Introduction
In reviewing the Root Causes Strategy for Central America in conjunction with understanding the history of wealth concentration in the hands of a small, powerful group of elites, the current strategy will likely put the region on a course to continue the patterns that have put it in such a precarious position initially. Wealth disparity and power concentration is a system that began at the height of the colonial experience in Central America and has loomed ever-present since that time. The stated goal of the Root Causes Strategy is to tackle the true causes of migration, yet it is unclear who this will ultimately benefit, other than American corporations and the elites they do business with. American corporations are not known for their moral compasses, and beyond providing for the basic needs of workers to make them effective in their positions, there is little incentive for them to aid in the long-term sustainability and prosperity of the disempowered local populations of Central America.
The following paper will take an overarching approach to understanding why the Root Causes Strategy will fail. It will begin by highlighting how and why wealth and power disparities began in Central America. During Hapsburg imperialism in the 17th century, wealth and power became linked, setting the stage for class dynamics that have been in place since then. The only way to effectively contextualize a problem is by understanding its scope, and in the case of Central American wealth disparity, it is necessary to understand the colonial moment that laid the foundations for the region’s social and economic position today. By acknowledging these systems, we can see how deeply they run, giving us a more complete scope of the problem.
Next, this paper will explore how the colonial experience created a ripe environment for American corporate activity. The symbiotic relationship between American corporations and Central American elites will be demonstrated through the infamous example of the banana industry. This will highlight the fundamental issues of trying to link foreign investment to development and will showcase the role Americans have played in reinforcing class dynamics.
Finally, we will discuss the fundamental flaws of promoting development via CAFTA-DR and via corporate social responsibility through the Root Causes Strategy, citing the fragile position of local populations when they are solely supported by foreign corporations. The analysis will examine who has really benefited from CAFTA-DR, concluding that CAFTA-DR is a tool that only exacerbates the fragile economic position of Central American workers and forcing dependence on the ebbs and flows of the American market. From these analyses, we can see that in its current iteration, the Root Causes Strategy is more likely to benefit American interests than it is to positively affect the lived realities of the people who are forced to migrate for a chance at prosperity. If the Biden Administration’s aim is to strengthen American corporations through cheap, foreign labor, then the Root Causes Strategy is perfect. However, if the goal is to stem migration and create sustainable opportunity, we must provide avenues for growth that are not tied to American investment.
Because of the role Americans have historically played in reinforcing Central American class dynamics, the Biden Administration has a unique responsibility to address the harm done. Yet the strategies chosen must be reworked if the goal is to address the root causes of poverty. By providing the historical context of wealth and power and highlighting the profit-centered role of American corporations, we can create a strategy that affects a safer, more prosperous Central America.
A Multi-century Problem: The Roots of Disparity in Central America
From the earliest days of Spanish imperialism under the Hapsburgs in the 17th century until imperialism’s fall under the Bourbons in the 19th century, colonial elites used their positions to consolidate personal power and wealth, systematically siphoning that same power and wealth away from natives. Though the legality of using imperial positions for personal gain changed between dynasties, this system of economic and political dominance was fortified throughout the lifespan of Spanish imperialism, laying the bedrock for wealth concentration in the hands of elites for centuries to come. The concentration of power and wealth in such a small portion of the population is now so entrenched and interconnected that disentangling one from the other is nearly impossible. To have power is to have wealth, and once obtained, elites were unwilling to give this up. Until the causes and effects of this are properly remedied and power is redistributed, class division will be maintained.
Valued for their perceived high economic worth, political positions in colonial Central America were highly sought after. During the Hapsburg’s reign, a magisterial position was not viewed as an opportunity to serve king and country but rather an opportunity to exploit power for personal gain (Patch 1994; 92). Though these positions paid little, magistrates would use the repartimiento system to force native populations to produce goods that the magistrates would then sell back to them, cyclically indebting natives while enriching themselves (Patch 1994; 95). This system generated and reinforced the political and economic dominance of colonists, while stripping away that same power from locals. This formal and informal system of economic and political dominance was fortified throughout the lifespan of Spanish imperialism, laying the bedrock for wealth concentration in the hands of elites.
