Mexico and its reconstruction/Chapter 18

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CHAPTER XVIII

THE FOREIGNER IN MEXICO: HIS PROPERTY

In all the long drawn out discussion of the role of foreign capital in Mexico there has been much invective on both sides and on both sides there is the greatest need of clear thinking. Foreign capital is pictured as was railway development a generation ago. It is looked upon as carrying a possibility of the overthrow of Mexican independence. It does so. Foreign capital at the same time is the greatest hope for the salvation of the republic.

It is doubtful whether Mexico has suffered from the so-called "curse of concessions" to a greater degree than the average undeveloped country, and she has profited tremendously by the coöperation of foreign capital secured by favors granted in order to induce the assumption of her unusual business risks.

Mexico, a generation ago, was in a condition through which many a country has passed. She had a great extent of territory and a sparse population. She had great natural resources, which her people knew not how to develop and which they could not have developed rapidly even if they had known how, without the help of capital from outside the country. Under these conditions Mexico did what other countries have done in similar circumstances. Like the United States, like Argentina, she recognized the need of outside help and she granted special favors to those who could give it. That the foreigner was disposed to drive a hard bargain, in some cases, is true. It is not surprising if, in some cases, too much was granted. It is too much to expect that corruption in such dealings should always have been absent. Certainly the experience of other countries does not show that they have been able to escape such pitfalls.

The last quarter of the nineteenth century was one in which there was a world-wide demand for great amounts of capital to develop, among other regions, the western United States, South America, Siberia, and South Africa, as well as to carry through a remarkable industrial advance in both Europe and America. It was not to be expected that Mexico, under such circumstances, could secure capital upon as favorable terms as might have been the case otherwise. Taken all in all there seems to be little reason to believe that the country fared any worse in this matter—or any better—than it deserved or than other countries under similar circumstances have fared.

What the "concessions" involved is often less clear in the minds of critics than is the conviction that abuse has occurred. As a rule the pre-Diaz concessions have little importance, because any money that the promoters put into them they lost and the "concession" lapsed without benefit to the grantee nor harm to Mexico. There were all sorts of schemes proposed in that period. Colonization enterprises of fantastic nature often were concessions and some of the grants of doubtful character in later days have been colonization schemes.

The great majority of the concessions were simple grants of exemptions from taxes, made under a policy of public improvement. The central government and the states in the Diaz régime openly declared for this method of development and there was then no local or foreign opinion condemning it.^[1] In spite of the widespread prejudice, which has been aroused in later years against any such contracts, the successors of Diaz have indicated a belief in its wisdom by holding out the same sort of inducements.

The freedom from taxation, which was the sum and substance of the typical concession, was an encouragement given to industry and commerce, a favor granted to persons who would establish new industries in the communities or open up a new national resource. The terms of many of the contracts in the states were long, running up to 25, 30, and even 50 years. In many cases, doubtless, these did represent too liberal a standard. Practically any sort of new enterprise could secure a grant. The list of the concessions in the various states at the end of the Diaz régime included widely contrasted enterprises such as theaters, fishing companies, ice factories, colonization enterprises, refining plants, flour mills, banks, liquor shops, and clothes factories.^[2]

What amount of foreign capital has actually been invested in Mexico it is impossible to determine. Capital is never prone to declare its existence for the making of public records, especially in countries where such records may be made the basis of tax collection or forced loans during periods of revolution. That the valuations in tax assessments are in most countries far below the actual worth of property is notorious and Mexico is no exception. On the other hand, whenever interests claim damages from their own or from foreign governments, they have a tendency to exaggerate the importance of their violated property rights and the degree of persecution endured. To a less extent the same tendency to overstatement is found in the estimates made by those who describe the importance of their co-citizens' interests in foreign lands.

American investments in Mexico are greater than those from any other foreign country. The estimates of their total amount are many. Two coming from consular officers of the United States have a semi-official character. Neither claims to be complete and there are points in which each is subject to criticism for underestimate and overestimate of certain items. That there is less probability of error than in other approximations is indicated by the detailed information they contain.

