Bacardi and the Long Fight for Cuba

by Gjelten, Tom

  The younger Bacardis, like those who came before them, believed in the Cuban cause, but it was not so clear anymore what that meant. They grew up in an age of more prosperity but less idealism, a time when Cuba was officially free but politically flawed. The elections that came every four years were regularly marred by charges of fraud, and they were mostly inconsequential. There were no real ideological differences between the parties, and political rivalries were driven mainly by competition for the power to dispense sinecures and hand-outs. After the restoration of Cuban sovereignty in 1909, direct U.S. interference in Cuban affairs diminished, though the U.S. role continued to be controversial. The 1903 Reciprocity Treaty gave Cuban sugar preferential treatment in the American market, reduced duties on American imports to Cuba, and encouraged further American investment on the island. The deal brought the country short-term prosperity but at the expense of making the economy excessively dependent on the sugar sector and on U.S. trade and investment, thus harming long-term development prospects. Cuba boomed when sugar prices soared in the immediate aftermath of World War I, but when prices turned sharply down in the early 1920s, banks failed across the country.

  The country’s unsteady economic performance compounded the disappointment Cubans were feeling over their political circumstances, and by the mid- 1920s many were wondering what had been achieved by the establishment of the Cuban Republic in 1902. In the spring of 1924, Emilio Roig de Leuchsenring, an influential Havana lawyer and intellectual associated with the Cuba Contemporánea journal, gave a speech titled “The Very-Much-Alive Colony: Cuba Twenty Two Years after the Republic.” His tone was discouraging:We have seen the emergence of the same vices and defects that the men who carried out the Revolution proposed to extinguish: Fierce hatreds, egotism, an eagerness for enrichment, a lack of love for the nation, a lack of respect for the law, the abuse of power by those who govern, and the awful passivity of those who obey. We have changed flags and governments, but in the end the difference between the Republic of today and the Colony of yesterday is hardly perceptible.

  The obstacle to a free and sovereign Cuba was no longer some imperial power or outside enemy. The Cubans had to establish a foundation of national pride on which to build their country themselves. In 1925 Roig de Leuchsenring directed a group of Cuban writers, intellectuals, industrialists, and historians in the compilation of a lavishly printed, nine-hundred-page book they called El libro de Cuba (The Book of Cuba). Their goal was to emphasize their country’s unrealized potential:If we have taken our place among the most hardworking and productive peoples on the planet despite all the difficulties of the colonial period and the careless mistakes made during our short life as a free republic, what can stop us in the future—with course corrections, good judgment, and experience—from achieving the highest level of prosperity, progress, and wealth?

  Compañía Ron Bacardi, S.A.,8 was one of the Cuban firms asked to submit a report for the massive book. No native company could claim to have made a more notable contribution to the national product. The enterprise was entirely Cuban-owned, still without one cent of foreign capital. The major raw ingredient—molasses—was a Cuban commodity, and it was Cuban talent and expertise that kept the business going. “This trademark and this enterprise,” the Bacardi directors wrote, “constitute without a doubt the industrial entity that has given and will give the most prestige and benefit to the country, for being wholly native and totally linked to this land, both spiritually and eco nomically.“ Unlike the sugar barons, the Bacardis manufactured a finished industrial product, making use of technology, skilled labor, and their secret distilling, aging, and blending procedures. Because a large percentage of its sales were overseas, the firm’s performance was at least partly independent of the swings in the national economy. The Bacardi directors declared that their company’s aim was “to serve Cuba,” and argued that its growth over the preceding years had been a triumph for the whole Cuban nation:The facts showed daily that industrial excellence can be achieved in Cuba just the same as in Manchester, Lyon, or Chicago. ... Casa Bacardi [the House of Bacardi] was no longer just the creator of the third national product [after sugar and tobacco]: It also constituted the best and most powerful Cuban industry, perhaps the biggest in all Latin America, and it was, above all, another positive force for the Cuban nation, a genuine [source of] pride for the lone star Republic.

