Open Veins of Latin America: Five Centuries of the Pillage of a Continent
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At the time Hanna’s chairman, George Humphrey, was a big wheel in the U.S. government—he was secretary of the treasury and director of the Export-Import Bank (Eximbank), the official bank for financing foreign trade operations. St. John had asked Eximbank for a loan, but nothing came of it until Hanna took over the firm. After that, successive Brazilian governments were subjected to fierce pressure: Hanna’s directors, lawyers, and advisers—Lucas Lopes, José Luiz Bulhões Pedreira, Roberto Campos, Mario da Silva Pintos, Otavio Gouveia de Bulhões— were also top-level members of the Brazilian government and continued occupying posts as ministers, ambassadors, and directors of services in subsequent years. Hanna had picked its general staff sagaciously. The bombardment to recognize Hanna’s right to exploit the iron which properly belonged to the state grew in intensity. On August 21, 1961, President Jânio Quadros signed a bill annulling the illegal rights extended to Hanna and restoring Minas Gerais iron to the national reserve. Four days later the armed forces made Quadros resign: “Terrible forces have risen against me,” said the text of his resignation.
A popular rising in Pôrto Alegre, headed by Leonel Brizola, frustrated the military coup and put Quadros’s vice-president, João Goulart, in power. But when a minister sought to implement the fatal decree against Hanna, U.S. Ambassador Lincoln Gordon wired Goulart, indignantly protesting the government’s threatened strike against the interests of a U.S. concern. The judiciary decreed Quadros’s bill valid, but Goulart vacillated. Meanwhile, Brazil set the wheels in motion for a minerals transshipment depot in the Adriatic which would supply iron to various European countries, socialist and capitalist. Such a direct sale of iron ore implied an intolerable defiance of the big firms that manipulate global prices. The depot never materialized, but other nationalist measures—such as plugging the drain of the foreign concerns’ profits—were implemented and proved to be detonators in an explosive political situation. The Damoclean sword of the Quadros bill remained hanging over Hanna’s head. Finally, on the last day of March 1964, the coup d’état exploded in Minas Gerais, where the disputed iron deposits happened to be located. “For Hanna,” commented Fortune, “the revolt that overthrew Goulart last spring arrived like a last-minute rescue by the 1st Cavalry.”9
Hanna men moved in to occupy the vice-presidency and three ministries. On the day of the military revolt, the Washington Star had run an editorial that was at least prophetic: “Here is a situation in which a good, effective, old-style coup by conservative military leaders may well serve the best interests of all the Americas.”10 Goulart had still neither resigned nor left Brazil when President Lyndon Johnson, unable to restrain himself, sent his famous congratulatory telegram to Ranieri Mazzili, who had provisionally assumed the presidency: “The [North] American people have watched with anxiety the political and economic difficulties through which your great nation has been passing and have admired the resolute will of the Brazilian community to resolve these difficulties within a framework of constitutional democracy and without civil strife.”11 A little over a month later Ambassador Lincoln Gordon, on a euphoric tour of army barracks, said in a speech at the war college, the Escuela Superior de Guerra, that the success of the plot “might be included with the Marshall Plan proposal, the Berlin blockade, the defeat of Communist aggression in Korea, and the solution of the Cuban missile crisis as one of the most important moments of change in mid-twentieth century world history.”12 One of the U.S. embassy’s military officials had offered material aid to the plotters shortly before the coup, and Gordon himself had suggested that the United States would recognize an autonomous government in São Paulo if it could maintain itself for two days. It is not worth detailing all the evidence of the importance of U.S. economic aid (we will take this up later), and of U.S. help on the military and trade union level, in the dénouement of these events.*
* According to a revealing article in Selecciones del Reader’s Digest, thanks to the good offices of the American Institute for Free Labor Development, which has its headquarters in Washington, the Brazilian putschists could coordinate their troop movements by cable. The new military regime rewarded AIFLD by designating four of its graduates “to clean up the Red-dominated unions. …”13
After it tired of throwing the books of Dostoevski, Tolstoy, Gorky, and other Russians into bonfires or into Guanabara Bay, and after it had sentenced countless Brazilians to exile, prison, or the grave, the Castelo Branco dictatorship got down to business: it gave away the iron and everything else. Hanna got its decree on December 24, 1964. This Christmas parcel contained not only total freedom to exploit the Paraopeba deposits in peace, but support for the firm’s plans to open a port of its own sixty miles from Rio and to build a railroad to transport the iron. In October 1965, Hanna formed a consortium with Bethlehem Steel for joint exploitation of the iron deposits. The tireless Lincoln Gordon had finished the job, everyone could live happily ever after, and he left to preside over a university in Baltimore. In April 1966, after some months of vacillation, Johnson named John Tuthill as his replacement, explaining that he had delayed because Brazil needed a good economist.
