The Puerto Rican Businessman: A Study in Cultural Change [Reprint 2016 ed.] 9781512801330

Table of contents :
Acknowledgments
Contents
I. The Problem
II. Aspects of Economic and Business Growth, 1898- 1933
III. Aspects of Economic and Business Growth, 1933- 1955
IV. Elements in Entrepreneurship
V. Entrepreneurship and Type of Activity
VI. Cultural Differentials
VII. Channels for Culture Transfer
VIII. Summary: Factors in Business Change
Appendix A. The Questionnaires
Appendix B. Characteristics of Manufacturers
Notes
Index

Citation preview

The Puerto Rican Businessman A Study in Cultural Change

A Social Science Research Center Study College of the Social Sciences University of Puerto Rico

The Puerto Rican Businessman A Study in Cultural Change by

Thomas C. Cochran University of Pennsylvania

Philadelphia

University of Pennsylvania Press

©

1 9 5 9 BY T H E TRUSTEES OF T H E U N I V E R S I T Y OF

PENNSYLVANIA

PUBLISHED IN GREAT BRITAIN, INDIA, A N D PAKISTAN BY T H E OXFORD U N I V E R S I T Y PRESS LONDON, BOMBAY, AND KARACHI

LIBRARY

OF CONGRESS C A T A L O G U E

CARD N U M B E R :

58-13163

P R I N T E D I N T H E U N I T E D STATES OF A M E R I C A A M E R I C A N B O O K - S T R A T F O R D PRESS, I N C . , N E W YORK

TO ARTHUR H .

COLE

Acknowledgments

This study has been conducted under the auspices of the Social Science Research Center of the University of Puerto Rico. Dr. Millard Hansen, director of the Center, gave his usual penetrating and intelligent help in planning and criticizing the project at various stages. During my academic year of residence at the Center Dr. Luz M. Torruellas Correa, acting director, went beyond the lines of duty in aiding the project. Dr. Hansen, Dr. Torruellas, and staff members of the Center do a great deal to free scholars from the details of administering a project. I wish to thank my chief assistant, Mrs. Francisca Santos Limardo, for her resourcefulness and competence in finding elusive businessmen and conducting interviews in Spanish. Mrs. Doris Gregory and Miss Noemi González also gave able assistance in research. Mrs. Rosamond B. Cochran, as usual, helped me throughout the project and should be included in the editorial "we." In addition to financial aid from the Research Center we received a grant from the American Philosophical Society and research leave from the University of Pennsylvania. More than a hundred Puerto Rican and mainland businessmen submitted to one or more interviews, usually lasting an hour. They displayed more graciousness and general interest in the project than we have found under similar circumstances in the United States. I will not attempt to list each of these friendly cooperators, but rest with thanking them as a group. 7

8

Acknowledgments

We called upon a few Puerto Ricans for active help in planning, execution, and criticism. In this connection I want to thank particularly Dr. Carmen de Alvarado, Francisco Besosa, José A. Francheschini, Francisco Freiria, and Waldemar Lee. Juan Mari Ramos made available his considerable file of business correspondence reaching back to the nineteenth century and spent much time instructing us regarding all phases of the coffee industry. Mr. and Mrs. Waldemar Lee provided autobiographies of their respective fathers, Alfred E. Lee and Dr. Bailey K. Ashford. Professor Thomas G. Mathews of the University of Puerto Rico allowed us to examine his valuable notes on political correspondence in the nineteen-thirties, and generally facilitated our research in Mayaguez. Two resident North Americans, Joseph Borst and W. F. Ransom, and a Puerto Rican of wide experience, Antonio de Alvardo, gave us many insights of the nature of local life and business operations. The staff of the Development Bank, Fomento, and the Planning Board contributed all possible aid. The ofBces of the Bank and of the Economic Development Administration became secondary centers for the project. As in the case of Puerto Rican businessmen, we are obligated to too many people to do more than thank them as a group. But because of the information gradually accumulated through years of friendship and in some cases detailed criticism of the manuscript I wish especially to thank John de Beers, Leonard Fishman, Alexander Firfer, Alvin Mayne, and Leo Suslow. Dr. Oliver Wendell Holmes and other members of the staff of the National Archives in Washington made research in the government records of Puerto Rico a pleasant task. There is material in the Archives for a detailed economic history of the Island. A group of scholars connected with the study of Puerto

Acknowledgments

9

Rico or of economic development in general were asked to read the manuscript, and I wish to thank Dr. Theodore Brameld, Dr. Leland H. Jenks, Dr. Reuben Hill, Dr. Simon Kuznets, Dr. Carlos Juan Lastra, Dr. Lloyd Rogler, Dr. Simon Rottenberg, Dr. Jaime Torro Calder, Dr. Howard Stanton, and Dr. Henry Wells, in addition to those readers mentioned before, for their valuable criticisms. Finally I want to thank Dr. Arthur H. Cole for directing my interest to this field, and his criticism and assistance over many years of entrepreneurial research. T H O M A S C . COCHRAN

Contents Acknowledgments I. The Problem II. Aspects of Economic and Business Growth, 18981933

7 15 20

III. Aspects of Economic and Business Growth, 19331955 IV. Elements in Entrepreneurship V. Entrepreneurship and Type of Activity VI. Cultural Differentials VII. Channels for Culture Transfer VIII. Summary: Factors in Business Change

43 70 92 117 133 149

Appendix A. The Questionnaires

167

Appendix B. Characteristics of Manufacturers

175

Notes

183

Index

191

The Puerto Rican Businessman A Study in Cultural Change

I The Problem How have the institutions and activities of business as conducted by Puerto Ricans changed over the years since 1898? This is the basic question explored. Examined in more detail it involves the usual problems as to influences in economic development. Changes in business life and changes in economic activity are closely and functionally related. Puerto Rico in 1898 was an economically underdeveloped area. The connections established with the United States were quite similar to those associated with colonial status in general. Not until the mid-nineteen-thirties did Puerto Rico begin to deviate from the colonial pattern of gradual development, and only since the beginning of World War II has the deviation been striking. Defining the long-run factors in the situation, therefore, involves hypotheses or assumptions regarding the process of economic development that should be applicable to other areas. Since the present study is historically oriented to Puerto Rican businessmen, attention has not been focused on the problems of enterprises owned and operated by men from the mainland. Such firms have only been numerous since the beginning of tax exemption, following World War II, and their operations involve the characteristics of mainland rather than Puerto Rican entrepreneurship. The influence of continental entrepreneurs on Puerto Ricans and that of 15

16

T h e Puerto Rican Businessman

government programs in general, however, has been investigated. The study also eschews any explicit attempt to determine what changes have been good or bad for Puerto Rican life in the larger sense. Economic efficiency may at times have come at the expense of social efficiency or the good life, but the focus here is exclusively on business processes. The factors bearing on any type of social development are practically limitless. There are the influences of geography, c limate, linguistic barriers, child training, demographic patterns, and so on ad infinitum. But for the sake of an analysis that will reduce the variables to manageable number the forces operating in United States-Puerto Rican relationships may be divided into two major clusters. The physical situation, including geographic, demographic, and technological factors is one such cluster. The culture of the area is a second complex of variables. In the case of Puerto Rico the external cultural influence of the United States is of special importance. Within the Puerto Rican culture this study is particularly directed to the patterns of business enterprise or entrepreneurship. Such general factors are obvious and should cause little argument among social scientists; the real problems arise in defining the exact elements in the different clusters and assigning them relative degrees of importance. Furthermore, there is a qualitative difference between the first group, the aspects of the physical situation, and the second, related to the culture. Factors such as geography, climate, costs of transportation, and the location of population and economic activity are all measurable physical realities, the character of which can be established beyond argument. Analysis of cultural factors, however, involves intangible psychological elements that can only be inferred.

The Problem

17

It is not surprising, therefore, that economists have tended to examine in detail the measurable, tangible elements in economic development, and to relegate the intangibles to more generalized categories such as "static" culture, lack of entrepreneurship, or poor communications with more advanced areas. This is not because economists have not recognized the force of intangible cultural factors. Professors Williamson and Buttrick, for example, say that the determinants of economic growth may be "grouped in a variety of ways, providing any such listing is comprehensive in its coverage. . . . In the present volume, these determinants or factors have been grouped into three broad categories of resources, institutions and culture." 1 Professor S. H. Frankel notes, however, the students of economic development "tend to speak of 'the social consequences of technical change' and not of 'technical change as a social consequence'. . . . It shows that we have formed the habit of regarding technical change in mechanistic terms. . . . " 2 In other words, economists are inclined to treat technological change as an independent variable. A major difficulty lies in finding methods of analysis for social institutions and for culture that may be combined with those used for the traditional economic factors. No systematic effort has been made to relate cultural and institutional factors in a causal way to the known characteristics of economic development. The present study has no answer for this problem, but more specific placing of social and cultural factors in the main trends and events of Puerto Rican economic history since 1898 should help to define the problem.3 The data of this study come from systematic interviews with forty older business leaders selected for their knowledge of the history of business in the Island, thirty younger

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The Puerto Rican Businessman

entrepreneurs from the most important types of manufacturing who started in business after 1940, and the usual type of statistics, published and manuscript records, and secondary accounts covering the period of American control. The panel of forty was made up of owner-managers in relatively large enterprises, most of them with over a hundred employees, and in a few cases managers in associated family enterprises with over five hundred employees. In comparison in the panel of thirty only two firms were at the one hundred level and nineteen had between ten and fifty employees. A background for comparative purposes on entrepreneurial activities in the United States comes from similar interviews with thirty-seven manufacturers in an eastern city of about fifty thousand population, and with a panel of about seventy businessmen selected for diversity in activity and size in eight major cities in relatively new or underdeveloped areas of the United States. 4 The Puerto Rican questionnaires were filled in from conversational interviews. The questions asked varied slightly for different types and ages of enterprise, but all covered origins of the firm, origins and character of mainland contacts, management practices with an emphasis on communication, employee relations, marketing, government and public relations, and information on the life history of the respondent. In general, cultural characteristics were deduced from the answers to factual questions rather than inquired about directly. In interpreting the answers United States practices have been used as an admittedly inexact basis for comparison. The inexactness arises from the facts that comparable business activities on the continent are carried on by firms considerably larger than those in the Island, operating at a later stage of economic development.

The Problem

19

Furthermore, the relevant characteristics of United States culture have not been properly analyzed from empirical evidence. In other words, a quite usual situation exists—intensive research in the smaller test area by many scholars has supplied rather better information than exists for the larger "control" area. If hypotheses regarding cultural differences had to rest on subtle shadings in attitudes this lack of congruity would be serious. If, for example, a similar study were to be made of Great Britain in comparison with the United States, extensive new research would have to be carried on in both countries. But fortunately, informed observers agree that certain major differences between the United States and Puerto Rico appear highly probable. The Spanish type of culture as inherited and modified by Puerto Ricans stood in 1900 close to a polar extreme among Western European cultures from that of the United States. From this combination of interviews and the use of various kinds of written records, it has been possible to formulate several hypotheses regarding the comparative character of North American and Puerto Rican entrepreneurship, the modes of transference of attitudes and behavior from one culture to the other, and the relation of cultural differences to the institutions of business.

II Aspects of Economic and Business Growth, 1898-1933 Although the new evidence of this study has mainly to do with entrepreneurship in relation to change, it is necessary to sketch briefly some general aspects of Puerto Rican history that determined the environment for entrepreneurial activity. PHYSICAL FACTORS

Puerto Rico is an island in the Greater Antilles about one thousand miles southeast of the Florida coast. The equatorial current and the tropical latitude create an unusually even climate the year around, ranging on the seacoast from winter night minimums around 70° to summer day maximums in the upper eighties. Of the roughly two million one hundred thousand acres of land about one-third is too arid or too mountainous to encourage cultivation. The north coast receives abundant and fairly evenly spaced rainfall, but mountains running throughout the center of the Island produce increasing aridity as one moves westward along the south coast. Finally, in the southwest corner of the Island, where the highest peaks have cut off the rain-carrying easterly winds, hibiscus and bougainvillea give way to wiry grass and cactus. In all parts of the southern coastal plain cane 20

Aspects of Economic and Business Growth, 1898-1933

21

fields require irrigation. As a whole, the Island's soil is fair to good, and in properly selected areas almost all tropical crops can be grown commercially. The population in 1899 was 953,000 with an annual rate of increase above 1.5 per cent. By 1930 population had grown to 1,544,000, a density of more than one person for each acre of improved land. In this latter year, of five cities with over ten thousand people the three largest, San Juan, Ponce, and Mayaguez had a combined population of over two hundred thousand. In an island only one hundred miles long and thirty-five miles wide all distances are short, but narrow coastal plains and the mountainous interior have made inland transportation extremely difficult. By airline San Juan and Ponce are only fifty miles apart, but the roads over the mountains were impassable for heavy trucks until after World War II and the railroad, built during the first two decades of the century, ran around the circumference of the Island. As a result, until recent years the two cities were in time and cost about as far apart as Philadelphia and Pittsburgh. Transportation to and from the Island has been provided by several steamship companies. By the twenties they provided good, although somewhat expensive, passenger and freight service from Baltimore, New York, and Philadelphia to the three largest Puerto Rican cities. Express service with the mainland, organized soon after 1900. facilitated inland collection and delivery of goods at both ends of the voyage. Aside from a lack of known mineral resources of commercial value, the early twentieth-century relationships of Puerto Rico and the United States seemed as favorable for economic exploitation by the more materially advanced state as could be found anywhere in the tropics.