Consul General Barlow's estimate published by the Bureau of American Republics in 1904-5 indicated that the American money invested in Mexico at the beginning of the century by 1,117 American companies and individuals was about $500,000,000 gold. Practically all of it had been introduced in the previous 25 years and about half of it in the five years preceding the report. The greatest single American interest was the railroads, in which about 70 per cent of the investment was American. Of the railroads, the Mexican Central had the most American capital, followed by the Mexican National. In mining, Americans had invested $80,000,000, in agriculture, $28,000,000. In manufacture, American enterprise had already begun to make investment in sugar refineries in Sinaloa, in various enterprises in the Federal District and in Nuevo Leon, especially at Monterey. All the large smelters were American.

The announced location of American capital in Mexico at this time is unsatisfactory, because the railroad investments are all credited to the city in which their chief offices were located. In Mexico City, thus, there were announced to be American investments valued at $320,800,000 and in Coahuila American properties worth $48,700,000, the greater part in each case representing railroads. Sonora had $37,500,000 worth of American capital invested, of which $27,800,000 was attributed to mining ventures. Of the $31,900,000 in Chihuahua, $21,300,000 was in mining. American capital in Oaxaca totaled $13,600,000 and in Nuevo Leon, $11,400,000.^[3]

Investments continued to be made in Mexico at a very rapid rate during the years following this report. Consul General Marion Letcher reported statistics in 1912, compiled by a mining engineer of long residence in Mexico, that indicated $1,057,770,000 American capital invested in the country. The greatest single American interest continued to be in the railroads, stocks and bonds of which were held to a value of $644,390,000. The estimate of money invested in mines had now risen to $223,000,000, and $15,000,000 or more was credited to each of the following: national bonds, smelters, bank deposits, rubber production, and the oil industry. Obviously, a development of investments on so large a scale was helping with the other changes in local conditions to bind the economic interests of the two countries together very rapidly and was giving an unprecedented stimulus to Mexican life.^[4]

Next in value after American investments this compilation ranked those of British citizens. The total value of these properties was $321,302,800. The chief items were railways, national bonds, and mines. British citizens were stated to be the largest foreign holders of national bonds, timber lands, and tramways. Investments by them, like those by Americans, appear to have been rapidly increasing. It is to be noted that in these estimates the oil properties were still of small value compared to that which they have subsequently reached.

A detailed list of British holdings in Mexico, published in 1919, put the total at more than $500,000,000 American gold. The amounts, in various lines, were approximately as follows: petroleum companies, $120,000,000; mining companies, $85,000,000; light, power, and street railway companies, $145,000,000; divers industries, $40,000,000; and banks, $70,000,000.^[5] In the same year another writer put the total as high as $800,000,000 gold.^[6]

The American authority above cited reported French investments in 1912 as totaling $143,446,000, of which national bonds and bank stocks formed almost two-thirds. Frenchmen were far the most important foreign investors in cotton mills, wholesale stores, and tobacco factories.

In 1914 French residents in Mexico claimed that there were French holdings there amounting to several thousand million francs invested in government obligations, banks, railways, electric transportation, mills, factories, and businesses of every kind. Among the more important French interests were mentioned mines such as Dos Estrellas and El Boleo, industrial establishments such as the Buen Tono, tobacco factory, the chief Orizaba textile mills, and the large French stores in various cities.^[7]

German interest in Mexico began early. In the Maximilian régime a colony of 500 was brought from Schleswig-Holstein to Yucatan but the venture proved a failure. The few who remained in the country were soon absorbed into the local population. The unfortunate results discouraged further colonization en masse but in later years Germans have come individually and have adjusted themselves to Mexican conditions with success. German writers proclaim Mexico as a land well suited for a large immigration. There the colonist lives the national life without losing his love for the fatherland, his principles, and his upbringing. "Wherever in the world there are a hundred Germans, there is also a German school with the task of teaching within its walls the holy love of the fatherland and the fruitful high German kultur." "In traveling through these wide unpopulated districts of Mexico, there unconsciously comes to one the thought of the great density of population at home in Germany, where people are packed like herrings in a cask, and one cannot avoid the desire to take . . . a couple of millions of poor beings to whom light and air are denied over there and . . . put them down in the boundless, fruitful open spaces of Mexico."^[8]