U.S. Steel did not lag behind. Why should it be left off the party invitation list? Before long it teamed up with a state mining enterprise, the Companhia Vale do Rio Doce, which in effect became its official pseudonym. Resigning itself to no more than 49 percent of the shares, U.S. Steel thus got the Sierra de los Carajás iron deposit concession in Amazonia. Technicians say that it compares in size with Hanna—Bethlehem’s bonanza in Minas Gerais. The Brazilian government, as usual, said that Brazil lacked the capital to exploit its own wealth.
THE BLACK CURSE OF PETROLEUM
Along with natural gas, petroleum is today the chief fuel that keeps our world in motion; it is a raw material of rising importance for the chemical industry and is the basic strategic material for military activities. Nothing compares with this “black gold” as a magnet for foreign capital, nothing earns such lush profits, no jewel in the diadem of capitalism is so monopolized, and no businessmen wield the global political power of the great petroleum corporations. Standard Oil and Shell seat and unseat kings and presidents, finance palace plots and coups d’état, have innumerable generals, ministers, and James Bonds at their command, and make decisions about peace or war in every field and every language. Standard Oil of New Jersey (now Exxon) is the capitalist world’s biggest industrial enterprise; outside the United States no industrial enterprise has greater power than Royal Dutch/Shell. Affiliates sell crude petroleum to subsidiaries which refine it and sell it to branch organizations for distribution: there is no loss of blood in the whole internal circulatory system of the cartel, which also owns the pipelines and most of the oil fleets on the seven seas. Prices are manipulated on a world scale to keep taxes low and profits high: the crude petroleum gets constantly cheaper, the refined constantly more expensive.
With petroleum, as with coffee or meat, rich countries profit more from the work of consuming it than do poor countries from the work of producing it. The ratio is ten to one: of the $11 that the derivatives of a barrel of petroleum sell for, countries exporting the world’s most important raw material get a sum total of $1 from taxes and extraction costs. Countries in the developed zone, where the oil companies have their head offices, get the other $10, the sum total of their own taxes—eight times larger than those of the producing countries—and the costs and profits of transport, refining, processing, and distribution, monopolized by the big corporations.14
While petroleum from U.S. wells enjoys high prices and U.S. oil workers’ wages are comparatively generous, the price of Venezuelan and Middle Eastern petroleum has been falling through the late 1950s and all through the 1960s. A barrel of Venezuelan petroleum, for example, cost $2.65 in 1957 and $1.86 as this chapter is written. The Rafael Caldera administration has promised to unilaterally fix the price much higher, but even by manipulating statistics it will not reach the 1957 level. The United States is at the same time the bigges
t producer and the biggest importer of petroleum. When most of the crude petroleum sold by the oil companies came from U.S. wells, the price was kept up; but when, during World War II, the United States became a net importer and the cartel began applying a new policy, the price systematically sagged. An odd inversion of the “laws of the market”: the price of petroleum falls as world demand rises and factories, automobiles, and generating plants multiply. And another paradox: while the price of petroleum falls, the price consumers everywhere pay for fuel rises. There is an enormous disproportion between the price of crude oil and that of its derivatives. This whole chain of absurdity is perfectly rational: no need to seek an explanation in supernatural forces. For, as we have seen, the oil business in the capitalist world is in the hands of an all-powerful cartel. The cartel was born in 1928, in a castle wreathed in Scottish mists, when Standard Oil of New Jersey, Shell, and Anglo-Iranian (now known as British Petroleum) agreed to divide up the planet. Standard Oil of New York (now Mobil), Standard Oil of California, Gulf, and Texaco joined later. Founded by Rockefeller in 1870, Standard Oil had split in 1911 into thirty-five different firms under the requirements of the Sherman Anti-Trust Act; the first of the teeming Standard family as we now know it is Standard Oil of New Jersey. Today its petroleum sales, added to those of Standard Oil of New York and Standard Oil of California, amount