22

The Puerto Rican Businessman CHANGING TRADE RELATIONS

The American occupation had many economic consequences. The introduction of American medical aid, especially Dr. Bailey K. Ashford's campaign against parasites that were entering the systems of barefooted Puerto Ricans and undermining their vigor, added greatly to the productivity of workers. North American capital reorganized sugar production. But the most immediate and obvious economic effect of American occupation and rule came in trade relations. The rapid shift in trade from Spain to North America was highly advantageous to Puerto Rico. Inclusion of the Island within the United States tariff system by presidential proclamation, July 25, 1901, opened a great protected market for sugar and other Puerto Rican products. In the next thirty years real per capita exports, of which sugar continued to make up about 30 per cent, increased more than five-fold. Coffee, the most important export crop in Spanish times, had dropped to 20 per cent of the total value in 1901, and to 2.5 per cent by 1928, while tobacco, an export of minor importance in 1901, grew even faster than sugar to make up 17 per cent of the 1928 total.1 Although coffee continued to be exported to Europe, sugar and tobacco found their market in the States. This shift in destination of the two chief exports gradually led to direct purchase from Puerto Rican processors by New York brokers. Consequently the export business of the island merchants, who had previously handled both coffee and sugar, dwindled while in some products their importing business greatly increased. The source of imports changed even more rapidly than the destination of exports. By fiscal 1901, which ended before the inclusion of Puerto Rico in the United States tariff sys-

Aspects of Economic and Business Growth, 1898-1933

23

tem, the new parent country was supplying 78 per cent of the value of imports, while Spain contributed only 9 per cent, and all the rest of Europe an equal amount. By 1914 the United States share had risen to 90 per cent and the Spanish share had fallen to 2 per cent. The increase in the total value of Puerto Rican imports, however, was so great during these years that Spanish imports remained about the same in dollar value. Along with changes in the source came changes in the types of goods. Spain was an agricultural country with a marketing system like that of Puerto Rico. Rice, peas, beans, and other foods had been bought in Spain in bulk without brand names or labels. In the United States the growth of cities and industrial machinery led to canned and other kinds of packaged foods and the advertising of special brands. By the early twentieth century the United States was moving rapidly toward use of packaged and labeled food products put out by big processors. Adjustment of the Puerto Rican food merchants to exclusive distributorships of United States branded goods pushed by advertising and salesmanship was a major change of the period up to 1929. During the same period machinery from the United States for construction, food processing, and transportation came in sufficient quantities to lead to specialization of some merchants in the importation of machinery and hardware, and the dropping of these lines by all but a few food and raw material importers. In the twenties a few of the largest of the hardware and machinery importers spread into manufacturing activities such as sugar machinery, and fertilizers. Meanwhile all the non-food importers faced an increasing competition from manufacturers' agents selling from catalogues, as well as from direct branches of United States concerns. By 1922 there were 107 foreign corporations doing

24

The Puerto Rican Businessman

business in Puerto Rico, chiefly through agents from North America. Among these companies one was Canadian, one Cuban, one English, and one Spanish, the rest were from the United States. 2 In food, however, direct foreign branch operations were confined to meat. 3 Relative freedom from this kind of competition plus the fact that Puerto Rico continued to import a large part of its food gave the general food merchants a key position in the economy. When United States food producers first sent agents to Puerto Rico looking for enterprising distributors they found the biggest houses with the most salesmen and the most familiarity with ways of doing business on the mainland already located in San Juan. It followed that the large San Juan merchants secured the exclusive distributorships for the Island and thus grew still larger, and became more and more familiar with the practices of the North American market. While at the same time their sales efforts were oriented toward the whole Island rather than a limited area. SUGAR CENTRALS

Changes in trade practices had had to overcome the inertia of four hundred years of habitual ways of doing business. But in factory industry Puerto Rico in 1898 was a virtually undeveloped country. With the exception of three or four sugar centrals existing repair shops, mills, and textile establishments were on the handicraft level with small numbers of employees and few machines of any kind. Factory industry, therefore, meant introducing new ways of life. It may be easier to introduce new practices than to remodel old ones, but the early stages of the process are bound to be uncertain and experimental. Furthermore, administrative attitudes formed by other pursuits such as trade or agriculture are necessarily carried over into industry. From

Aspects of Economic and Business Growth, 1 8 9 8 - 1 9 3 3

25

this standpoint it is significant that the first large scale mechanization in Puerto Rico occurred in sugar processing which was closely linked to agriculture in ownership and management. Many of the new centrals were controlled by the same families that had formerly produced sugar in small mills on their haciendas. The Puerto Rican sugar industry was faring badly at the close of the Spanish regime. The crisis of the nineties came from a combination of adverse tariff policies in Spain and the United States, and the perpetuation of crude plantation milling after competing areas had changed to highly mechanized centrals. Muscovado sugar, representing a low level of extraction, was produced on hundreds of plantations in wooden mills sometimes turned by oxen. Such methods could not compete with Cuban or British West Indian central factories with centrifugal separators and vacuum evaporators. Puerto Ricans had either to build modern centrals or give up sugar export. Had the Island remained Spanish the issue might have been uncertain. For twenty years schemes for raising capital to build centrals of even three hundred to four hundred tons a day grinding capacity had been promoted, but only a few groups had succeeded in finding the necessary money. Both Spain and the United States had turned in the late nineteenth century to protecting domestic cane and beet sugar. Investors doubted that Puerto Rican sugar could be produced cheaply enough to compete across these tariff barriers. Annexation to the United States removed this doubt. Counting on tariff concessions, even before the presidential tariff proclamation of 1901, two North American companies were organized. The first resulted from an adventure in private banking by four Bostonians. In Puerto Rico they

26

The Puerto Rican Businessman

established De Ford and Company in October of 1898, and the following February the firm invested in the Aguirre Estate on Jobos Bay. This was followed bv the purchase of additional sugar acreage and the formation, in July, 1899, of the Central Aguirre Syndicate with an initial capital of $525,000. 4 Nineteen-hundred was the first year of largescale operation. In November of that year New York interests formed the South Porto Rico Sugar Company, a NewJersey Corporation, that was capitalized for five million dollars by the time its big mill at Guanica started grinding in 1903. A third continental firm, the Fajardo Sugar Company, was incorporated in New York in 1905 with two million dollars in capital. In 1907 it set up the Loiza Sugar Company in Puerto Rico. Meanwhile, the Aguirre Company had become a Massachusetts trust with two million dollars in capital. No other continental sugar interests entered the Island until 1926 when the United Puerto Rican Sugar Company, later the Eastern Sugar Associates, was organized. 5 Meanwhile a joint resolution of Congress in 1900, generally referred to as the Organic Act, had included a clause that no corporation or partnership was to be permitted to own or control over five hundred acres of Puerto Rican land. Ostensibly a liberal agrarian measure, it has been charged that the mainland beet sugar interests had this inserted to hamper Puerto Rican cane production. 8 At all events, the clause had no provision for enforcement, and remained a dead letter until the late nineteen-thirties. Within the first decade of American rule some ten million dollars of continental capital had been invested in sugar lands and mills. This massive investment not only provided Puerto Rican mill operators with models of the best practices derived from Hawaii and Louisiana but also put liquid capital in the hands of local landowners who could invest it in

Aspects of Economic and Business Growth, 1898-1933

27

centrals. Although Puerto Rican and Spanish investors did not raise the capital necessary to operate on the scale of the American centrals they erected many new mills and by reinvesting profits expanded older ones.7 At the end of the first decade of the new century the geographical pattern of centrals was virtually complete. The main sugar lands extended around the coasts of the Island. The three early continental companies occupied positions on the south and east coasts. Cultivation reached into the interior along rivers such as the Rio Grande de Loiza with its numerous tributaries at the eastern end, and the Rio Grande de Arecibo in the middle of the Island. The fourth continental company, put together in 1926. acquired two centrals in the relatively broad valleys of the upper Loiza river system, one further south at Cayey, and one on the east coast. But some sugar was grown in almost every region. Small centrals surrounded by mountains ground cane in the highest valleys. TABLE I · Year

Establishments

1909

46 centrals 95 plantations and small mills 46 centrals 69 plantations and small mills 55 centrals 19 small mills 42 centrals

1912

1919 1930

Tons Produced.

270,700 6,395 367,880 3,196 406,135 negligible 872,326

" Reproduced in translation from F. A. López Domínguez, Evolucion del Molino Azucarero en Puerto Rico," Revista del Cafe, Diciembre, 1946, p. 153.

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The Puerto Rican Businessman

Except for a temporary increase during the sugar boom of World War I the number of centrals changed little before the middle thirties. Table I shows both the increasing productivity of the individual centrals and the dying out of plantation and small mill production. SUGAR IN T H E E C O N O M Y

This change from production of some sugar on nearly selfsufficient haciendas to concentration on sugar raising on most of the best land, with processing in factory-like centrals, revolutionized the Island's economy. Agricultural selfsufficiency declined and food imports increased. Cane cutting ceased being just one of many jobs for general workers on patriarchal plantations and became the basis for an impersonal wage system with an increasing division of labor among specialized activities. The narrow-gauge railroad that through World War II provided the Island's chief transportation system was designed to transport sugar and was largely owned by the centrals. Later highway improvement was closely related to the trucking of sugar. Banking expanded to finance cane cutting, processing, and shipment. For the first four decades of the twentieth century Puerto Rico became primarily a sugar economy. More than in most other food processing the success of the business of a sugar mill depended directly upon the efficiency of suppliers. Cut cane is bulky and deteriorates rapidly from standing. Consequently, cutting, transport, and grinding had to be carefully synchronized. The profitability of operation also depended on the amount of sugar in the cane juice that came from the mill. Here again profit was partly dependent on the efficiency of the cane growers. In order to provide an incentive for good cultivation the centrals finally adopted the system of paying for the cane on

Aspects of Economic and Business Growth, 1 8 9 8 - 1 9 3 3

29

the basis of the average sucrose content of the juice and the New York market price of sugar. While an incentive to the suppliers as a group, this arrangement could not reward extra efficiency in the individual grower. The arrangement that worked best economically, both in Puerto Rico and elsewhere, was ownership or lease of the crop land by the central. Crop maturities, fertilization, experimentations with new varieties of cane, and replanting could then be controlled by the mill to produce maximum efficiency. Studies made in 1913-1914 and in 1927-1928 both indicated from ten to forty per cent higher yields of cane on land operated by the mill, called administration land.8 The United States companies, after buying and leasing enough land to supply most of their cane, were able to play a leading part in the improvement of yields. Some research was carried on jointly by the agricultural experiment station of the University of Puerto Rico at Mayaguez and the sugar companies who used their lands for experiment. By 1925 a cane was developed in Barbadoes that would resist the mosaic disease that had been making severe inroads on recent crops. The cumulative increase in tonnage per acre from all forms of experimentation was striking. Three of the large companies reported an average increase from twenty-four tons per acre in 1914-1917 to forty-one tons for 1931-35, a fourth company from twenty-seven to fifty-two tons for the same period.9 Each ton of cane also came to yield substantially more sugar. Purchase of land required large amounts of capital, however, and many locally-owned mills had to secure their cane from hundreds of growers, called colonos, who entered into contracts with the central. It was difficult to get the small individual growers, many of whom had little education, to

30

The Puerto Rican Businessman

adopt new methods or to experiment with new varieties of cane. The twenties were a period of great prosperity for Puerto Rican sugar. In 1920 the average price of sugar in New York was three and a half times the 1913 level, and Puerto Rican companies made enormous profits.10 Even with a return of sugar in the last half of the twenties to about 20 per cent above the average price levels of 1910-1914, the improvements in field and mill more than compensated for low prices. In 1909-1910, eighty-eight thousand field workers using 179,000 acres of land produced 347.000 tons of sugar. In 1927-1928, ninety thousand field workers took care of the crop from 237,000 acres, and produced 751,000 tons of sugar. From the early days on there appear to have been wide differences in the efficiency of centrals. A study in 1927-1928 showed manufacturing costs taken from a group of nine centrals to vary from $5.08 to $16.68 per ton.11 In the twenties the problem of survival was not pressing. The best managed organizations earned profits as high as 18 per cent, and even inefficient mills operated in the black. But good times came to an end in September of 1928 when the hurricane San Felipe, the most severe since San Ciriaco in 1899, devastated the coffee areas and ruined much of the sugar crop. By the time sugar production had been restored to normal, depression had set in and with it came a new set of problems for the industry. By the end of the twenties harvesting and processing the sugar crop at the height of the season required over 125,000 men out of an employed labor force of 500,000. 12 During the cutting and grinding season 90 per cent of the labor was employed in the fields and only 10 per cent in the mills. Nevertheless sugar mill labor accounted for over 40 per cent