Though late 18th century reform efforts from the Bourbon Spanish crown to reestablish its authority tried to quash repartimiento, the colonists would not easily give up this dominance. The interconnectedness of political power and personal wealth made any attempt at reform futile and served to harbor feelings of distrust and frustration toward the crown (Brown 1995, 412). As established under the Hapsburg dynasty, colonists did not come to Central America because of a sense of civic duty; they came to get rich. Reforms to take away the system that provided this wealth would never be accepted and irrevocably changed the relationship between the crown and colonial elites, as the colonists were unwilling to abandon a system that afforded them so much.
The opportunity for elites to break away from these changes and formalize their dominance once again soon presented itself through the 19th -century rebellions of enslaved, indigenous, and mestizo groups. The Bourbon reforms chafed the colonists so greatly that many colonists saw the opportunity to co-opt revolution for their gain. Originally conceived by oppressed classes as a means of overthrowing the Spanish yoke, the revolution became an opportunity for local elites to continue and once again formalize these preferential political and economic schemes without monarchical oversight (Brown, 1995; 439-440; Andrews, 1985; 128). Thus, the system of wealth disparities and concentration began to move forward from colonial times to modernity.
While revolutionary in name, the fall of the Spanish empire did not constitute any significant changes in the political or economic structures that already existed in Central America. Political power still directly translated to personal gain, and elites in the new Central American Federation were now able to maintain and build on their power without any checks from a crown. As the new Central American states embarked on this journey of post-colonialism, it was beneficial for their already empowered elites to maintain the colonial systems that originally enriched them, laying the foundations for wealth disparity for centuries to come.
The Benefits of Dependency: How American Corporations Keep Central American Elites Wealthy
With the fall of Spanish imperialism in the 19th century, Central America was left to the control of elites who used their imperial experience to become enriched and empowered. Once the crown was gone, they continued these enterprises without monarchical oversight, but persistent instability throughout the 19th and 20th centuries chipped at this wealth concentration, laying the groundwork for American corporations to enact a modern dependency that exported cheap goods for the benefit of American consumers and economies, most notably through the banana industry. Through participation in the banana trade, elites could maintain their wealth through via lucrative contracts with American corporations. However, this had the deleterious effect of continuously forcing reliance on those same corporations for money and power. This system has become the basis for American corporate activity in the region, and until this is addressed, Central American elites will be indefinitely reactive to American needs.
This trend of American corporations shaping Central America is best seen through the land ownership and trade relations established through banana production. By the mid-20th century, most land in the region was owned and operated for banana production, and 60% of the region’s export earnings came from bananas and other agricultural commodities (Bruyn 1971, 55-56; Siddiqui 1998, A-128). While traditional capitalist theories would expect this increase in global trade to strengthen the region, this domination effectively shifted the economy to produce goods almost exclusively for American use. As this system has been sustained over decades, Central American economies have been continuously hobbled and forced to rely on American business to keep it running.
This dependent relationship was extremely beneficial to elites, as continuous business with American corporations provided them with lucrative contracts and hush money. To maintain hegemony in land ownership and trade, corporations relied on the cooperation of local governments and the acquiescence of local elites to ensure the flow of goods. Monopolies on land ownership were illegal in some states, but by examining the most famous American banana exporter, United Fruit Company (UFCO), we can see that this was often overcome through “special arrangements” of paying off governments and elites (Bruyn 1971, 56; Bucheli 2004, 182). Though UFCO’s ownership of land steadily decreased through the 1960s (Bucheli et al, 2012; 858), this simply suggests that the company spent more money directly influencing the elites who owned the land on which their products were grown. American corporations could make huge production requests in exchange for money to keep elites in power. Thus, to retain wealth and a guise of power, elites were only required to allow corporations unfettered access to their economies.
Despite UFCO’s actions being denounced by many, similar corporate structures still operate in the region today. Central American economies and elites are reliant on American corporate dollars to prop them up, and there are historical examples of the devastating effects caused by a corporation with a huge presence suddenly leaving the region. During World War II, UFCO was forced to abandon its operations in Magdalena, Colombia, resulting in a major economic depression that forced both elites and workers to find new means of support (Bucheli, 2004; 196). Once the war ended and American demand for bananas went back up, exports skyrocketed (Bucheli, 2004; 198), highlighting the extremeness of this dependency. If corporations divested, elites and governments would lose their financial links to power, resulting in similarly devastating consequences. Elites are just as invested in maintaining dependency on American corporations as American corporations are invested in maintaining access to cheap goods. While we must consider ways to rectify this corporatism and the corrupting enrichment schemes that arise from it, it will be important to address it in a way that redistributes power and money.