  In 1927 the Bacardi role in the Cuban economy expanded in a new direction with the opening of a brewery in Santiago. None of the Bacardis knew anything about beer, and they faced stiff competition from other Cuban manufacturers, one of which had purchased the entire facilities of a U.S. brewing company several years earlier. Enrique Schueg nonetheless believed there was an unexploited market for premium beer in Cuba. He had persuaded his partners back in 1920 to acquire the defunct Santiago Brewing Company, and over the next few years he upgraded the facility, investing in new tanks, drilling a well to improve the water supply, and hiring German brewmasters to oversee the operation. In another reflection of the family’s Cuban nationalism, the Bacardis called their beer “Hatuey,” after the Indian resistance hero whose martyrdom had inspired generations of Cuban patriots.

  The bigger the Bacardi company grew, of course, the more complex its challenges became. Prohibition helped the company prosper, but it also brought risks. The Bacardis broke no law by selling their rum to whoever wanted to buy it, but they knew that much of their product was ending up in the hands of criminal groups. The company had a solid reputation for integrity, and it could not afford to see it jeopardized by shady business connections, so Bacardi sales agents maintained as much distance as possible from their clients. When large quantities were sold, the deals were often managed by third parties, and the identities of the buyers were not revealed. In many cases, Bacardi agents had no way of knowing where their rum was going after it left Cuba. A listed destination of “Shanghai” on a shipping label suggested the rum would be moved just offshore or to a nearby port, where it would then be transferred to another boat. Facundito Bacardi was fond of telling visitors, with a wink and a grin, that boatloads of his family’s rum went to Shanghai because “there are more drinkers in Shanghai than anywhere on earth.”

  U.S. Department of Commerce figures suggested that about a third of the liquor smuggled into the United States in 1924 entered via “Rum Row,”9 the area off the eastern seaboard of the United States just beyond the line marking international waters. Ships loaded with thousands of cases of liquor would wait just outside the limit while small, fast boats would come out to purchase the liquor and sneak it back to shore. With liquor distribution in the hands of organized crime syndicates, the U.S. business was outside government regulation, and false labeling and product tampering became rampant. The problem was if anything greater for Bacardi. American drinkers were generally less familiar with rum than with their favorite whiskey and less likely to distinguish between the genuine Bacardi product and an imitation, especially because rum was usually drunk in a cocktail. The Bacardis had been dealing with false labeling ever since they first registered their trademarks, and company executives were especially sensitive to the problem. Facundito Bacardi, the son of the family’s original rum master, was so outraged to find fake Bacardi rum at an upscale Manhattan speakeasy that he denounced the establishment in public, and New York newspapers took note of his protest.

  The Bacardis also faced problems with their own government in Havana. President Gerardo Machado, elected more or less honestly in 1924, soon set a new standard for corruption, buying the votes of congressmen by giving them lucrative lottery collectorships and using vast public works projects to build up a network of officials and businessmen who were indebted to him. As one of Cuba’s most important private firms, Bacardi Rum needed to remain on harmonious terms with the government if possible, but Machado’s demands on the company increased steadily. In 1928 his tax department decided to challenge the company’s calculations of how much rum evaporated during the aging proce
ss, a loss the company claimed as an expense against its income. Machado’s inspectors said the loss was exaggerated and declared that Bacardi owed an additional $75,000 in business taxes. When the company protested, the government ordered the firm to shut down all operations. The Bacardis were already paying more than a half million dollars to the government each year, and Enrique Schueg drew the line at what he considered an unjust assessment. Machado lifted the order a few days later pending an “investigation” of the technical issue, but not before the chief of secret police personally warned Schueg that he could be arrested for conspiring against the government.