Aspects of Economic and Business Growth, 1898-1933

31

of industrial employment. Since about 60 per cent of the cane ground came from company properties, the sugar business, at this time, should be seen more as one of agricultural administration than of mill management. Money for planting and cultivation was supplied to colonos by the centrals with which they had contracts at rates of around 8 to 10 per cent, or directly by certain local banks at about the same interest. The centrals, in turn, borrowed from United States or local banks at 6 to 8 per cent on 180day notes. Up to the thirties sugar financing was the principal basis for expanding the banking system. Of the forty-three centrals of the mid-thirties the four continental companies controlled eleven, three Puerto Rican family groups owned two mills each, and half a dozen northcoast mills, the so-called Spanish group, had interlocking directorates.13 The remaining twenty centrals were individual enterprises usually controlled by a single Puerto Rican family. All but five of the sugar firms were corporations. GENERAL MANUFACTURING

Experiments in general manufacturing in Puerto Rico continually ran up against smallness of the local market in both size and purchasing power. Production for the mainland market was hampered not only by lack of adequate knowledge and communication but also by the limited supply of local materials. In the twenties, for example, a group planned to make matting and other fibre products from coconuts. But, after investing in their equipment, they discovered that Puerto Rico did not produce enough coconuts to keep the machinery in use more than a couple of months a year.14 A survey at the end of World War I showed sugar mills and tobacco processing plants the only types of industry employing over a thousand workers.15

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The Puerto Rican Businessman

The relatively slight development of industry was an object of concern to those in charge of Puerto Rican administration in the War Department. "What is more needed in Puerto Rico," wrote Newton D. Baker, Wilson's Secretary of War, "are industries which would give employment." 1 6 Speakers from the local Bureau of Agriculture and Labor gave lectures in shops and public halls on the need for more industrial occupations. One hundred and sixty-one such lectures were given in the fiscal year 1927-1928. 1 7 The Governor's message continually struck the same note. In his report for 1928, at the peak of prosperity in the Island, Governor Towner said: "Puerto Rico needs additional industries to create enough demand for labor to eliminate unemployment. Every effort should be made to secure new industries." 18 Aside from the inevitable disadvantages of a small island and the normal timidity of investors regarding manufacturing commitments in new areas, observable even in Texas, the language barrier, illiteracy among the older people, and poor Island transportation continued to be deterrents to development. In 1922 the Puerto Rican Commissioner of Agriculture and Labor reported that the "entire want of proper and adequate means of communication such as municipal and vecinal roads . . . is in a great way responsible for present market conditions." 18 Cigar and cigarette making had shown early promise, although only as an absentee-owned industry Shortly after the beginning of the United States regime, American Tobacco Company set up a Puerto Rican subsidiary that gradually bought up native cigar and cigarette "factories." Alongside the big company operations, small jobbers came down from the United States, had orders made up by homework, and took them back personally. By 1909 these activities

Aspects of Economic and Business Growth, 1 8 9 8 - 1 9 3 3

33

busied seventy-five hundred workers, almost as many as the yearly average in the sugar mills.-0 This was a high point. The increasing mechanization of cigar and cigarette making made small Puerto Rican factories obsolete. A growing preference in the States markets for light wrapper cigars also made the pure Puerto Rican product less popular.21 As a result, while leaf tobacco exports increased, the processing business, except for the simple operation of stemming, dwindled away. The removal of operations from the Island was particularly rapid from 1925 to 1929. Ten years later only five hundred workers were annually employed in tobacco processing, and the value added by manufacture of cigars and cigarettes was negligible. 22 Aside from sugar milling, needlework was the only industry continuously important from World War I until midcentury. Training in fine needlework, often by Catholic nuns, was part of the education of girls from all classes in the Spanish period. In rhe beginning hand needlework appeared in retail stores on collars, cuffs, and handkerchiefs. After 1898 American makers of linens and women and children's clothing sent agents to Puerto Rico who contracted with home workers or their representatives for embroidery and other hand sewing. World War I raised prices in the United States and reduced the competition of hand embroidery from Europe and Asia. More firms now turned for handwork to Puerto Rico, and local entrepreneurs by 1915 entered into contracts by which the mainland firms sent cloth and designs by the Porto Rico Express Company and received in return hand sewn parts or finished articles. 23 More firms came in the following years. By the end of World War I the contracting business was

34

The Puerto Rican Businessman

well established. In Mayaguez there were over thirty contractors, and in Ponce and San Juan about as many more. Some of the primary contractors worked through subcontractors who distributed and collected work by wagon or automobile, often taking not only their commission but also part of the money allotted to them for the girl's wages. 24 There were also large numbers of needleworkers who came directly to the factory for their bundles of work. The return of peacetime competition and the depression of 1920-1922 put a severe strain on the Puerto Rican apparel exporters. Continental blouse manufacturers left the Island, and many of the three or four score of local firms that had started after 1914 were in trouble. To improve the situation the contractors sought to improve quality Puerto Rican girls were taught to imitate the fine stitching done in France, Belgium, and Ireland. High level prosperity in the States in the middle and late twenties also aided in the return of better times for Puerto Rican contractors. Exports of needlework reached a high point of fifteen million dollars in 1929. Although this figure was not exceeded for the next seven years, needlework joined sugar as a stabilizing agent during the depression. The annual average of needlework exports from 1925 through 1929 was only $9,400,000, whereas the average from 1930 through 1935 was $13,400,000. The worst depression year, 1932, had exports worth more than any year before 1929, although the fall in prices resulted in lower profits. In San Juan and Mayaguez, some firms had gone into the manufacture of finished clothing for the local market. Here again the inflation of World War I which raised wage rates on the mainland more rapidly than on the Island was a stimulant. Puerto Rican wholesalers and retailers of United States clothing found it profitable to do some manufacturing

Aspects of Economic and Business Growth, 1 8 9 8 - 1 9 3 3

35

on the side, and ultimately to concentrate their efforts on making special types of garments. Only two or three firms were in any single line such as work pants or men's linen suits. On this basis there was relatively little local competition. The chief pressure on prices came from cheap garments or "seconds" from the mainland. Mayaguez remained the center of the needlework industry. Since the industry had originally located there, new firms were more certain of securing plenty of skilled needleworkers around Mayaguez than elsewhere in the Island. The fact that more women would reliably come in person to the plant to pick up work diminished the reliance on subcontractors. In contrast the men's clothing industry for the Puerto Rican or Caribbean market was centered in San Juan. By 1920 this city had become the best location for dealing with the wholesalers and retailers of the Island. The growing metropolitan market alone offered a considerable part of the Island business in readymade clothing, and San Juan manufacturers could usually secure bank credit more readily than those located elsewhere. Textile manufacture of some sort had marked the initial phase of the industrial revolution throughout the western world. Because of close relations with a developed mainland industry spinning and weaving never developed in Puerto Rico. Early manufacture was directed to hand finishing to meet an established mainland demand. Because most of the work was put out, little capital was needed for factories and machines. The door was open to any entrepreneur who could establish United States connections, and the threshold was low. The manufacture of pants, shirts, and blouses grew rapidly as a sideline to retail or wholesale trade in clothing. Here the transfer of capital from commerce to industry could be

36

The Puerto Rican Businessman

gradual—a new room and a few sewing machines at a time. AD of this furnishing of apparel was built upon cloth, thread, and machines imported from the mainland and in some cases partly financed by the exporters. Frequent steamship service, a reliable express company, no tariff duties, cheap postage, and relatively low cable rates were all essential parts of the marketing arrangements. CAPITAL FOR DEVELOPMENT

Banking policies could affect all other forms of business. Aggressive bankers, for example, were in a large part responsible for bringing the automobile industry to Detroit and chemical manufacturing to Houston, Texas. By 1900 Puerto Rico had local bankers who were active in the older lines of financing, but their resources were small and new opportunities appeared to be limited. Half a dozen banks had started in the last two decades of the Spanish regime. The largest was the Spanish-owned Banco Español de Puerto Rico which had the exclusive right to issue bank notes. The next largest was Banco Territorial y Agricola de Puerto Rico. Among the four others were Banco Popular of San Juan, Crédito y Ahorro de Ponceño of Ponce, and Banco de Economías y Préstamos of San Germán, the only banks that would survive until mid-century. All of the banks had been organized by merchants, millers, or planters interested in the coffee or sugar trade. The six banks had a total capital of only $1,116,000 in 1898 and deposits of only $1,838,000.25 The national banks of the United States were forbidden by law to establish branches, but in 1899 the American Colonial Bank, a West Virginia corporation, promoted by a German-controlled investment house in New York, brought closer relations with the mainland money market. Tempted by the relative lack of United States banking competition

Aspects of Economic and Business Growth, 1898-1933

37

and the considerable Canadian trade, particularly in codfish, the Rovai Bank of Canada opened a branch in San Juan in 1907, followed three years later by the Bank of Nova Scotia. The Federal Reserve Act of 1914 permitted the establishment of branches by national banks. The National City Bank came to San Juan in 1918, but was not joined by any other United States bank until 1933 when the Chase Bank opened a branch. The American Colonial Bank, taking an active part in sugar and other kinds of financing, operated somewhat like the local institutions. Two of the branches of continental banks limited themselves chiefly to financing import and export trade and facilitating payments. The other extended agricultural credit, but only for sugar. Therefore the bank credit available for long-term purposes was largely limited to local resources, and very little of this small pool could be tapped for general manufacturing risks. In addition to the banks there were a large number of private lenders. As in other underdeveloped areas merchants and landowners were inclined to lend on good security rather than make investments in equities. By 1912 the Treasurer of Puerto Rico estimated that loans by these private lenders were as large as all bank deposits.2® Another source of credit was advances from the United States either as direct loans to large firms or indirectly as loans to local banks. The Brookings report, prepared in 1929 says: "While the data with reference to the extent of such financing are not precise we estimate that between 25 per cent to 35 per cent of all credit extended in Porto Rico is thus obtained abroad. In sugar and tobacco it would probably be as much as onethird of the total, and in power and light and manufacturing activities much the greater part is obtained abroad." 27 Thus New York brokers were in some cases direct competitors of

38

The Puerto Rican Businessman

the Puerto Rican banks in financing the processing and movement of staple crops. By the late twenties there were fourteen local banks. Three of these, founded between 1917 and 1922, together with three of the older banks, survived the depression and were among the seven operating in 1955. The first of the newer group originated in political differences among the directors of the Banco de Economías y Préstamos in San Germán. The disputes led in 1917 to the incorporation of the Banco San Germán in this small city. Although the depression nearly ended one of these small competitors, they both have continued to live on the regional financing in personal loans, coffee, and sugar. The Banco de Ponce was also started in 1917 when increasing sugar financing and the war boom led Pedro Juan Rosaly and a group of local merchants to organize another bank. Conservatively managed, the Banco de Ponce came to be one of the big three of the Island. In contrast the Roig Commercial Bank of Humacao, founded in 1922, was a response to lack of banking facilities in that part of the Island. Money for payrolls had to be secured in San Juan. Antonio Roig, who had come to own Central Ejemplo and sugar lands near Humacao in 1898, invited a group of local businessmen to join him in opening a bank. In 1955 the Roig bank was the largest of the four small banks. 28 By June 30, 1930, the total commercial banking resources of the Island came to eighty-two million dollars. Of this sum a little over half was in the hands of the National City Bank of New York, The Royal Bank of Canada, and the Bank of Nova Scotia. Interest rates on loans varied from 10 per cent on those under two thousand dollars to 8 per cent on those over sixty thousand dollars.29 The Brookings Survey reported that of the eleven million dollars in banking capital about

Aspects of Economic and Business Growth, 1898-1933

39

60 per cent was held abroad, including 26 per cent of the capital of the banks managed by Puerto Ricans. 30 The two types of banks, mainland and local, continued to form two banking communities, the first inclined to be conservative and uncommitted to local enthusiasms; the second, venturesome in the traditional fields of sugar and loans to individuals secured by real estate, loosely managed in the rapidly growing San Juan area, at least, and greatly influenced by the personal and family interests of local officers and directors. A federal report was made in 1917 on the condition of the leading local institution, the Banco Comercial de Puerto Rico, the name adopted by the Banco Español when its original charter expired in 1913. The report stated that some notes were overdue but were carried along for the full amount, some mortgaged property was not insured, or, if insured, was not assigned to the bank, and the general ledge did not contain certain special accounts.* 1 American Colonial, 35 per cent of whose stock was owned outside the Island, fell between the two groups. Its topmanagement was in the hands of men from the mainland, but by the late twenties they numbered only three of four out of a staff of one hundred fifty. American Colonial took a more active part than the continental branch banks in local financing. It had credit lines with New York banks which it drew upon increasingly up to December to carry sugar producers, making repayments in May and June. This process engaged in to some degree by most of the banks made resources available for seasonal financing in Puerto Rico. The territorial Banking Act of 1923 placed new restrictions on bank policy. No officer or director, for example, could borrow more than fifteen hundred dollars from his own bank, and then only with the unanimous consent of the board. But weaknesses remained in the system. There were no gen-