No detailed analysis of German investments in Mexico is available. A writer at the end of the Diaz régime estimated the total working capital invested at the equivalent of $75,000,000.^[9] Germans did not enter largely into the industrial development of Mexico, except in later years in certain mining developments. Mercantile development showed their influence to a greater extent.^[10] German enterprise was represented by a large number of wholesale and retail dealers in hardware, chemicals, and small commodities. The transactions in these lines brought them into closer contact with the Mexican public than any other class of foreigners except the Spaniards. They, like the Spaniards, were not conspicuous as developers of the great natural resources of the country and prejudice against them seems to have been less than against any other foreign element, especially after it became evident that the United States would be drawn into the World War on the side of the Allies. To the Germans, too, the revolution brought less percentage of loss than to the Americans and British. Mercantile stocks can be adjusted to changing political conditions more easily than can public services, mines, and similar enterprises.

What the total amount of foreign capital in Mexico is and what is its relation to the total national wealth must, like the individual items, be matters of estimate. The American consular report of 1912 put the total value of all the enumerated properties at $2,432,000,000 and those of Mexican ownership at $793,187,242. It appears that the comparison must understate the value of Mexican holdings. An article published by a former member of the United States consular service at the close of the revolution makes an estimate of $1,875,000,000 as the total foreign investment divided as follows: American, $665,000,000; British, $670,000,000; French, $285,000,000; German, $75,000,000; and various, $190,000,000.^[11]

Whatever the total, it is natural that foreign countries should be anxious that the rights of their citizens should be given proper protection. It is also natural that Mexico should seek, by all proper means, to create conditions by which she can gradually make herself less dependent on capital from beyond her frontiers. Unfortunately, this desire has not at all times been accompanied by a determination to respect property rights already acquired.

Envy of the position into which the enterprise of the foreigner had carried him was by no means absent, even before the revolution. Mexico has welcomed the foreigner as the means of her salvation but she has been jealous of him also. She has wished to have the country profit by his individual initiative and example but, at the same time, she has wished to minimize his influence in the republic, and, if possible, make him drop his privileges as a foreigner and become subject to Mexican law exclusively. Mexico has welcomed foreign capital also, but she has sought to make it drop its nationality at the border. She has wished to secure its cooperation as capital, not as foreign capital. Toward both capital and the immigrant, in short, she has stood in an equivocal position. She has sought the benefits they could bring without being willing to assume the responsibilities that accompany those benefits. But in the period before the revolution, Mexico realized that to secure foreign cooperation she must forego her prejudices. She failed to denationalize her immigrants. The foreign capital, which entered her great development enterprises, would not give up its right to look to the home country when justice was denied. Later, when capital had undertaken certain important developments and was receiving unusual returns for the unusual risk assumed, there was frequently a feeling that the special privilege granted was too generous or that it was secured from a government under duress or by corrupt means. But in the Diaz régime, though there were protests, the government stood firm for the fulfillment of the engagements made.

With the outbreak of the revolution it is not surprising to find that the new political leaders took advantage of popular discontent with the results of the policy followed by their predecessors, nor is it surprising to find them embarrassed as the revolution comes to a close, when they are now brought to realize that the promises made to their followers may be difficult to fulfill. To declare against the "curse of concessions" and to secure supporters at home and abroad for a campaign to free the country from alleged oppression is easy, but it is difficult to justify the nation in trying to escape from the responsibility of paying for the benefits it secured through the grants against which complaint is made.

In individual cases it is often difficult to determine whether abuses were involved in the original concessions. There are few who would defend them if they are shown to exist. The only regret is that even such cases have become so much a matter of history that effective correction is, as a rule, beyond the powers of the government, whatever its good intent may be. In the great majority of cases, too, the record of the foreign interest is one that shows property rights acquired under the conditions laid down by Mexican law and involving privileges, if at all special, only of a kind that the granting government was not only willing, but anxious, to give. An attack upon property rights of this nature by Mexico can not leave the foreign powers, whose citizens' rights are involved, without concern.

At best foreigners have endured heavy losses during the revolution. No country can suffer from a far-reaching revolutionary activity for a decade without great damage to property rights of all sorts. The government that finally establishes itself assumes, as a matter of course, the duty to pay all proper claims arising out of the hostilities. It is not only this responsibility which is under discussion in connection with the property rights of foreigners in Mexico but the obligation on the part of the republic to adopt toward undestroyed foreign property rights a policy that shall not amount to confiscation, and that shall not be directed against foreign capital merely because it is foreign, irrespective of the conditions under which the interests in question may have joined their lot to that of the republic.