A Captive Workforces: Incentivizing Aid Through CAFTA-DR
To stem Central American migration caused by corruption and poverty, the Biden Administration launched its 2021 Root Causes Strategy (The White House) and announced a Call to Action for American corporations to invest in Central America for its development (“FACT SHEET”). Separately, in 2022, the Administration promoted CAFTA-DR to increase trade between the US and partner countries (“Webinar Series on CAFTA-Dr Textiles and Apparel Provisions”). While these initiatives focus on providing opportunities for foreign investment, the Call to Action and CAFTA-DR have set the stage for local economic security to depend on US corporations by tying development to the interests of these foreign corporations. Though touted as the means of development, the promise of jobs and benefits from the Call to Action and CAFTA-DR are tying vulnerable populations to a region that will not have its systemic issues addressed by the private sector. If these corporate partners divest, progress will be lost.
Since its creation, CAFTA-DR has been marketed as a tool to drive investment so that both American and participating Central American economies would benefit. In 2022, as the Biden Administration strongly advocated for greater use of the textile and apparel provisions of the agreement, the United States Trade Representative boldly proclaimed to Central American producers that “Your success is our success” (“Webinar Series on CAFTA-Dr Textiles and Apparel Provisions”). However, when analyzing the free trade agreement (FTA) and the context in which it was signed, it becomes clear that it was originally only signed to shore up the United States’ competitiveness in the global economy by finding the cheapest sources of labor (Pinder, 2009; 228). Central American development was just a line used to sell the idea of the FTA. Since CAFTA-DR's signing, the only substantive changes in the region have been that CAFTA-DR has forced Central American producers to become hyper-specialized in cheap products, such as knit t-shirts, making these producers increasingly sensitive to American economic shifts (Niell 2020, 325; Pinder 2009, 230). Thus, as was seen with banana production, economies have been shaped to American consumerism, so it is unsurprising that other similar trends are getting repeated.
As American investment in Central America increases, so does this level of dependence, exponentially. CAFTA-DR has offered American corporations great incentives to do business in Central America, and many have capitalized on the cheap labor and lack of social protections to increase their profitability (Pinder, 2009; 229). USTR data shows that as of 2022, CAFTA-DR trade is up 62% since 2012 (“CAFTA-DR (Dominican Republic-Central America FTA)”), and these trends have primarily benefited American corporations and Central American elites that own production (Niell, 2020; 325). At the same time, while workers’ wages have generally increased, the cost of living and basic food basket have also increased, negating any benefit of American investment (Niell, 2020; 326). As Kopinak et al observe, American corporations have moved production to this region to reduce costs, thus making it unlikely that they would advocate for higher wages (2020; 2). This data shows that investments are doing nothing to help the workers it claims will substantially benefit, keeping economic benefits within the hands of American corporations and the Central American elites that own the means of production.
While corporations obtain a reputational boost for providing jobs in an impoverished region, it is critical to remember that they make investment decisions that are most profitable. It could be argued that CAFTA-DR is a tangible incentive for American corporations to do business in Central America for the long-term, allowing for the benefits of increased trade and stable jobs to positively affect social and economic change, however, the evidence shows that the FTA has only benefitted American corporations and the elites they work with. If an increase in trade were tied to improvements in development, surely, Central American workers would have seen some level of improvement in the last two decades.
A Captive Workforce: Incentivizing Aid Through Corporate Social Responsibility
Though the Root Causes Strategy and Call to Action are government attempts to spur development through corporate investment and intervention in Central America, it is unlikely that these partnerships will last beyond their reputational and financial usefulness as deemed by the corporations. In cases in which governance is weak and public corruption is high, corporations have been expected to step in to fill the gaps through the privatization of public services (Cranenburgh et al, 2014; 524). When corporations fill these needs, they enjoy not only a positive reputation and social license to operate, but also a workforce that is cohesive, safe, healthy, and educated (Gautier, 2015; 347). In this sense, corporate social responsibility (CSR) and philanthropy becomes a strategic initiative to improve the bottom line. It is a stopgap solution that may provide jobs but does nothing to address the systemic issues that weakened these regions to begin with. While corporate ethos reflects that a functioning society equals a better functioning business, this thinking only considers the wellbeing of locals insofar as the corporation’s interest is maintained.