40

The Puerto Rican Businessman

erally accepted standards for credit, no proper inspection, and no systematic examination of credit risks. When Rafael Carrion, for example, bought control of Banco Popular in 1925 he found that loans actually in default totaled almost twice as much as the bank's capital of two hundred thousand dollars. Viewed from the standpoint of sound banking these practices indicated bad management, and were responsible for the failure and liquidation of the two largest locally owned banks in the depression of the thirties. Seen from the angle of providing bank credit for economic development these easy-going policies indicate that the local banks were doing their utmost to expand credit, although apart from sugar financing the credit contributed relatively little to economic growth. After the panic of 1929 the insular government made unsuccessful efforts to attract private capital to Puerto Rico. In April, 1930, a Bureau of Commerce and Industry was established in the office of the Governor with a branch in New York City. The Bureau maintained a publicity agent and ran an employment service. Operating on a small budget, it arranged displays of Puerto Rican products and sought other forms of promotion. 32 In 1931 and 1932 three of the four locally owned banks in San Juan were forced to close. The first to fail, the Banco Industrial de San Juan, was too small to have much effect on insular finances, but the second, on October 17, 1931, was the Banco Comercial de Puerto Rico, largest of the local banks. "The shock of this failure," wrote the Governor, "was felt by all the other banks of the island . . . the receivers' first report showed an extremely bad condition." 33 A year later, after eighteen months of struggle by the insular government and various banking interests to keep it open, the second

Aspects of Economic and Business Growth, 1898-1933

41

largest Puerto Rican owned bank, the Territorial y Agricola de Puerto Rico, closed. By this time the banking resources of the Island had shrunk to about fifty million dollars, and the Banco Popular was the only locally owned commercial bank operating in San Juan. 34 Elsewhere in the Island the pressure was less severe. Writing to Jesse Jones for a Reconstruction Finance Corporation loan in 1933, Rafael Rios of the Banco de Ponce said: "Large business failures in Puerto Rico have been few in numbers and not far reaching in their effects. Its small failures have been no greater than usual." 35 While a small bank failed in Ponce, the two larger banks there as well as those in San Germán and the Roig Bank in Humacao all survived. THE COLONIAL PATTERN

During the first thirty-five years of American rule in Puerto Rico, the conclusion is obvious that, aside from sugar, private interests on the mainland made no significant effort to exploit the resources of the Island through capital investment. As we have seen, considerable private capital from the continent went into sugar production in the early years of the occupation, but from 1906 to 1932, in spite of United States expenditures for public services, the Island had a favorable physical trade balance with the United States of nearly three hundred million dollars. The results of trade with the rest of the world added to the favorable balance up to 1920, and reduced it only slightly in the twelve years thereafter. The chief compensating items on the other side of the ledger were interest and dividends, freight charges, commissions, and insurance. 36 In general terms, the situation was one in which new North American capital investments after 1910 were small and Puerto Rican payments on previous investments were relatively large. The hurricane loss of

42

The Puerto Rican Businessman

1928 alone, which was estimated at seventy-eight million dollars, probably exceeded all private North American capital invested in the Island during the preceding thirty years. 37 North American capitalists had little interest in direct foreign investment during these decades, and there were other areas such as Mexico, Venezuela, or Cuba, where oil and mineral resources seemed to offer better opportunities. The United States government, on the other hand, never seriously considered subsidizing enterprise in Puerto Rico. Insular governors strove to maintain balanced budgets and Puerto Rico was expected to meet its fiscal obligations.

III Aspects of Economic and Business Growth, 1 9 3 3 - 1 9 5 5 If in the first period of American rule Puerto Rico had been a neglected stepchild, from the late thirties on she greatly benefited from her rich guardian. It was not that the attitude of the people of the United States toward Puerto Rico suddenly changed. North Americans were still uninformed and indifferent, but the federal government adopted policies for meeting the depression, waging war, and building national defense that economically benefited Puerto Rico as well as the mainland. Changes in the attitude of the administration in Washington, in turn, opened the way for increased planning on the Island. From 1940 on a social democratic majority in the insular government made economic progress its major goal. The New Deal measures, to be sure, produced many stresses and strains. Surveying five years of New Deal legislation Governor Winship complained that reciprocal trade agreements reduced protection on such vital products as sugar, fruits, and needlework. He said that quotas set on agricultural products, particularly on sugar, were unfair in relation to those granted other American areas. Provisions for unemployment relief were small and arbitrary. Yet, in the same letter the Governor admitted that, on the whole, business was good.1 43

44

The Puerto Rican Businessman

Starting in fiscal 1936-1937, in every year except 19381939, Puerto Rico was able to buy substantially more than the value of her export goods. In 1951-1952 the excess reached nearly two hundred million dollars. In the ten years from 1946 through 1955 over one and a half billion dollars worth of goods flowed into Puerto Rico, chiefly accounted for by seventy-five to one hundred twenty-five million dollars a year in federal expenditures and an increasing amount of mainland private investment. ORIGIN O F G O V E R N M E N T

PLANNING

The economic development of Puerto Rico from the midthirties on was substantially aided by government planning and action. While in the industrial sector the insular government did not eventually extend its ownership beyond the conventional areas of public utilities, plus "yardstick" sugar centrals, it came to supply more and more incentives to entrepreneurship. These were to take the form of planning, tax exemption, credit, buildings, and advicc on management. The program had its origins in the Puerto Rican Reconstruction Administration, conceived by leaders on the Island and put into effect by the federal government. From 1933 on a Puerto Rican Emergency Relief Agency, later a division of the Federal Emergency Relief, attempted to feed starving families. But this involved no planning for the future economic growth of the Island. By 1934 Carlos E. Chardon, Rector of the University of Puerto Rico, and the Liberal Party Senator Luis Muñoz Marín thought the time had come to get more constructive help from Washington. Through the good offices of Rexford G. Tugwell, Undersecretary of Agriculture, Ruby A. Black, a journalist, and other friends of Puerto Rico in Washington, a commission composed of Chardon, Professor Rafael Fernández Garcia of the

Aspects of Economic and Business Growth, 1933-1955

45

University and Menendez Ramós, insular Commissioner of Agriculture, with Muñoz as an unofficial member, were asked to draw up a plan for Puerto Rican reconstruction. The Chardon plan called for enforcement of the five hundred acre law (see II, p. 26) and redistribution of land, government operation of "yardstick" sugar centrals, a program of rural rehabilitation, agricultural cooperatives, extension of government-owned rural electrification, encouragement of industrialization by construction of a cement plant, increased attention to forestry, the construction of additional buildings and research laboratories at the University, and a slum clearance program.2 On the basis of the Report a Puerto Rican Reconstruction Administration was established in 1935 with a fund of forty million dollars that could be used for both investment and current expenditures. Dr. Chardon became the Regional Administrator, responsible to the Director of Territories. Staffing the PRRA gave the Liberals a chance to attract able intellectuals from the University and the professions to the study of insular economic planning. A site for the cement plant had already been selected, and work was begun. A wide range of action to help different types of farmers was undertaken, including construction of hydroelectric plants. Central Lafayette was acquired together with ten thousand acres of crop land, while the insular Attorney General started action to enforce the five hundred acre law. At its peak in mid-1936 PRRA employed sixty-five thousand men. Most of these ventures ended in permanent benefits to the Island economy, but the activities of PRRA, while continued until 1954, did not remain at the high level of the first two years.3 PRRA was under heavy attack from the sugar companies and other business interests because of the socialist implications of its policies. But its greatest weakness was internal.

46

The Puerto Rican Businessman

Staffed by young New Dealers from Washington and Liberal Puerto Ricans, whose party was in the minority in the territorial legislature, it had no secure administrative support. When troubles with Washington led to the resignation of Chardon and a score of his supporters in 1936, the Agency lost its missionary force. This two-year period, however, provided valuable information and precedents for later expansion of government aid and incentives under the leadership of Muñoz Marín. WORLD WAR Π AND THE GOVERNMENT

From 1920 to 1940 industrial workers, including those in construction and repair services, increased almost 70 per cent, but the rapid increase in total population and a decline in agricultural employment of about 7 per cent produced a rise in unemployment.4 At the end of 1940, when prosperity had returned to the mainland, the Works Project Administration certified 40 per cent of the Island's families as "needy," eligible, that is, for WPA aid.5 The situation did not seem likely to improve rapidly without additional governmental action. North American private capital was not being attracted to Puerto Rico in significant quantity, and local investors were not inclined to go in for industrial risks. The surprising victory of Muñoz Marin's new Popular Democratic Party in the election of 1940 had a chilling effect on the business leaders of the Island. Voted in by the jibaros of the back country and pledged to much the same aims as those of the early PRRA, he appeared to offer an immediate threat to the sugar industry and hence to the economic prosperity of the Island. Yet, in the long run the advanced social program of the Popular Democratic Party was to provide major stimulation for Puerto Rican entrepreneurship and aid in a great increase in business prosperity.

Aspects of Economic and Business Growth, 1 9 3 3 - 1 9 5 5

47

Muñoz surrounded himself with men of abilitv, some of whom had been on the original staff of PRRA. His program was one that Puerto Rican intellectuals had thought over for many years. The first evidence to many in Washington that the new majority party leader was not an irresponsible radical was the provision for just compensation to sugar companies forced to surrender land beyond the five hundred acre limit. This law, regarded as unwise by Island businessmen, was followed by a series of acts designated to stimulate industrial activity. In 1942 a Puerto Rican Industrial Development Company, a Development Bank, and a Planning Board were established. The Development Company, modeled on that of Chile, took over the cement plant completed by the Puerto Rican Reconstruction Administration in 1939, and subsequently built and operated factories for glass containers, paperboard, and clay products. In 1940 Rexford Tugwell had reported on conditions in Puerto Rico to the Secretary of the Interior, in 1941 he was made Chancellor of the University of Puerto Rico, and in 1942 he succeeded Guy J. Swope as Governor. While leadership in advancing the economic program of the government rested with Muñoz, Tugwell, a student of political science and economics, aided greatly with advice and support at critical times. He helped train dedicated young university graduates to be hard-headed, competent political administrators. From this period there emerged a Puerto Rican administrative group of high honesty and ability able to devise and carry out successful economic policies. But, as in the case of the New Deal on the mainland, the presence and influence of scholarly liberals like Tugwell spread distrust of government in the business community. Because of the interruption of Puerto Rican shipping by submarines and diversion of vessels to more critical areas, j

'

48

The Puerto Rican Businessman

the early years of World War II were not a period of business prosperity. But the interruption of trade acted as a protective tariff and ultimately stimulated local industry in furniture, apparel, food processing, cement, and other lines. In the last two years of the War more shipping and the increasing demand for rum to take the place of scarce whisky in the continental market produced a sharp business upswing. Rum production which was under two million gallons in 1941 topped twelve million in 1944. The federal government remitted to the government of Puerto Rico the excise taxes on insular products. Those on rum sold in the states during these years gave the insular government money with which to push economic growth. OPERATION BOOTSTRAP,

1945-1955

At first the Development Bank was chiefly an agency to facilitate government finance; not until 1945 did it begin a regular policy of loans to private enterprises. The Puerto Rico Planning, Urbanizing and Zoning Board was given broad powers of control over new building construction and equipped to guide urban development in accordance with master plans. In spite of planning, the Development Company, and the Bank, relatively few new enterprises were established prior to 1947. The Bank acting as the fiscal agency for the Puerto Rican government, put maintenance of good insular credit ahead of its development function. Consequently it kept much of its capital in United States government bonds and in general limited its loans to those that would have been regarded as sound by many commercial banks. In 1947 the Legislature passed a tax exemption law for new industry. As modified in 1948 the law provided for complete tax exemption for ten years, including personal income for owners

Aspects of Economic and Business Growth, 1 9 3 3 - 1 9 5 5

49

resident in Puerto Rico, of the profits of concerns deemed important to the development program. Applications had to be filed with an Office of Tax Exemption and each case was judged on its merits. Established Puerto Rican firms might qualify for tax exemption in designated lines of manufacture. 6 Tax exemption proved to be a psychological as well as an economic stimulant to mainland investment in the Island. Money was also appropriated for promotional activities in the United States, both for Puerto Rican rum, the production of which slumped after the war to less than two million barrels in 1947-1948, and for advertising the opportunities for industry on the Island. By 1949-1950 public relations, rum production, tourism, industrial promotion, industrial services, and research were costing one and a half million dollars a year. But the industries attracted up to 1950 "were in the most cases lightly capitalized and more heavily concentrated in the apparel trades than seemed desirable for a balanced economic development." 7 In 1950 important changes were made in the development program. To guide it an Economic Development Administration was created as a regular department of the insular government. The Development Company, referred to as PRIDCO, became a corporate subsidiary of this Administration, controlled by its Director. Henceforth PRIDCO's principal activity was provision of buildings for new plants. Negotiations were begun which ended in the sale of the four government plants run by PRIDCO to the Ferré Enterprises. This sale, plus additional appropriations, added substantially to the capital of the Development Company and ended its responsibility for direct business administration At the same time an Economics Division was established in the Planning Board to tabulate and consider the trends of the development program.

50

The Puerto Rican Businessman

The Economic Development Administration headed by Teodoro Moscoso, and partially staffed by personnel from the States, was able to increase the pace and scope of industrialization. Industries attracted by the government program included electrical appliances, pharmaceuticals, china and pottery, oil refining, chemicals, plastics, and leather goods, as well additions to the older industrial activities such as food processing, textiles, furniture, and cement. By June of 1956 the government agencies and programs, collectively referred to as Fomento, had made a net addition of 347 factories employing thirty thousand workers.8 About three-quarters of the new plants were owned and managed by men from the mainland. Ideally this group of enterprises both brought in new capital and provided a yardstick of efficient operation for local entrepreneurs to measure themselves against. Practically the latter was not often the case, because the mainland firms were in different types of activity from those readily open to local entrepreneurs. Since Fomento built and rented the buildings to the incoming companies, while the Development Bank gave them loans, and the operations were usually those employing large amounts of labor in relation to the cost of the machinery, the net inflow of capital for the new plants was moderate. The greatest gain to the local businessman from Fomento's activity appears to have been the creation of an industrial environment, particularly around San Juan. This meant an increase in the pool of skilled and supervising labor, more understanding of industrial loans by banks, the availability of management advice both from Fomento and private agencies, and more contacts between men engaged in industry. The net gain in number of plants was not large because of the high mortality of very small locally-owned companies.

