Imperialism can pay

There's a debate out there about imperialism.  Did it pay?  The consensus answer is:  no, it did not.  The British spent far more in defense than they earned from imperial investments; in fact, by the 1880s, the profitability of imperial investments had fallen below domestic and non-imperial ones.  The French believed that their empire after WW2 helped them maintain their balance-of-payments; the numbers don't support that idea either.  The big counterexamples involve the Nazi conquest of France, and the Soviet occupation of Eastern Europe after 1945 ... but after 1970 or so the balance on the Soviet empire hinges on how much you believe control of the Warsaw Pact armies was worth to Moscow.

But there is a case of imperialism paying, and paying quite well:  Panama in 1903. 

Here's the simple story.  A French company, see, had tried and failed to build a canal across Panama.  In 1904, as per the terms of its concession, the assets of that French company would revert to the government of Colombia, which could then sell them to (say) the United States, which wanted to build a canal.  Those assets included a whole lot of big ditches, and a working railroad, and were worth around $40 million — $21.3 billion as an equivalent share of national income today.  So when the U.S. comes sniffing around to strike up a canal agreement, the Colombians rather intelligently decide to stall. 

The shareholders in that French company, though, want a deal quickly.  So does the United States, run by, you know, Teddy Roosevelt.  (Any resemblance to a current postulant for the Oval Office is entirely coincidental.)  Of course, the U.S. isn't a dictatorship, Congress matters, so it kinda helped that the shareholders of that French company had made rather large donations to the GOP and hired all the best lobbyists of the time, including a Brooklynite named William Cromwell.   

So one of the shareholders of the French company cuts a guy named Manuel Amador a personal check for $100,000 in a New York City hotel room ($53 million) to make sure that a revolt gets organized on schedule.  It does, and coincidentally enough American ships are right offshore to make sure that Colombia can't intervene.  The new government then appoints the French dude who cut the personal check to be its foreign minister, and he negotiates a canal treaty with the United States.  When the people in Panama City see the agreement they balk, but their foreign minister (and, uh, the U.S. secretary of state) warn them that if they don't sign then the half-life of their new republic is going to be significantly less than its two-month history, and poof, Panama signs.  Without a Spanish translation.

So far, so sordid, but honestly, that tells you nothing.  After all, there was competition between the Panama and Nicaragua routes.  I don't care that there was skullduggery in the dealings, and I don't care that Colombia got screwed.  What I want to know is whether the U.S. got a better deal because it used military force than it would have gotten in the absence of force.

Fortunately, we have indeed got six existing deals struck with either Colombia or Nicaragua which did not involve force or the threat of force.  (Well, one of them involved the implicit threat of force.)  All of them incorporated the fear of competition from another route.  And all of them gave the owner of the Isthmus a hella lot more squeeze than the deal Panama actually received.

Here's a table showing the net present value of how much less the U.S. would have received under various other agreements compared to the one it foisted on Panama in 1903:

	% of U.S. GDP	2007 dollar equivalent	% of Canal cost	% of Panama GDP
Hay-Herrán treaty	0.07%	$10.1 bn	4.3%	117%
Concha memorandum	0.10%	$13.4 bn	5.7%	155%
MCC-Nicargua contract	0.10%	$13.6 bn	5.8%	157%
French-Colombia concession	0.10%	$13.8 bn	5.8%	159%
Senate counteroffer	0.17%	$22.9 bn	9.7%	265%
Nicaragua-U.S. treaty	0.23%	$31.7 bn	13.4%	366%

So, yes, sometimes imperialism does pay. 

Comments

[Jussi Jalonen]

Noel, the link to the Cambridge Journal doesn't work... and I have a feeling that the link to Liberman's book should actually be in reference to the Nazi conquest of West Europe, not to the Soviet occupation of East Europe?

The numbers that Liberman quotes would seem to support Alan S. Milward's conclusions on the role of Norway among the new satellite economies of the Third Reich. Basically, under the German occupation, the country became a showcase of failed exploitation. There were ambitious plans of long-term industrial investments which presented a short-term net loss and a financial burden on the Third Reich, including the plan to make use of the Norwegian aluminium resources. The wasting of resources was aggravated by the constant turf wars between the central government of the Reich and the local Reichskommissar Terboven, who both had conflicting ideas on how to make use of the Norwegian economic resources.

And, of course, with its long, exposed coastline, Norway became a massive strategic liability for the Third Reich from day one, and even more so after 1942-1943. The unsuccessful raiding of the Murmansk convoys hardly compensated for the necessity to keep the place occupied and maintain first-class troops stationed in the country to ward off a potential Allied landing and the impending Soviet offensive.

... anyway, this has absolutely nothing to do with the Panama Canal, simply something that I remembered after checking the book online. Pardon the digression.

Purely out of curiosity, do you have any corresponding figures of the Suez canal at hand, to see how well Disraeli's financial coup and Gladstone's military investment paid off in the long term? Not to mention what was the cost of Eden's failed adventure when compared to the previous profits from the Canal, as well as any hypothetical future profits?

In short, when comparing the two examples of the Panama canal and the Suez canal, which empire was more cost-effective? Apparently the United States?

Back to the Second World War; interestingly enough, I'm pretty sure that not a single Finnish economic historian has estimated of how well this country managed to exploit the occupied Soviet Karelia after 1941. I suppose that not very well; setting up new, Finnish-language public schools costs money, investments on agriculture cost money, and internment camps also cost a lot of money (aside of being just plain bad PR).

Cheers,

J. J.

[Noel Maurer]

The Liberman book covers both the Nazi and Soviet empires; I decided to link to White et. al., because White's article is better.

Eugene White is a also a great economic historian whose work needs more popular plugs. Not that this forum rates as popular.

As for Suez, that's an article I'd love to co-author. Hint, fellow academic.

[Anonymous]

Let's be clear here Noel. First, imperialism isn't a thing of the past. And, second, the consensus may be that imperialism does not pay when viewed from the vantage point of the nation as a whole, but it does indeed pay for the minority financial interest groups who have undue influence over state policy. There is little doubt about that.

After all, it doesn't take a lot of common sense to figure this out. Why would economic powers engage in imperialism around the globe for literally centuries if it was not paying? It certainly pays for some, even if it creates problems for the imperialist nation as a whole.