While corporations providing jobs and social safety nets may seem to meet development goals, this only results in a positive reputation for the corporation, providing no structural change and a captive workforce that must work for the corporation to receive any social benefits. Corporate interest is tied to profitmaking, as can be seen through Cranenburgh’s case study on Heineken’s corporate philanthropic mission of funding private healthcare in Sub-Saharan Africa for its employees and their communities to tackle ineffective public healthcare (2014; 528). Though reputationally beneficial, Heineken has likely only maintained this program because of their production presence in the region, understanding that a healthy workforce is a productive workforce (“Africa and Middle East (AME)”). However, without Heineken’s support, the program’s long-term sustainability would be at risk (Cranenburgh et al, 2014; 530). If Heineken divested, communities would be the only stakeholder to suffer.
In the case of Central America, the Call to Action is an incentive to maximize profitability while engaging in CSR efforts to improve workers’ lives. Sánchez notes that, historically, foundations have been established and funded throughout the region by corporate actors to help fill these social gaps (2000, 366), and with the Call to Action, this trend will continue if the incentives are maintained. This counters Kopinak et al’s thesis that corporations that move production to Central America are uninterested in providing meaningful pay and benefits (2020; 2), however, the provision of these benefits will likely only continue if the Call to Action is in place. CSR programs and the provision of these benefits are huge costs to maintain, especially in regions where such protections do not publicly exist. It is not difficult to imagine a change in the United States government that would end the Call to Action, ending incentives for billions of dollars' worth of aid to flow into Central America (“FACT SHEET”) and reestablishing CAFTA-DR as the sole benefit to producing there. This underscores that Central America’s economic success is predicated on American investment. If this incentive is lost, communities will lose their economic lifelines, while corporations will have simply found a cheaper production region.
Predicating Central America’s sustainable development on CSR and philanthropy is a faulty line of logic that relies on corporation’s long-term altruism, instead of recognizing that these initiatives are done for strategic reasons. As was determined when analyzing the faults with relying on CAFTA-DR as a mechanism for development, once the strategic benefits of participating in the Call to Action dissipate, there will be no reason for these corporations to maintain such strong safety nets in the region. Thus, economic opportunities and social benefits will be lost, and Central American workers will be left with structures that do not support them.
Conclusion
The history of Central America has been inextricably linked to the interests of elites and foreign corporations that seek to make their wealth by continuously siphoning it away from an already disempowered working class. It has been a history of maintaining power and wealth through any means necessary. Though the Biden Administration maintains its commitment to stem migration by creating greater opportunity in Central America, without recognizing the history of class disparities and the role American corporations have played in reinforcing these systems, any attempt at development will be fruitless. Colonialism created an imbalanced system, and American corporations exacerbated these disparities by turning Central America into their personal cash cow. Thus, the reliance on corporations to do right by their workers through CSR and investment as set out by the Root Causes Strategy and Call to Action is set to create short-term steps towards growth that could collapse as soon as there is a change in the United States’ government. Quite simply, there is no incentive for corporations to create sustainable growth. Once the Call to Action ends, incentives to doing business in Central America will revert solely to those offered by CAFTA-DR, which have been shown to exclusively benefitting American corporations and local elites. Resources for development will dissipate, and we will ask why Central America still has such wealth concentration and a lack of social and economic safety nets for the working class.
As initially stated, the Biden Administration’s goal of addressing the disparities in Central America to stem migration is admirable and should be generally maintained because of the role Americans have played in shaping the current situation. However, we must think of a better way to do this than relying on foreign investment to fix a problem it initially caused. Few American corporations have ever based their long-term corporate strategies on an altruistic need to help a region, and once the benefits of doing business in Central America dissipate, they will divest en masse. As seen through the example of Heineken’s corporate social responsibility in Africa, these activities are typically funded for a tangible benefit to the corporation itself. Production in Central America has historically been popular because of its cheap labor and lack of social protection. The Call to Action makes doing business more expensive, and because of the greater financial incentives offered by CAFTA-DR, corporations will cease these expensive CSR tactics once the program ends. Thus, the people the Root Causes Strategy hopes to help will again be left without economic opportunity or social power.