Aspects of Economic and Business Growth, 1 9 3 3 - 1 9 5 5

51

In 1949 half of the "factories" of Puerto Rico had four or less employees and an average net income of under two thousand dollars a year. A survey of changes from 1949 to 1954 shows that the number of food and tobacco processing plants, very largely local in ownership, declined by one hundred; although the dollar volume of total operations more than doubled. Total figures for all manufacturing for these two years are show below: 9 1949

Total plants Fomento plants Others

Number 1,998 65 1,933

1954

Value added Value added by Manufacby Manufacture in OOffs N umber ture in OOffs $93,421 2,190 $188,523 284 65,493 10,000 est. 1,906 123,030 83,421 est.

In the late forties when the development program was getting under way there appeared to be small likelihood of finding a large number of local entrepreneurs with sufficient capital at their command to start new enterprises. Consequently both Fomento and the Development Bank directed their chief efforts to attracting firms from the mainland. But by 1954, with business recession on the mainland, it seemed that additional gains could be made by promotional help and a more liberal credit policy for local enterprise. Accordingly the Economic Development Administration established a Local Business Promotion Division with a budget for small promotional advances, and the Development Bank liberalized its loan policy. From 1953 on, Fomento also tried to distribute industry more evenly over the whole Island. Improved roads, the small distance of any interior point from one of the three major ports, electric power in all areas, and the light char-

52

The Puerto Rican Businessman

acter of most of the new manufacturing invited efforts to tap the great pools of unemployed agricultural workers. This policy could also allay increasing congestion in the San Juan area. By June of 1956 there were only three municipics without a Fomento factory. LONG RUN TRENDS

The effect of both government and increasing private activity on national income has been striking. Using some preliminary figures assembled by Simon Kuznets from United States and United Nations data, average Puerto Rican real per capita income, on the basis of 1939-1940 prices, stayed fairly constant from 1925-1929 to 1935-1939. From this latter period to 1940-1944 the average rose over 40 per cent, and from then to 1950-1954 the average increased an additional 37.5 per cent. 10 Thus World War II was the first rapid stimulant to real per capita income, but the government programs and mainland prosperity have combined to continue a good rate of advance. In spite of government payments and aid of various kinds Puerto Rican income remained heavily concentrated in the upper brackets, a distribution favorable to capital formation but not to increasing general consumption. Population continued to grow by 16 to 20 per cent per decade in the period up to 1950. By that time, however, rapid migration to the mainland had begun. From 1942 through 1951 Clarence Senior estimates a net loss of two hundred fifty thousand migrants. In some years of the fifties migration exceeded fifty thousand. As a result, estimated population remained nearly constant from 1951 to 1955. Had population continued to rise at its former rate there might have been little increase in real per capita income from 1952-1953 to 1954-1955.11

Aspects of Economic and Business Growth, 1933-1955

53

TRADE

Increasing industrial activity of new types did not completely alter traditional features of the Puerto Rican economy. Food importers, as a group, remained with sugar processors and bankers the most important businessmen of the Island. In spite of the limits that quotas imposed upon the profitable cultivation of cane, increase in the growth of local food products was slow, and food continued to make up about 20 to 25 per cent of the total imports which were, in tum, equal to about half the national income. The sugar crop continued to contribute over 10 per cent of the total insular income and to constitute over 25 per cent of all exports. World War II brought a challenge to the importers who dominated food distribution on the Island. Shortage of ships in the early months of the war threatened to leave Puerto Rico without staple food supplies. Over the strong protests of the merchants Governor Tugwell persuaded the Agricultural Marketing Administration to take over the supply of staples to Puerto Rico.12 This meant direct distribution to inland wholesalers who had heretofore been customers of the importing merchants. While at the end of the emergency previous relations were resumed, the older Spanish merchants were not able to regain their former degree of control over the supply of rice, beans, and codfish. Although commodities that came mainly in bulk remained important, rice still being the largest single import in fiscal 1953-54, competition reduced profit margins on such goods, and nearly all importers looked to some exclusive lines for increased earnings. By 1955 leading distributors agreed that on sales of bulk commodities a wholesaler was lucky to make a return of 6 per cent on his investment, exclusive of wages

54

The Puerto Rican Businessman

of management. All merchants, however, gained from the great expansion in Puerto Rican wealth and population, and from the price inflation that reduced the relative size of bank loans or mortgages and raised the value of inventories. Even though they had fewer wholesale customers the primary importers sold more goods to each, and profited from the increased sale of exclusive lines of packaged goods. Meanwhile food distributors on the mainland were facing important physical changes. In the twenties corporate chain store organizations like A & Ρ grew rapidly at the expense of independent wholesalers and retailers. In the early thirties chain supermarkets began to spread. The small proprietary store and the small independent wholesaler seemed doomed; soon the entire handling of food from processor to consumer seemed likely to be in the hands of a score of giant corporations. But this did not happen. In 1933 corporate chains did 37 per cent of the volume of food business while independent stores did the remainder; in 1953 the share of corporate chains was only 36 per cent. The arresting factor had been new types of wholesale organization that gave the independent store the purchasing economies of the chain. The development took three forms: wholesale organizations owned by groups of retailers, "voluntary groups" of independently owned stores supplied by a single wholesaler, and consumer cooperatives. 13 These new forms appeared in the United States in the thirties, but their effect on Puerto Rican wholesaling was negligible. Early in the fifties this lag between changes in food distribution on the mainland and in Puerto Rico was brought out in the research of J. K. Galbraith and R. H. Holton on local marketing. This helped to inspire government action. Governor Muñoz Marín appointed a Puerto

Aspects of Economic and Business Growth, 1933-1955

55

Rico Food Advisory Commission, made up of representatives of the local food distributors, the University, the government, and continental food specialists. The Commission studied the situation extensively in the light of mainland experience and in its report of April, 1954, made numerous recommendations. One result was the creation of a Food Distribution Program in the government's Economic Development Administration. Two supermarkets were launched with government aid, both financial and managerial, and ethers were started by large grocers.14 Plans were made for a retailer-owned wholesale organization, while a number of importing merchants tried, but failed to agree upon, a plan for a wholesale house that would develop a voluntary chain. Meanwhile, consumer co-operation was aided by the government and a large cooperative warehouse established. The theory was to put all the modem forms of wholesaling in competition with each other, and to then let the forces of the market determine the growth of each. SUGAR

While sugar production continued to be a mainstay of the economy, federal laws ended the period of rapid growth. Repeal of prohibition in 1933 opened a new local market for rum, but the Reciprocal Trade Agreements Act of 1934 led to reduction of the tariff advantage enjoyed by Puerto Rican producers in the United States sugar market. A series of federal acts from 1933 on established crop and marketing quotas, benefits for growers, and taxes on processors. By the Costigan-Jones Act of 1934 Puerto Rico received a sugar quota considerably below its previous production. This situation was perpetuated by subsequent quota acts. The growers were partly compensated by adjustment payments,

56

The Puerto Rican Businessman

but employment was diminished. After 1938 minimum wages for both mill and field hands were set under federal law and by Puerto Rican authorities. Taxes for state insurance ( workman's compensation) and social security were imposed in 1948 and 1951, respectively. Aside from minimum wage regulations the most important government relations with the industry were in connection with the federal act of 1900 forbidding the ownership of more than five hundred acres of land in Puerto Rico by any partnership or corporation. No enforcing legislation was passed by the insular government and the law had remained a dead letter up to 1936, when, as has been noted (page 45), the insular Attorney General instituted an action to enforce the law. While the five hundred acre clause was now upheld by a United States Supreme Court decision, vigorous enforcement was not attempted until 1941. Inspired by a report of Esteban A. Bird on the sugar industry, the Popular majority in the legislature, supported by Governor Tugwell, passed a law in 1941 setting up a Land Authority with power to acquire excessive holdings by purchase or condemnation with proper compensation.15 Several factors confused the issue. The centrals or their associates held nearly two hundred thousand acres of land, and the territorial government lacked the money necessary to pay compensation. Lawyers for some of the centrals held that the constitutionality of the statute of 1941 was doubtful. Substituting small holdings for company managed estates represented democratic reform but it was uneconomic from the standpoint of efficient sugar production. In fact, any splitting up of large holdings which entailed duplicating facilities like water pumps and unnecessary hauling lowered economic efficiency. Three continental economists surveying the situation in 1936 wrote: "It appears

Aspects of Economic and Business Growth, 1933-1955

57

to us axiomatic that a mere negative policy of breaking up estates would be futile and economically damaging. A dependence upon individual small-scale agriculture would set the island backward." 16 To avoid the loss of efficiency in cane production that would come from breaking up all the large properties, the Land Act of 1941 provided for proportional profit farms. These were leased from the Land Authority by managers who divided profits from the harvest among the hired workers. In distributing over nine thousand acres purchased from Central Cambalache, for example, the Land Authority leased fifty-five hundred in proportional profit farms, set up two thousand small farms and squatter settlements, and transferred two thousand to government agencies for other uses. The variety of situations prevented any uniform government policy. Some centrals voluntarily sold their lands to the government, others did so after suits had been instituted, Luce and Company, the landholding affiliate of Central Aguirre, secured a federal injunction against enforcement of the law and the action never came to trial. Others did nothing. After purchasing the lands of Central Guánica and several north coast centrals the government decided that completion of the program would cost too much. By 1950 an uneasy equilibrium had been reached. The government had ceased acquiring additional lands, and landless and land-holding centrals were operating side by side. Two centrals, Cambalache and Plazuela, had been bought by the Land Authority. A third, Lafayette, had been run by a farmers' cooperative since its acquisition in the thirties by the Puerto Rican Reconstruction Administration. Meanwhile, in 1942 the sugar industry had been legally designated a public utility and placed under the Public

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Service Commission. In 1951 this act was repealed and a three member Sugar Board of Puerto Rico was given jurisdiction over the industry. The Board could regulate all the essential relations between centrals and colonos, such as determination of the sugar content of cane, division of the proceeds of sale, payments for transportation, and methods of final settlement. At the same time a "Commission for the Survey of Problems Confronted by the Sugar Industries," made up of legislators and one executive officer, was created to study what was held to be the crisis in the industry. The crisis had been developing for many years. Since the middle thirties the pattern was one of costs increasing faster than prices. Field wages rose about 200 per cent from the middle twenties to the middle fifties, and mill wages over 500 per cent. 17 Meanwhile the price of sugar on the New York exchange increased only a little over 100 per cent. By 1956 the growing disparity between prices and wages was precipitating a situation in the industry that would force new methods upon its entrepreneurs. Innovation and change could proceed along many lines: 1) new varieties of cane might bring higher yields; 2 ) cane could be cut and moved more efficiently; 3 ) mill machinery could be improved; 4 ) management could be altered to reduce overhead or produce more effective administration; 5 ) mill size could be adjusted to reach an optimum scale of operations; 6 ) the manufacture of related products could be undertaken; and 7 ) better means of handling and shipping sugar could be developed. In the forties a new cane variety 37-161, from Barbados, gave improved yields on the irrigated lands of the south coast. But lack of profits and capital have tended to reduce experimental crossbreeding by Puerto Rican companies. Although experimentation through the University still con-

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tinued, no new varieties were discovered that would throughout the Island give substantially higher yields per dollar of cost.