to half of the cartel’s entire sales. The Rockefeller group of oil concerns is so vast that it accounts for one-third of all profits earned throughout the world by all U.S. corporations. Standard Oil of New Jersey, a typical multinational corporation, earns its biggest profits abroad, with Latin America bringing in more than the United States and Canada put together: south of the Río Grande its profit rate is four times higher. In 1957, more than half of its global profits came from its Venezuelan affiliates; in the same year Shell’s Venezuelan affiliates accounted for half of Shell’s world profits. These multinational corporations do not belong to the nations in which they operate: their multinationality consists in funneling a torrent of petroleum and dollars from the four points of the compass into the capitalist system’s centers of power. They have no need to export capital to finance the expansion of their business; the profits taken out of poor countries not only flow directly to the few cities where their major coupon-clippers live, but they are partially reinvested to strengthen and extend the international operations network. The structure of the cartel implies the domination of many countries and the penetration of many governments; petroleum saturates presidents and dictators and further deforms the societies it conscripts into its service. It is the corporations, pencils on a terrestrial globe, that decide which zones will be exploited and which held in reserve, what price producers must get and consumers must pay. The natural wealth of Venezuela, and of other oil-bearing Latin American lands subjected to this organized looting, has become the chief instrument of political servitude and social degradation. This is a long story of infamies, of deeds of business prowess which have spread a black curse across the earth.
Cuba brought handsome peripheral profits to Standard Oil of New Jersey. Standard Oil bought crude oil from its Venezuelan affiliate, Creole Petroleum, and refined and distributed it on the island at prices that best suited it at each stage. When the Cuban Revolution was in full effervescence in October 1959, an official State Department note to Havana expressed concern about the future of U.S. investments in Cuba: bombardments by “pirate” planes from the north had already begun and relations were tense. In January 1960, President Eisenhower cut the Cuban sugar quota, and in February Fidel Castro signed a trade agreement with the USSR to exchange sugar for petroleum and other products at prices beneficial to Cuba. Standard Oil of New Jersey, Shell, and Texaco refused to refine Soviet petroleum, and in July the Cuban government nationalized them without compensation. The corporations, headed by Standard Oil, began a blockade, first boycotting qualified personnel, then machinery replacement parts, then transportation. The conflict was a test of sovereignty and Cuba emerged with flying colors. It simultaneously stopped being a star in the U.S. flag and a cog in the worldwide Standard Oil machine.
Twenty years earlier, Mexico had had its own experience of an international embargo decreed by Standard Oil of New Jersey and Royal Dutch/Shell: from 1939 to 1942 the cartel organized a blockade of Mexican petroleum exports and of supplies for its wells and refineries. President Lázaro Cárdenas had nationalized the oil concerns. Nelson Rockefeller, who had graduated as an economist in 1930 with a thesis on his own Standard Oil’s virtues, journeyed to Mexico to negotiate an agreement, but Cárdenas would not budge. Standard Oil and Shell, having divided up Mexico by taking the north and the south respectively, defied Mexican Supreme Court rulings on the application of Mexican labor laws; at the same time, they drained the famous Fajo de Oro deposits with startling speed and were making Mexicans pay more for their own petroleum than they received for what was sold in the United States and in Europe.* In a few months of feverish exporting, wells that could have continued producing for thirty or forty years were drained dry. “Nearly three decades of foreign operations had robbed Mexico of her richest oil deposits,” writes Harvey O’Connor, “and left only a collection of antique refineries, depleted fields, ramshackle camps, the slum city of Tampico, and bitter memories.”15
* This is still a normal phenomenon in various countries. In Colombia, for example, where petroleum is freely exported without any taxes, the state refinery buys Colombian petroleum from foreign concerns at a price 37 percent higher than the world price, and has to pay in dollars.