It is the declarations of Mexican leaders and the legislation adopted that seems to offend in this particular that have caused the greatest doubt in the mind of foreigners and their governments as to whether they can count upon justice and the maintenance of standards of international friendship by the governments that claim the fruits of the revolution. President Carranza was quoted as saying: "We wish foreign capital but we will not give one special privilege, not one.^[12] What such declarations mean is not clear, either from the use of such words in the past in the republic nor from the practice of those who now use them. What that characteristic of a privilege is that makes it special, so as to be objectionable, is by no means always easy to determine. It has long been a matter of dispute in the interpretation of constitutions and laws in the United States and elsewhere.

Is a special privilege, as that word is used in discussions of Mexican affairs, one which refers to an exclusive right to certain property? That can hardly be, for upon the basis of individual and corporate ownership of property all modern governments rest. If a privilege as to place is not in essence special and objectionable, is one giving rights not enjoyed by all, over a certain time or in regard to certain property, a special and objectionable privilege? Is exemption from taxation for a certain period, or the grant of public land, as reward for establishing a colony, introducing a new industry, or undertaking a public improvement a special privilege not to be endured? Is freedom to import the materials for constructing a manufacturing plant or a railroad never to be given because it is a special privilege? In the popular sense of the word such grants are undoubtedly special, but that such privileges may operate for the public good has been accepted generally both in and out of Mexico and in Mexico such grants have been enjoyed by both Mexicans and foreigners alike. If such be the privileges, which the government is to bring to an end, and if the policy is to apply only to future developments, foreign capital may be disappointed, but there can be no valid cause of complaint.

But, if Mexico is free to encourage or discourage foreign capital that might enter the country to develop property within it by granting or withholding the special privileges above mentioned, she is not free to adopt any attitude she may wish toward foreign interests already established within her borders. Mexico is not free to denationalize at will the foreign capital which, at her invitation, has crossed her boundaries. She can not captiously modify the contracts which she has herself permitted and encouraged and she can not arbitrarily denationalize her resident foreigners. ^[13]

1. An example of the propagandist literature that has since arisen criticizing the granting of concessions is C. Fornaro (and others), Carranza and Mexico, New York, 1915.
2. A list of the more recent concessions granted in the various states giving their terms is published in Memoria de hacienda y crédito público, correspondiente al año economico de 1 de Julio de 1910 a 30 de Junio de 1911, Mexico, 1912, p. 594.
3. House Document 145, Part V, 58th Congress, 3rd Session (1904-5), International Bureau of the American Republics, Mexico, pp. 257-259, quoting a report by Consul General Barlow.
4. Statistics from Daily Consular and Trade Reports, July 18 1912, p. 316. The estimates are reported to be based on government and state reports, directories of business houses, factories, mines, and smelters, La Mexique, the Mexican year-book, and numerous reviews, encyclopedias, and company reports. The Statist (London), November 29, 1919, gave "a little over 300 millions sterling" as the value of American holdings.
5. Quoted in New York Times, October 26, 1919, from an article originally appearing in El Universal, of Mexico City.
6. South American Journal, September 13, 1919. The Statist (London), November 29, 1919, gives "between 200 and 250 millions sterling" as the amount of British interests.
7. Unnamed Paris correspondent in the Nation, vol. 98, p. 290, March 19, 1914.
8. Erich Gunther, Handbuch von Mexico, Leipzig, 1912.
9. See Karl Sapper, Wirtschaftsgeographie von Mexico, 1908, for a discussion of German interests in Mexico.
10. Anonymous article, "German Efforts in Mexico," World's Work, vol. 35, p. 208, December, 1917.
11. Quoted in the Guaranty News, August 19, 1919, Guaranty Trust Company of New York, from an announcement of July 15, 1919, by the Mexican International Corporation.
12. World's Work, vol. 31, p. 124, 1915.
13. For former attempts, see Papers Relating to the Foreign Relations of the United States, 1883-4, pp. 651-4.