While the largest labor cost was in the field, improvement here ran into difficulties. With large agricultural unemployment, the unions opposed piece-rate pay which for some workers could double or triple the tons of cane cut per day, and consequently reduce the number employed. While the few companies with extensive administration lands could use piece rates to some extent in defiance of the union, the system was not operated successfully by the smaller independent colonos. The ultimate economic solution was machine cutting, with a few high paid workers replacing thousands at a subsistence level. But the latter's jobs were saved because the cane that gave the best yields on the Island was not suited to the type of machinery in use in Hawaii and parts of Louisiana. From 1954 on Central Aguirre experimented with machine cutting on a small scale with disappointing results. Mechanized cutting of the canes grown in Puerto Rico required topping machines to avoid feeding too much worthless stalk into the mill. While most companies, including the large ones owned on the mainland, marked time on the issue of machine cutting, foreseeing severe labor troubles as well as mechanical difficulties, in 1955 one large locally-owned central began an experiment on lands owned by the stockholders. Progressively over five years the old rattoons were to be replaced by a new variety of cane that could be cut economically with existing machinery. Some economies were possible on the basis of better timing of deliveries at the mill. Since cut cane deteriorates rapidly it is best to have delivery and grinding closely synchronized. Here again, there is an advantage in adminis-

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tration land from which the movement of cane can be controlled more accurately by the mill. Individual centrals with many colonos try as best they can to k e e p deliveries on a proper schedule, but occasionally cane and trucks accumulate faster than they can be handled. In practice a company with several centrals also had an advantage in eliminating some unnecessarily long hauls. Some improvements were made in mill management and machinery, but the cost of milling was only about 10 per cent of the total. One avenue of reduced cost was open, in theory, to any mill: shipment in bulk rather than in bags. The yute bags into which the finished sugar was poured represented about 30 per cent of direct mill cost. Further labor expense was incurred in storing, loading the bags on trucks, unloading at the piers, and carrying the bags on and off ship board. As early as World War II the large integrated Hawaiian companies were shipping in bulk. Mr. E. F. Rice, an engineer at Central Aguirre, who later became its president, persuaded his company to set up a system for loading on railroad flat cars into large buckets that could then be moved alongside the ship, picked up by cranes and dumped in the hold. The system was first used in 1947 for part of the output. By 1950 sugar from all three Aguirre Centrals was being shipped in bulk. But shipment in bulk was not the easy panacea for hard times in the sugar business that it first appeared. Such shipment meant the elimination of stevedore labor and the unions refused to permit bulk loading at the major ports. The Commonwealth government was loath to intervene with orders that would increase unemployment, and deadlock resulted. Only Aguirre and Guánica could load with their own employees at their own piers. As a result, they began shiping for other centrals. But for the north-coast and inland

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centrals the haul over the mountains was expensive, and a better solution was needed. In 1955 Abarca was developing a warehouse and pier for shipment by leasing federal property adjoining the Abarca iron works in Santurce. Hostile public opinion was undoubtedly a deterrent to lessening regulation or improving the position of the industry by government aid. And the industry leaders failed to find any way of overcoming this hostility inherited from the period when sugar companies paid very low wages, made sizable profits, and paid large dividends to stockholders on the mainland. Prior to 1955 the industry had done very little regarding public relations. This loss of innovating energy in an industry under combined economic and legal pressure was not peculiar to Puerto Rico or Latin American culture. The railroads of the United States went through much the same cycle from 1910 to 1940. But whereas the United States railroads were essential public utilities for a large part of their customers, Puerto Rican sugar, in a world capable of large excess production, was not essential to its buyers. GENERAL MANUFACTURING

Apparel of all types continued to rank next to sugar milling in value added by manufacture. After the tax exemption law of 1947 the entrepreneurs from the mainland who had been in this industry since World War I were joined by larger numbers of newcomers, some of them competitors but many developing new lines like brassieres. Even with modem machinery the industry used relatively large amounts of labor, and it could, therefore, benefit more than most from low Puerto Rican wage rates. Needlework contracting, the oldest branch of the apparel industry, depended partly cn hand work by farm families

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at wages competitive with very low-cost foreign areas. Consequently contractors could never pay "living wages" for home work. On the other hand, the home work of the women and girls supplemented the inadequate seasonal income of sugar workers. Ultimately rising legal minimum wages were to greatly reduce the number of home workers, but in the thirties, forties, and early fifties improved quality, styling, and more machine work kept up home employment. As is so often the case, statistical progress over the years had not seemed like prosperity to those in the business. From 1930 to 1933 Puerto Rican needlework contractors, while selling more goods than in the twenties, were forced to make painful adjustments to falling prices and increased competition from the Far East. In 1936 a United States reciprocal trade treaty with Switzerland opened the door to strong competition for the handkerchief contractors. By the late thirties the handkerchief business in the Island was said to be barely surviving. 18 In 1938 Puerto Rico was included in the area covered by the Fair Labor Standards Act, which inaugurated minimum wage legislation. From this time onward all contractors were continually squeezed between the low prices of competitive goods made by Far Eastern labor and the minimum piecework and hourly wages enforced by law. Puerto Rico's close connections with the New York market could to a large extent offset lower wages in foreign countries. Wages paid by contractors in the thirties amounted to about 25 per cent of the cost of the finished item. 19 In a market of changing styles the ability to send cloth and designs, and receive the finished pieces back within a few weeks, as against months in the case of China or the Philippines, could be more important than a saving in wages partly offset by higher shipping costs.

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Men's clothing manufacturers steadily maintained a small amount of export business to neighboring Caribbean countries, but Puerto Rico or the United States generally accounted for over 95 per cent of their sales. One company sold men's linen suits in New York until the end of the thirties when other light weight materials supplanted Unen, and the company decided against competing in the new lines. Until after World War II Mayaguez continued to be the needlework center of the Island. Of the 139 establishments operating in 1939, seven were in Arecibo, sixteen in Ponce, twenty-seven in San Juan, and forty-five in Mayaguez. No smaller center such as Aguadilla had more than four plants.20 Since up to 1940 this was the only major industrial business other than sugar milling, and the only one not tied to its source of raw materials, it is important to assess the reasons for its location. One obvious reason was a large labor supply in the wives and daughters of coffee and sugar workers. But, it would be hard to argue that there was any shortage of such labor in Ponce or San Juan. Labor in Mayaguez was made still more plentiful by the damage done to the coffee farms in the western hills by the hurricane of 1928, but by that time Mayaguez was already well established as the needlework center. Another important cause of Mayaguez's preeminence was lack of competing outlets for entrepreneurial talent. San Juan and Ponce were both bigger and more developed in other directions than Mayaguez. San Juan was the center for law, professional work, politics, finance, and commerce. Ponce was the metropolis of the populous south coast with its important sugar interests. In Spanish times it had been a more important financial and commercial center than San

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Juan. The strong upper-class of these cities devoted to sugar, banking, importing, the professions, or politics, initially looked upon manufacturing, other than sugar milling, as an inferior way of life. By contrast, Mayaguez, while one of the three major ports, had no head offices of banks, less accumulated wealth, and a back country smaller and less prosperous. It was also less aristocratic, simpler in its way of life, and more devoted to business than the two bigger cities. Perhaps these characteristics were decisive, not only in leading the entrepreneurs of Mayaguez into contracting but in bringing branches of firms or contractors from the mainland to this locality. In later years, however, as tax exemption brought brassiere and children's clothing manufacture from the mainland to the Island, San Juan and its immediate environs became the chief center for most types of manufacturing. By the early fifties over 45 per cent of industrial labor was employed in this area. The pattern of one big metropolitan economy centering in San Juan seemed imminent. Since the beginning of World War II a few Puerto Rican enterprises have become big business by either Island or mainland standards. In most cases thev grew from supplying or servicing the principle activities of the Island: agriculture, sugar milling, and building construction. Straddling trade and manufacture these big concerns in foundry work, sugar machinery, beverages, fertilizers, cement and tiles, added distributorships for United States products. The Ferré enterprises, the largest of the group, as already noted, added the government-owned plants for bottles, cement, and tiles to ts already large business in cement and foundry work. By the mid-fifties the half-dozen largest corporate groups, each

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held together by family controls, probably turned out over a third of the value of manufactured products in the Island. EXPANSION OF THE LOCAL

BANKS

The greatest rate of increase in recent decades in Puerto Rican bank deposits came from 1935 to 1945. In the former year they totalled 42 million, in the latter 282 million. Even after adjustment for the sharp rise in prices the increase for this decade was between three and fourfold, by comparison the gain to 323 million by 1955 was quite moderate.21 As might be anticipated from the types of investment available in depression and war as compared with peace and prosperity, respectively, the big increase in portfolio in the first ten years was in investments, and in the latter ten in loans. Whereas loans barely doubled in dollar value from 1935 to 1945, they increased three and a half times in the next decade. The three big local organizations, Banco Popular, Crédito y Ahorro Ponceño, and Banco de Ponce, were leaders in both phases of this expansion. Pursuing his cautiously aggressive policies at Banco Popular, Rafael Carrión in 1934 took over branches of the National City and Roig Bank in Santurce and Rio Piedras, respectively, that were not proving profitable. Under Popular management they quickly became valuable properties, and stimulated the policy of steady addition of new branches. Popular became the largest banking organization on the Island. Whereas Popular's most important period of expansion had been based on seizing the opportunities of the depression, Crédito y Ahorro Ponceño and Banco de Ponce expanded most rapidly during World War II. Both banks established branches in the San Juan metropolitan area during this period and grew rapidly with the war boom. The

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northern growth of the Banco de Ponce included offices in San Juan, Santurce, and Arecibo; that of the Crédito produced an organization of branches with coordinate centers at Ponce and San Juan. Branches were gradually added until by 1955 the Crédito had seven offices in the San Juan metropolitan area. The result was a structure modeled rather consciously on the Bank of America in California which had dual centers at Los Angeles and San Francisco. As the bigger banks grew they bought the smaller ones and retained them as branches. By 1955 the thirteen locally-owned commercial banks of the late forties had been reduced to seven. These fell into two distinct groups: The "big three" with total assets between fortv-five and ninetythree million each; and the "little four" with assets between two and five million. In addition to the three small banks of the earlier days, Banco de Economías y Préstamos, Banco de San Germán, and Roig Commercial Bank whose business had remained relatively stable, a fourth, the Banco de San Juan, had grown rapidly since 1950. Pushing personal loans and the financing of installment credits in particular, it became the largest of the four small banks. From 1945 on, the Development Bank took an increasingly active part in long-term lending to commerce and industry. In theory the aim of a development bank was to make only those loans which a commercial bank would refuse for lack of liquidity. But its requirements regarding collateral, particularly for loans to local entrepreneurs, were very nearly the same as those of commercial banks. To some extent this "conservative" attitude came from the Development Bank's position as fiscal agent for the government of Puerto Rico. Being partly responsible for the standing of government credit in world money markets the Bank kept

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much of its capital in United States bonds. In 1952 a clearing system for local banking operations was established with the Development Bank as settling agent. As industry grew after 1940 the banks became less dependent upon sugar financing and developed more diversified portfolios. Government bonds and personal loans assumed increasing importance up to 1945. After that date direct advances or refinancing of installment credit, as well as personal loans, assumed increasing importance. Because of the various government agencies for agricultural credit, the commercial banks no longer carried as large a proportion of farm paper in their portfolios as in the early decades of the century. In 1954 and 1955 sugar loans, both crop liens and pignoration, were about thirty-five million dollars at the peak, compared with aggregate bank loans and discounts of over two hundred million dollars.22 Municipal and other Puerto Rican government bonds increased in portfolios from the thirties on. But in contrast to practice on the mainland there was almost no lending against stock exchange securities and very little trust business. Also in contrast was the lack of any portfolio distinction between the use of funds arising respectively from time and demand deposits. The rise of the "packaged" personal loan was the most important new element in bank portfolios. Pioneered on the Island by Banco Popular in 1929, the personal loan repayable in a fixed number of equal installments was taken up by the Roig Commercial Bank in 1935, the Crédito y Ahorro Ponceño in 1940, and subsequently by the other banks including in the fifties some of the continental branch offices. Although the personal loan proved popular and safe in all countries, it may have particularly conformed to the Puerto Rican practice of buying on credit. Stemming from the credit rhythms of an agricultural economy, Puerto Rican

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wholesale and retail trade had become geared to long-term book credit with settlements once or twice a year. These practices of mortgaging future returns carried over into urban transactions. The government and the university, for example, set up facilities for employee borrowing. The San Juan area with its relatively high middle-class salaries and its still higher living costs was an unusually good field for both personal loans and installment credit. A leading banker in 1955 estimated that employees in metropolitan San Juan had mortgaged almost a full year's income. Except for the top management of the branches of Canadian and United States banks, the personnel of banking was Puerto Rican. To some extent the continental banks served as training institutions for the local ones. Since in these companies prior to the nineteen fifties the success ladder was blocked at a point by mainland managers and assistants, the young Puerto Rican on his way up would ultimately shift to a local bank. The top officers of the banks attended conventions in the United States in order to interest businessmen in Puerto Rico. Each of the large banks had many correspondents on the mainland who told them of business prospects in their particular areas. The Banco de Ponce maintained two agencies in New York City. Prospects were written to and perhaps visited by an officer of the bank. If it seemed appropriate the Economic Development Administration would be called upon for assistance. MATURE INDUSTRIALISM

With only a third of its employed workers in agriculture and a fifth in manufacturing, employment in Puerto Rico at mid-century was as industrialized as in the United States of 1900. Yet, by that time the United States had become the

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greatest industrial nation of the world. In fact, about 20 to 25 per cent employment in manufacturing represents a plateau in the United States that has not been exceeded except during war emergencies. This situation in Puerto Rico had come about rapidly as a result of World War II, which had provided high income to both government and certain business interests while shortage of shipping acted as a protective tariff. After the war Operation Bootstrap had furthered progress in the same direction. While Puerto Rico had thus become an industrial state, about as much industrialized as any Spanish-speaking nation, there was still the challenge of the unemployed fifth or sixth of the labor force. To absorb these workers in industry would mean doubling the employment in that sector. This could only be accomplished by making Puerto Rico more and more a workshop for the United States and other nations, an England or Japan in the Caribbean. Consequently the historical study of Puerto Rican entrepreneurship is important not only to see what qualities assist or retard early industrialization but also to forecast how such characteristics will affect the movement toward more intensive levels of industrial development. These two chapters have supplied what appears to be the essential facts regarding Puerto Rican economic and business progress against which hypotheses regarding culture, communication, and entrepreneurial behavior can be placed.