In less than twenty years production had dropped by 80 percent. Mexico was left with a decrepit industry, geared to foreign demand, and 14,000 workers; the technicians took off and even the transportation network disappeared. Cárdenas made recovery of the petroleum a national crusade and conquered the crisis with imagination and courage. Today Pemex (Petróleos Mexicanos), the enterprise created in 1938 to take charge of all production and marketing, is the largest nonforeign concern in Latin America. Although between 1947 and 1962 the Mexican government paid heavy indemnities to the expropriated corporations out of Pemex’s profits, Mexico, as Jesús Silva Herzog has said, “is not the debtor of these pirate companies but their legitimate creditor.”16 In 1949 Standard Oil vetoed a loan the United States was going to make to Pemex, and years later, after generous indemnities had healed the wounds, Pemex had a similar experience with the Inter-American Development Bank.
Uruguay was the first Latin American country to install a state refinery. ANCAP was created in 1931, and the refining and sale of crude petroleum were to be among its chief functions. It was a national response to a long history of abuse by the international cartel on the Río de la Plata. At the same time, the state contracted to buy cheap petroleum from the USSR. The cartel immediately financed a campaign of calumny against the Uruguayan state concern and began threatening that no one would sell Uruguay machinery, it would find itself without any crude petroleum, the state was incompetent to run such a complicated business. The palace coup of March 1933 exuded the smell of oil; the Gabriel Terra dictatorship annulled ANCAP’s right to monopolize fuel imports, and in January 1938 it signed ominous “secret agreements”— still in effect—with the cartel, agreements which the public did not learn of for a quarter of a century. Uruguay has to buy 40 percent of its crude petroleum from whomever Standard Oil, Shell, Atlantic, or Texaco might indicate, at prices fixed by the cartel; and the state, while retaining the refining monopoly, has to pay all the corporations’ costs, including publicity, executive salaries, and luxurious office furnishings. “Esso es progreso”—Esso is progress—warbles the TV, and the advertising barrage does not cost Standard Oil a cent. The Banco de la República’s lawyer is also in charge of Standard Oil’s public relations: the state pays him for both jobs.
In 1939 ANCAP’s refinery—emasculated shortly after birth, as we have seen, but still an example of defiance to cartel pressure—was operating successfully. The chief of Brazil’s
Conselho Nacional del Petróleo, General Horta Barbosa, went to Montevideo and was exhilarated by what he saw: the Uruguayan refinery had paid off almost all of its installation costs in a single year. Thanks to the efforts of Barbosa and the enthusiasm of other nationalist military men, the Brazilian state enterprise was able to get under way in 1953, to the cry of “The petroleum is ours!” Today Petrobras is the biggest concern in Brazil.17 It explores, extracts, and refines Brazilian petroleum. But Petrobras was also emasculated when the cartel appropriated two of its big sources of income. First, the distribution of gasoline, oils, kerosene, and various fuels, an enormous business which Esso, Shell, and Atlantic manage effortlessly by telephone and so profitably that it attracts more U.S. investment than anything in Brazil except the automobile industry. Second, the lush petrochemical industry, which the Castelo Branco dictatorship denationalized a few years ago. Recently the cartel started a loud campaign to take the refining monopoly away from Petrobras. Petrobras’s defenders recall that before 1953, when the field was wide open, private industry paid no attention to Brazilian petroleum,18 and remind the short-memoried public of an episode that illustrates the goodwill of the monopolies. In 1960 Petrobras assigned two Brazilian technicians to head up a survey of the country’s deposits. As a result of its reports, the little Northeastern state of Sergipe took the lead in petroleum production. Shortly before, in August, U.S. technician Walter Link, who had been chief geologist for Standard Oil of New Jersey, had received $500,000 from the Brazilian state for a pile of maps and an extensive report belittling the Sergipe deposits as “unviable”: until then they had been rated “Grade B,” and Link demoted them to “Grade C”; it was subsequently established that they were Grade A.19 According to Harvey O’Connor, Link was said to have worked the whole time as a Standard Oil agent, intending in advance not to find any petroleum so that Brazil would remain dependent on imports from the Rockefeller affiliate in Venezuela.20