  The days had passed when Bacardi could advance its corporate interests simply by highlighting its patriotism and charity. The changing commercial and political realities in Cuba underscored the need for new strategic thinking. Enrique Schueg, one of the sharpest business executives on the island, had already persuaded the Bacardi directors to diversify into beer production; next he argued that the company’s interests would be well served by expanding internationally. The Machado experience showed that even the most progressive and responsible companies in Cuba were vulnerable to government meddling, especially during periods of heightened corruption in ruling circles. An investment outside Cuba made good political sense. Schueg saw opportunities in Mexico, a country with an abundant sugar supply. U.S. citizens, deprived of liquor at home, were streaming across the Mexican border in search of cheap booze, and Schueg wanted to meet that demand with locally produced Bacardi rum. In 1929 he established a distribution subsidiary in Mexico and contracted for the construction of a new rum blending facility and a bottling plant there. With the exception of the 1910 licensing of a Bacardi franchise in Barcelona, it was the company’s first overseas expansion; unlike the Spanish operation, rum production in Mexico would be overseen and controlled by the Bacardis themselves.

  Economic and political developments complicated the new investments but also vindicated them. The U.S. stock market crash in the fall of 1929 was followed by a dramatic decline in travel to Cuba. The subsequent falloff in Bacardi rum sales diminished the company’s revenue just as it needed capital to finance its new ventures. The Hatuey beer business, however, appeared promising, and the Bacardis concluded they had acted wisely in diversifying. The decision to start investing outside Cuba was also validated by the deepening problems on the island. In 1930 the U.S Congress passed the Smoot-Hawley Tariff Act, raising the tariff on Cuban sugar to two cents a pound and effectively slamming the door on Cuban producers. Combined with the fall in world sugar prices, the effect on the sugar-dependent Cuban economy was disastrous. Desperate for new tax revenue, President Machado took aim for the second time in three years at the Bacardi coffers. His Economic Emergency Bill proposed various new taxes, including one on rum sales and exports. Machado by then was devoting a substantial portion of his budget to the army and police, and public monies were being diverted through graft. Enrique Schueg was furious.

  The Mexico investment, however, gave the company new leverage with the Machado administration. Schueg publicly warned that the Bacardis were prepared to move their entire rum operation out of Cuba if the new taxes were enacted. The jobs of two thousand Cuban workers would be jeopardized if Bacardi left, so the threat had to be taken seriously, and in early 1931 the Cuban House of Representatives voted to drop the rum tax proposal. The Bacardis had prevailed over the Machado administration, but Enrique Schueg had learned again how important it was for his company to maintain independence from the Cuban government.

  The new Bacardi rum factory opened in Mexico in May 1931, under the direction of Pepe Bacardi, Martha Durand’s ex-husband. Though he lacked the training and experience to be a successful businessman, Pepe had persuaded his uncle Enrique to let him be the first Bacardi to direct a rum production operation outside Cuba. Schueg joined him in Mexico for the inauguration of the new factory in 1931, as did Pedro Lay Lombard, the company’s general manager. Pepe Bacardi dressed for the event in a white linen suit with white shoes and swung a high-fashion walking cane. With big round spectacles and an ear-to-ear grin, he looked like a merry prankster at his own party.

  President Gerardo Machado proved to be a murderous tyrant, outlawing all political parties outside his direct control and ruthlessly eliminating his most determined opponents. The U.S. government did not seem to care, delighted that Machado favored, in his own words, the “closest possible cooperation” with Washington. It was a mistake the United States had made before and would make again: overestimating the benefit of having a loyal ally in Havana while underestimating the cost of supporting governments that stunted the country’s political development. At the very time Machado was ordering the assassination of labor activists and student protest leaders, President Calvin Coolidge was reassuring him that the United States would not object if he ignored the Cuban constitution and stayed in office beyond his term.

  By 1931, three years after Machado was supposed to have given up the presidency, Cuba was ready for another revolution. A new generational conflict had emerged: Young Cuban activists, all born after the independence war of 1895-98, felt that many of the war veterans serving in government had betrayed the cause of the revolution by plundering state resources and corrupting public life. These young Cubans revived the names of José Martí and Antonio Maceo and portrayed themselves as the true heirs of the original revolutionary movement, the promise of which had long since been abandoned in Cuba. Their goal was the overthrow of the Machado regime and the installation in its place of a democratic government committed to the social and economic goals that had inspired Cuba’s independence struggle.