IV Elements in Entrepreneurship In trying to bring the elements discussed so far to focus upon the character of Puerto Rican entrepreneurship it becomes obvious that some factors such as understanding of technology have changed greatly over time whereas others like the deterring effect of the small Island market have been relatively uniform. In between these extremes would fall such elements as increasingly good communication with the mainland and slowly changing culture patterns. LEVELS OF ENTREPRENEURSHIP

Information of all types is perhaps the most important factor in successful entrepreneurship. Arthur H. Cole, one of the chief developers of entrepreneurial study on the mainland, classifies entrepreneurs by the amount of information on which they base decisions.1 In Puerto Rico attainment of Professor Cole's final stage of sophisticated or "cognitive" entrepreneurship, in so far as it was achieved by local entrepreneurs by 1955, depended in most cases upon government activity. From 1950 on Fomento tried through Industrial Services and other departments to give advice and training to local entrepreneurs alert enough to seek it. While maintaining an attractive capitalist environment through tax-exemptions and low-cost plants for rent at less than market rates, the government offered socialized auxiliary business services. Thus 70

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government provided a large part of the flow of new knowledge to the entrepreneur. Partly from the opportunities offered by World War II, a few local enterprises became big enough to adopt the managerial forms typical of advanced entrepreneurship. But a survey of these firms suggests that although policies have been formed on the basis of information supplied by expert consultants both inside and outside the company, status within the owning family enters into the final power to decide rather more than in large companies on the mainland. In other words, the teamwork concept of the modern American company has been partially adopted, but the position of senior members of the owning family prevents these companies, perhaps to their advantage, from assuming all the characteristics of the managerial enterprise typical of the biggest companies in the States. A size differential, of course, enters in. The combined income of Ferré enterprises, the largest family complex, might equal that of some of Fortune Magazines annual list of the five hundred largest industrial corporations. The other large Puerto Rican family combines may be smaller than any companies on the Fortune list. But on this list there are a number of family-run companies. Professional management predominates but is not universal. In Puerto Rico proprietary or family control has been the rule in all but one or two locally-owned enterprises. There is no reason why family entrepreneurship should not reach a stage of high efficiency, and in most of the big Puerto Rican companies this may be the case. On the other hand, control based on seniority in the family tends to perpetuate the deterrents to entrepreneurial activity inherent in Spanish cultural traditions. The precise way in which

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these factors have operated could only be seen after a detailed study of each company. Where economic development has been as rapid as in Puerto Rico the leads and lags in the quality of entrepreneurship are quite striking. In some types of manufacture that require both large capital investment and advanced technical knowledge, such as brewing, cement, chemicals, glass, and steel machinery, the companies are large and entrepreneurship is aggressive and informed. In operations requiring little capital or technical knowledge, such as needlework or furniture manufacture, many entrepreneurs still run their enterprises by rule-of-thumb and are content to survive. Similarly, there are differing entrepreneurial attitudes in finance and trade. Bankers are, on the whole, alert and innovative, whereas many wholesale merchants are wedded to the past, often poorly informed, and opposed to change. These differences will be examined more closely in Chapter V. There is a temptation to compare stages in Puerto Rican and United States development, particularly with respect to the effect of foreign influences. But marked differences are obvious in the character of the outside pressures. Up to about the end of the nineteenth century western industrialism still emphasized individual ownership and the strong, relatively unregulated leader. Mid-nineteenth century British and European influences on the United States embraced these characteristics. By the mid-twentieth century, however, the influence from the United States was that of large complex business bureaucracies upon a Puerto Rican business system that was still highly individualistic in the Spanish sense. This difference between all earlier stages of capitalism and the mid-twentieth century stage of nationally-organized

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mass production is perhaps the central problem in the current transference of techniques to less developed areas. For example, a man with wide experience in Puerto Rican entrepreneurship estimates that it takes mainland training and five or ten years of experience to make entrepreneurs with relatively strong, traditional Puerto Rican culture into effective operators in a business world of hierarchical organizations, cooperative teamwork, and abstract systems of control. But there are many different types of personality in any culture, and some Puerto Ricans have readily adopted mainland methods. For purposes of analysis, deterrents to entrepreneurial effectiveness may be divided into three groups: first, those often present in underdeveloped areas but not important in Puerto Rico; second, those common to early stages of industrial development that have had their usual effect in Puerto Rico; and third, those that have been emphasized by the Puerto Rican situation and culture. DETERRENTS MINIMIZED IN PUERTO RICO

Proceeding in the order above, we start with deterrents to entrepreneurship relatively unimportant in Puerto Rico. In each instance the deterrent will be put in italics as a general proposition, followed by discussion of its force in Puerto Rican development. 1. Manufacturers, in particular, lack social prestige in an aristocratic society, and this discourages the ablest members of the middle- and upper-classes from choosing a career in industry. The fact, already noted, that the manufacturers among the seventy-odd businessmen interviewed in this study had in the great majority middle- or upper-class origins indicates that loss of social prestige was probably not an important factor in deterring industrial development

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in Puerto Rico. But it is true that land continued to command high prestige and industrialists would often invest money that could have improved their business in relatively useless acreage. Prior to 1940 there is some artificiality in even trying to see any manufacturers as a separate social group. All the cities were relatively small, San Juan only 115,000 in 1930, Ponce 63,000, and Mayaguez 37,000. In so far as the new entrepreneurs came from families established in large-scale retailing or wholesaling they were likely to be part of an upper-class welded together by family relationships. The influence of family connections in Puerto Rican business and politics constitutes in itself a major study. The fact that one or more sons became apparel manufacturers was, from the standpoint of social responsibility and leadership, less important than their ascribed status based on family origins. Entrepreneurs in industry were numerous and their operations were small. The 139 needlework establishments of 1939, for example, may have had two or three hundred proprietors or partners, and they averaged less than fifty employees each. Under these circumstances it is not surprising that the owners did not work any revolution in social leadership. In their roles as manufacturers they neither sought nor were urged to assume civic and political responsibilities. Men in the companies studied, aside from those in Mayaguez, said that manufacturers were not seen as a distinct group by the public, and apparently neither gained nor lost prestige because of their calling. In the public mind "business" was still wholesaling and retailing. Little organized social activity went on among the early manufacturers as a group. There were few business organizations for manufacturers to join. The Chamber of Commerce in San Juan and Ponce were chiefly oriented toward

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trade in food products, although the former, called the Chamber of Commerce of Puerto Rico, published a monthly magazine devoted to general business. In December, 1927 an entire issue in English was devoted to Mayaguez, "The Industrial City of Puerto Rico." 2 A Mayaguez Chamber of Commerce was not established until 1931. The Manufacturers Association, organized in San Juan in 1930, was mainly a splintering of the San Juan Chamber of Commerce, and failed to assume an active role in industrial affairs. The trade association for needlework and apparel, the Camara Insular de Comerciantes Mayoristas, was not established until 1932. Lack of consciousness of a public position dependent upon manufacturing, as distinct from wealth from trade, sugar, or family connections, continued in the later period. Along with this went a low level of participation in business and public associations. Members of the panel of thirty held in 1955 that neither the San Juan Chamber of Commerce nor the Manufacturers Association appeared valuable to them as an intermediary with government or the public.3 One apparel manufacturer received customers through the Manufacturers Association, and a furniture dealer thought it of help in fighting bad legislation. These were the only positive comments regarding either organization, although thirteen firms belonged to the Manufacturers Association and three to the Chamber of Commerce. Of the thirty asked about their relations as businessmen with the community or the general public only nine mentioned activity in civic or charitable affairs. No firm carried on any systematic public relations. While this participation seems slight, it does not compare unfavorably with similar findings in the United States. James H. Soltow, for example, found that of twenty-one chief executives of companies in

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Norristown, Pennsylvania, in 1952 only ten were active in civic or charitable affairs, and the companies represented were on the average larger than those in the panel of thirty. He concluded that: "Only a few of the largest companies in the Norristown area have developed positive efforts to create good public relations in the community. Most owner-operators of small manufacturing enterprises have regarded business matters as personal affairs." 4 On the mainland participation in club life is in part connected with promoting business. Therefore membership in clubs may be an index of either social interests or business alertness. The record indicates that Puerto Rican manufacturers have not been "joiners." Six of the thirty belonged to only one club and an additional seven to more than one, leaving the majority clubless, as well as inactive in civic matters. The question "Are business leaders looked to by the community for reliable information more than are priests, editors, or politicians?" proved to be too general. Thirteen respondents would not attempt an answer, which may in itself show lack of concern for this matter of comparative social prestige. The seventeen answers often depart from the question and indicate the lack of any uniform self-placing as businessmen in the social structure. This does not mean, however, that their family position in the social hierarchy was a matter of indifference. A R E BUSINESS LEADERS LOOKED TO BY THE C O M M U N I T Y . . .

Looked to but less than priests, editors or politicians.. Looked to mainly for donations Looked to more than other leaders Looked to but not much Looked to as important

?

4 answers 4 answers 2 answers 2 answers 1 answer

Elements in Entrepreneurship Looked to only for business information Not sure No opinion

77 1 answer 3 answers 13 answers

This same indifference, as manufacturers, to public regard would apply to the biggest of Puerto Rican businessmen. But with one or two exceptions the big locally-owned companies were in the hands of families of two or more generations of wealth. The partners or directors enjoyed social eminence apart from their particular business activity. But they do not appear to have felt it incumbent upon them as business leaders to be as active in civic affairs as men similarly placed in the United States. 2. Close ties between the government and the upperclass control business opportunity. This discourages men without social and political influence. This situation may have existed in some sectors of the Puerto Rican economy before the depression of the thirties, but if so the deterring effect appears unimportant. The colonial administration did little directly to promote economic development and its favors were not of great value. Most of the new business was small-scale and not dependent on governmental approval. Such restriction on opportunity as there was came more from private social attitudes, such as the tendency of the food-importing merchants to recruit managerial employees from Spain. Under the liberal government of the Muñoz regime the old upper-class initially lost what political influence it had previously enjoyed. And a new college-educated middleclass group came to staff and influence government. An important food importer of San Juan said that in the early thirties he used to know many Puerto Rican senators and discuss public affairs with them; in 1955 he knew none. For citizens of a country whose government had become

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active in so many spheres of economic and social life, most of the panel of thirty were surprisingly removed from government contacts. They could, of course, have been concealing their political connections, but the tone and content of the answers do not suggest this. Six proprietors of medium-sized companies and four of small ones said that they received valuable help and information from Fomento. One of these claimed that EDA officials brought potential customers to his plant. One food manufacturer received help from the Department of Health and one from the Department of Agriculture. But seventeen proprietors denied having any relations with government except those required by law. One textile manufacturer was a local political leader, five in other industries thought they should be more active in politics than they were, a furniture maker saw business benefits from political contacts. But the overwhelming majority took no part in politics beyond voting. Five felt that they could not afford the time, and eight thought known political leanings bad for one's relations in business. These same attitudes were reflected in the panel of forty leaders of older businesses. Of this entire group only Luis Ferré was actively associated with politics. He was a Representative-at-Large in the Commonwealth Assembly and had been a leader of the Republican Statehood Party for many years. While this organization represented the right wing of Puerto Rican parties, the Ferrés showed their friendliness toward workers by conducting an advanced welfare program from 1929 on. Employee representation, better sanitary conditions, food and medicine during illness, aid in buying homes, and profit sharing were introduced in Ferré enterprises. The Ferrés were also active in support of Catholic education. The conclusion that political activity has been the exception among Puerto Rican businessmen is further

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supported in Dr. Scheele s study. He notes that in San Juan "The prominent families seem to have comparatively little interest in politics. They spent little time in political activity, and did not discuss politics at length in their private conversation." 5 A few businessmen said that they kept quiet about their opposition-political views because the Popular machine would harass them through tax inquests and enforcement of ordinances generally disregarded. This same attitude would be found among some businessmen in the United States living in areas where the party opposed by them is strong, and was not sufficiently widespread to appear significant. Regardless of the precise correctness of these observations made from a small number of cases, it seems impossible to support the thesis that vested upper-class interests in political power have seriously hindered economic development in modern Puerto Rico. Since World War II trade-union interests, both mainland and local, have wielded considerable influence in Puerto Rican politics. On the one hand the unions have spurred mechanization and efficient use of labor by gaining higher minimum wage laws. On the other hand higher wages may have prevented some new enterprise. Certainly union pressures against innovations that would increase unemployment have influenced government policies in relation to the sugar industry. 3. Government efforts to encourage industry are likely to benefit technologically advanced outsiders, rather than local entrepreneurs. The Puerto Rican government added to the normal working of this situation, from 1947 to 1954 at least, by granting Development Bank loans and Fomento aid somewhat more readily to firms from the mainland than to

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local enterprise. A member of the panel of thirty gave an argument that was in substance heard rather frequently in talking to local businessmen. It was very difficult, he said, for a native to get a loan and government help while continentals got these easily. He was bothered by the question "Are the continentals going to stay after ten years here?" The government he felt was taking a great risk with continentals while they were very strict with Puerto Ricans. Also, the capital made by continentals did not stay in Puerto Rico while that of a Puerto Rican does. From 1954 on government policy has been directed toward more help for local entrepreneurs. As we have seen, Fomento established a Local Business Promotion Department, and in 1955 an Industrial Investment Committee to promote factories in rural areas. It is possible, however, that mainland owned supermarkets, wholesale houses, and some manufacturing operations that have received government help may in the future offer severe competition to certain locally-owned enterprises. In answer to the question "What could the government do to encourage local enterprise?" twelve of the panel of thirty answered that it should grant long-term loans with less restrictions on types and amounts of collateral, and five more thought there could be more general government encouragement of local enterprise. But only three thought that there was too much help given to "foreign" competing firms. 4. Ideas and technology known in the seaports spread slowly to the back country. While there are noticeable differences between the sophistication of entrepreneurs in San Juan and those in some small interior cities, the Island has been too small to make this a serious barrier to business change.

