about economic interdependence and the value of foreign trade, the domestic market remained most important to the economy, and domestic priorities generally took precedence over foreign policy objectives. Throughout the decade, for example, the desire to maintain low taxes at home posed an insurmountable barrier to forgiving Allied war debts and reducing German reparations. Manufacturers' insistence on continued high tariffs to protect against an anticipated flood of European imports skewed the balance of trade in favor of the United States, making it difficult for other nations to buy its products. Loans made up some of the difference, but only as long as American bankers were able and willing to float them. Postwar U.S. economic policies thus provided no better than a rickety foundation for long-term international and domestic prosperity.
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Although Americans generally agreed on the goals of foreign economic policy, they often sharply disagreed on methods. Within the U.S. government, the Commerce and State departments fought bitterly for influence.
The business community was itself sharply divided, not only by rivalries among competing firms in the same industries but also between businesses that operated in the domestic and international markets and between producers and exporters. The result was a mishmash of sometimes contradictory policies rather than a coherent, closely integrated foreign economic policy.

For all the bold talk about business-government cooperation in foreign economic policy, the objectives of the two often conflicted. This was especially true in foreign lending, where efforts to ensure that private loans served the broader national interest often ran afoul of bureaucratic rivalry and business imperatives. Hoover believed that government should exercise some supervision over private loans to ensure their soundness, increase the possibility that they would actually contribute to economic development, and prevent them from being used in ways that threatened U.S. interests, by expanding armaments, for example. He encountered often bitter opposition from the State Department and bankers. Hughes sought to use loans for broader political purposes—to secure concessions from Mexico in oil negotiations, push Caribbean governments in desired directions, or promote China's economic development and territorial integrity. For obvious reasons, bankers sought mainly profit. As a result, government exercised loose supervision of loans but lacked real enforcement power. The result was at best mixed. Bankers refused loans to China urged by the State Department because they were deemed too risky, while skirting government restrictions and subsidizing Japanese imperialism in Manchuria. In the Caribbean, the loans the State Department encouraged to help achieve its political ends turned out to be unsound economically. Some loans were discouraged for frivolous reasons—rejection of loans to a Czech brewery in the era of Prohibition, for example—while others helped underwrite German rearmament. Businessmen squabbled among themselves on lending policy, exporters bitterly complaining that bankers were financing purchases by their foreign competitors. The result was a "sort of twilight zone" between government responsibility and laissez-faire that never really worked but was never really addressed or corrected.
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Rather than promoting modernization and stability in developing countries, the multinational corporations came to play complex and often destabilizing roles. In Cuba, for example, a General Electric subsidiary, American and Foreign Power Company (AFP), updated equipment and management methods, improved service, paid higher than local wages,
and created incentives, including sponsoring athletic teams, to promote employee loyalty. It also developed close ties with local elites and intruded in Cuban politics, supporting leaders like the brutal Gerardo Machado who in turn protected it from regulation. The high rates charged by the U.S. utilities giant and its efforts to impose American corporate values provoked a Cuban backlash. Many management positions were given to North Americans, and Cuban workers were displaced. AFP's policies stirred up Cuban resistance in the form of strikes and consumer boycotts that took on the added dimension of nationalist opposition to outside oppression. Ironically, Cubans adapted some of the values of American corporate culture to their own ends, significantly shaping their own society and its ties with the United States.
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Economic expansion was inextricably linked with the achievement of major U.S. foreign policy goals during the 1920s. Republican policymakers were
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ignorant of or indifferent to the outside world. On the contrary, the Great War highlighted for them in the most gruesome way the importance of events abroad to their nation's prosperity and security. Peace and order were vital for American commercial expansion, which in turn was important for prosperity. American trade, on the other hand, might help promote economic growth in other parts of the world, thus easing the discontents that spawned revolution. Anything but isolationist in their dealing with crucial postwar problems, Republican leaders involved the United States to an unprecedented extent in reconstructing postwar Europe and promoting stability in East Asia, even assuming the sort of leadership role the United States had not previously considered. The key, of course, was to do this without political entanglements. The Republicans thus relied heavily on economic measures to achieve their goals. They often used private bankers and businessmen as their instruments.

The League of Nations remained strictly taboo. After the debacle of 1919–20, few U.S. officials were bold—or foolish—enough to advocate League membership. Harding artfully straddled the issue during the 1920 campaign, but upon taking office he categorically resolved it: "A world super-government is contrary to everything we cherish and can have no sanction by our Republic," he proclaimed in his inaugural address.
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Lingering opposition to the League in the Senate and lack of public
interest deterred Harding from pursuing his vague alternative proposal for an "association of nations." For a time, in a remarkable act of undiplomatic rudeness, the United States refused even to answer correspondence from the League, placing it in the State Department's dead letter file. Recognizing the political liability that Wilson's handiwork had become, his Democratic Party spurned the League in its 1924 platform.
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