  Among those who got caught up in the new movement was José “Pepín” Bosch, the Pepe Bacardi friend who in 1922 had married Enrique Schueg’s daughter, Enriqueta. Bosch had become a wealthy young man managing a sugar mill for his father at the height of the sugar boom, and after his marriage to Enriqueta, he went to work for the National City Bank in Havana. He and Enriqueta had two young sons, Jorge and Carlos, and a comfortable upper-class life, but Bosch was passionate in his hatred for the Machado regime. When he heard that a friend, Carlos Hevia, was planning to take part in an armed insurrection against the government in August 1931, Bosch agreed to help.

  The plan was for Hevia and an associate named Emilio Laurent to land with a group of volunteers on the northeast coast of Cuba and lead an attack on the nearby town of Gibara. Bosch’s assignment was to arrange the funding. Short and prematurely balding at the age of thirty-three, he looked far more like a banker than a revolutionary. He had no military experience and knew nothing about armed struggle, but he was a self-confident young businessman and had gained a reputation for toughness and shrewd judgment in his banking work. At great risk to his own life and to the welfare of his young family, Bosch helped find a boat for the expedition and assisted in the purchase of arms and ammunition.

  The rebellion failed utterly. Though the expeditionaries captured the Gibara police station, telephone exchange, and city hall, neither the townspeople nor local army units joined the uprising, and it soon collapsed. Machado sent an elite military unit to Gibara, blocked the harbor to keep the rebels from escaping by sea, and bombed the city from the air. Many of the fighters were caught and killed. Pepín Bosch, his life now in danger, fled to the United States with his wife Enriqueta and their two young sons.

  For the Bacardi family in Santiago, Gibara was just the first in a quick series of crises. In February 1932, an earthquake struck Santiago, the worst since 1852. More than half the buildings in the city were destroyed or seriously damaged, including the Bacardis’ Hatuey brewery, their administrative offices, and a rum storage warehouse. Four months after that, Facundito Bacardi, the high-living bachelor son of Facundo Bacardi Moreau, was gravely injured in a bizarre accidental shooting. He had stopped in the Club San Carlos, the Bacardis’ favorite drinking spot in Santiago, and was enjoying himself with friends when a policeman approached him to borrow some money, offering his servic
e revolver as collateral. As Facundito tried to wave it away, he accidentally knocked the gun to the floor and it discharged, sending a round into his abdomen. Facundito clung to life in a Santiago hospital for six days and then died. Yet another tragedy befell the family in May 1933, when Pepe Bacardi became ill in Mexico with pneumonia and quickly succumbed to the disease. Six young men of a single Bacardi generation had died young,10 leaving some to wonder whether the family was cursed.

  Cuba, meanwhile, was sliding into a deep political crisis. The anti-Machado struggle of a few years earlier had slowly evolved into a full-scale revolution, with the goal of overthrowing the entire political and economic system in Cuba. Led originally by radicalized university students and faculty, the movement gained the support of workers and their leaders. After Machado’s police opened fire on a public rally outside the presidential palace and killed about twenty demonstrators, workers across the country walked off the job. With chaos spreading, Machado resigned the presidency and left Cuba on August 12, 1933, for the Bahamas. He was replaced by Carlos Manuel de Céspedes Jr., a colorless diplomat known mainly for being the son of the sugar planter who sparked Cuba’s 1868 independence war.

  The collapse of the Machado government brought no break in the violence, however. Mobs of revenge-seeking Cubans hunted down hated members of Machado’s security forces, in some cases dragging them into the street and killing them. The houses of senior Machado allies were burned and their offices ran sacked.11 Workers and their unions, meanwhile, took advantage of the chaos to demand sweeping labor reforms. Cuba was caught up in a revolutionary fervor.