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C O M M O N DETERRENTS OPERATIVE IN PUERTO RICO

Certain elements that have hindered the operations of Puerto Rican entrepreneurs appear to be universal characteristics of underdeveloped areas, including at earlier dates the nations of Western Europe and the United States. 1. A ready supply of capital for real estate investment exists alongside an extreme scarcity of funds for industrial purposes. The oldest wealthy group are likely to be land owners and, even aside from the prestige associated with land, they prefer ventures where they think they understand the risks involved. The same reasoning applies to the use of capital by merchants outside of their own enterprises. Industrial risks require special knowledge and continual vigilance; real estate, whether improved or not, requires a minimum of supervision and can scarcely lose its entire value from mismanagement. As late as 1915 the Governor of Puerto Rico in his annual message complained that capital was available only for sugar and real estate. While transportation facilities for sugar opened areas for other forms of production, the habits of investment complained of by the Governor were still the rule in 1940." The Development Bank, the Small Business Promotion Division of the Economic Development Administration, and the large locally-owned banks helped to remedy this situation, but in 1955 capital was still flooding into real estate and difficult for local manufacturing entrepreneurs to acquire. Tax policies favoring capital gains as against income helped to perpetuate the popularity of real estate. Of the panel of thirty small to medium sized manufacturers, twentyone listed lack of capital as one of their most difficult problems in getting started. The President of the Banco de San

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Juan in 1955 said that while the bank lost money it helped him in his real estate operations. The same situation existed in the most advanced sections of the United States at the beginning of the nineteenth century, and in newly developing areas such as West Texas in the mid-twentieth century. In fact, capital for new small to medium-sized manufacturing companies is difficult to acquire even in the eastern United States except from individual investors who know the situation. The difference is that in old industrial areas there are more such investors looking for profitable use of their money. Presumably cash could only be sterilized for reasonably short periods in land speculation and excessively large bank deposits, although the period might be longer than economists once assumed.7 But eventually such Puerto Rican money was likely to be used for purposes not essential to the economic development of the Island. Investment in the securities of companies in the most advanced industrial nations was one such non-productive use, particularly the purchase of North American holdings in Puerto Rican sugar companies, and construction of unnecessarily elaborate buildings was another. Large bank balances could also be a temptation to higher consumer spending for imported luxuries. 2. Scarcity of administrative personnel. No area in the early stages of industrialization has had an adequate local supply of competent plant supervisors, sales managers, or chief accountants. The relatively high salaries paid to the few reliable professionals of this type draws such men away from teaching and research, or in other words, from the training of additional personnel. The same shortage of administrative personnel exists in less acute form in new, rap-

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idly developing areas of the United States. In 1950 a general statement in Texas was that industry moving in should bring its own managerial employees. DETERRENTS PARTICULARLY IMPORTANT IN PUERTO RICO

Factors discouraging entrepreneurial activity that have been particularly important in Puerto Rico involve some cultural characteristics that will be discussed in more detail in Chapter VI. 1. In so far as Puerto Rtcan progress depended on communication of United States techniques, the Spanish language itself was a substantial barrier. Before the thirties illiteracy among the older generation was an added problem in the smaller enterprises. "In relatively few business houses of the island," said an officer of the Chamber of Commerce of San Juan in 1915, "do either the proprietors or any of the office force speak English with sufficient fluency to make it easy for an American traveling man to introduce a line of goods on his first visit, or to acquire detailed information of a reliable nature upon trade conditions and the prospective demand for the articles he is offering for sale." 8 While entrepreneurs and office workers in the San Juan area gained proficiency in English, language continued to present a barrier in the rest of the Island. After the abolition of English as the language of instruction in the school system in 1934, it continued as an elementary school subject of varying importance, but in many schools there was no one with sufficient knowledge to teach the courses. Businessmen were the social group most likely to acquire a knowledge of English. Only about 10 per cent of the entrepreneurs interviewed in this project, all doing business outside of San Juan, asked to be questioned in Spanish. But

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the results of the questions to the panel of thirty on the reading of United States literature makes one suspect that even among those entrepreneurs who speak English fluently there has been a tendency to neglect English language publications. Among fifty-nine workers with mainland supervisors, interviewed by the Manpower Resources Project of the Social Science Research Center, twenty-one had supervisors who spoke to them in English. Of this latter group six understood the supervisors only part of the time. Looked at another way only fifteen out of fifty-nine workers received and thoroughly understood instructions in English.9 2. Values placed upon secure and dignified living, together with a distrust of change, work against expansion of enterprise. In Puerto Rico it is hard, however, to separate attitudes of complacency and disinterest in change rooted in the traditional culture from the hard physical fact of the smallness of the Puerto Rican market. Beyond the moderate annual increases from population growth and higher national income, each distributor or producer thought he could expand only at the expense of his competitors. Since this process was difficult and risky, because of reprisals, there was a tendency to treat demand as inelastic and outlets as relatively fixed. This, in turn, helps to explain the investment of profits in real estate or other relatively safe outside enterprises rather than in expansion of the firm. Few merchants tried to expand by cutting price and increasing sales effort. Much the same attitude of contentment with a moderate volume of business was shown by the panel of thirty manufacturers. Only one member had any definite plans for expansion. Attitudes based on social status imposed another type of barrier to manufacturing—dislike of dealing with workers and their problems. Six of the panel of thirty manufacturers

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listed this as a reason why so few Puerto Ricans choose to be manufacturers. 3. Both control of management by a family group and fear of training managers who may become competitors create barriers to downward flow of information and authority. Puerto Rican management procedures developed in accord with family patterns of control and a disinclination to share authority with outsiders. If relatives were unavailable, men who would assume administrative authority were selected from among the sons of friends. The tendencies toward patriarchal control were reinforced by the provisions of the Spanish Code of Commerce. The Code which was put into effect in 1886 prescribed many more of the details of conducting business than was the case in Anglo-Saxon statute or common law precedents. Mercantile record keeping, for example, was regulated in detail. Merchants had to keep a book for letters and telegrams, and partnerships as well as corporations had to keep minutes.10 The exact methods of bookkeeping were also laid down, and the Code warned that "books of merchants shall be evidence against themselves no proof to the contrary being admitted." 11 In case of discrepancy between books, correct form established legality.12 Furthermore, books, telegrams, and correspondence had to be preserved for the life of the business.13 The Spanish Code was left in force by the United States and only gradually modified by later statutes. Under such strict formal regulation it was not surprising that the head of the firm felt it necessary to know the details of the clerical work done in the office. Although the tradition of control by the head of the family was a product of agrarian family patterns and other traits of the culture, its survival was also encouraged by the forms of law. It has been said by some older businessmen that there

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was little change in management practice from Spanish days until after World War I. In the nineteen-twenties junior clerks stopped "sleeping-in," even in the conservative houses. But low base salaries and annual bonuses remained the rule. The fear of delegating authority helped to prevent the rise of a middle management group. Managers could not be found by advertising in the newspapers or consulting an agency. Sales managers or chief accountants had to be trained from the ranks, and unless they were relatives, the senior partner was unlikely to consult with them on policy. This situation persisted. A mainland consultant on the graphic arts industry wrote in 1954: Delegation of Responsibility and Authority appears to be almost unknown. Such a situation is probably inevitable, as a result of the lack of readiness to recognize and encourage initiative and ability displayed by subordinates. It must be broadly stated that improvement of the showings of many of the plants will be seriously restricted until such time as competent, responsible individuals can be placed in certain key positions and can relieve management of the multitudinous tasks now usually shouldered by one man or a very limited group.14 In general, the situation tended toward undermanagement, a failure to recognize that higher productivity might come from more careful planning and supervision. This same situation to a lesser extent characterized United States business in the nineteenth century. The salesmen for business machines should have been strong influences for improved managerial communication and better office procedures, but their effectiveness was reduced by two factors—the relatively small size of most offices and the government tax of 20 per cent on machinery that was already high-priced. Most of the extensive machine installations up to 1955 were in government offices or those of

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government-controlled public utilities. Buying by private enterprise was confined to typewriters and smaller types of computing machines. In 1955 a plan was entered into by eight San Juan merchants to have their accounting done on new machinery at Casa Lee, the Puerto Rican distributor for various continental business machinery firms. 4. Culture traits such as dignidad add to the problems of supervision and industrial discipline. Puerto Rican culture may have made workers more resistant to factory discipline than were North Americans. Being compelled to report for work at a certain minute, to do so six days a week, and to be completely obedient to a supervisor are perhaps contrary to all adult dignity, and especially so to those with the strong Latin American sense of personal dignity referred to as dignidad ( see page 124 ). The facts indicate that workers frequently quit their jobs after being reprimanded for lateness, absence, or poor work. The Brookings Institution investigators in the late twenties reported that "more than five years were required by a large handkerchief factory to raise the output of machine operatives to something approaching mainland standards. This was caused partly by the time it took to train workers to report regularly at their machines and to accustom them to the deliberate and painstaking methods of handwork." 15 In this process proper motivation of the girls was of primary importance. More even than on the mainland they responded positively or negatively to supervisors. But the exact qualities in a supervisor that produced favorable results were hard to define. Respect by the workers was essential, but beyond this productivity came from either fear or affection when coupled with the right type of personality. The early clothing workers were mainly women, and female supervisors were preferred. Yet, there was undoubtedly

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a middle- and upper-class prejudice against women entering factories. This meant that the normal leaders, the women of elite origins with high school education and the ability to command others with ease and graciousness were not usually available for industrial management. A feminine entrepreneur, who started one of the older firms, entered business against the wishes of her mother, who thought school teaching the only suitable occupation for a lady. As a result of this class attitude supervisors had usually to be promoted from the ranks. Such people lacked proper education, and were often too identified with the workers by friendship and family ties and too unaccustomed to leadership to preserve adequate discipline. In spite of the unsolved problem of supervision, a majority of the employers looking back, somewhat nostalgically, to the period before 1940 thought labor productivity had been generally satisfactory. They recalled no serious problem other than rising wages. An entrepreneur from the mainland with forty years' experience in Puerto Rico who was familiar with work rates in needlework in the United States said that the Island girls learned more slowly but ultimately reached the acceptable minimums of continental production. For example, an expert was hired from the mainland to show the girls how to speed up the folding of handkerchiefs. The instructor could fold one hundred to two hundred dozen an hour. After two years the Puerto Rican girls had increased their average from fifty to one hundred dozen. He thought that production "all depends on efficient management." This North American opinion reflects the general view of Puerto Rican entrepreneurs. But to most of the latter, as brought out also in Economic Development Administration studies, more efficient management is not sufficiently related to better shop supervision. For example, one young college-trained local entrepreneur

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in a shop where supervision was obviously poor and personal leadership was lacking, blamed the low productivity of the girls on the Puerto Rican diet and climate. He said that Puerto Rican girls were not good when it came to getting productivity out of a machine. Girls unskilled at machine operations could not be left alone because they would spoil a lot of work. This meant that they needed more foreladies than in the United States, although his shop did not have them. By the middle fifties problems of industrial discipline were less serious than in earlier decades, but the productivity of hand workers in most lines was still not as high as on the mainland, and good supervision remained extremely important. The Manpower Resources Project of the Social Science Research Center found that workers regarded courtesy and consideration by all odds the most important virtues in a supervisor, and that they found supervisors from the mainland more satisfactory in these respects than Puerto Rican. There was no proof, however, that these workers' opinions were directly related to high productivity. Investigators for the project also found that about 90 per cent of factory workers expected to like factory work and that 97 per cent liked it after experience.1® The seventy questionnaires of the present survey indicate that industrial discipline continued as a problem chiefly in the industries paying wages of under fifty cents an hour. Here a large part of the difficulty was caused by high rates of turnover. Some of the entrepreneurs in the low-paid industries were not sufficiently aware of the connections between low pay which diminished the value of the job to the worker and led to high turnover, inadequate supervision which gave the worker no feeling of making progress, and resulting bad morale and low productivity. 5. Too little interest in technological innovation perpetu-

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ates inefficient methods of production. After surveying a score of furniture manufacturing establishments in 1956 an analyst working for EDA reported: "There is great variation in efficiency of production methods, both as between plants and within any given plant itself . . . the plant that has invested $15,000 or so in the double end tenoner may be assembling cases or panels with hand clamps; or a plant that has recently installed a hot lacquer finishing system may also be applying varnish with a brush." 17 In a similar survey of the graphic arts industry a management consultant found that "quite a substantial portion of all equipment operated is obsolete or in an advanced stage of obsolescence; however, even the newer machines do not appear to be producing at substantially higher rates than the quite old ones. It is apparent that reliance is placed upon large numbers of machines, each yielding only a relatively small output, rather than upon high productivity of carefully selected, modern, well-operated machines." 18 These conditions, present to a degree in most Puerto Rican enterprise, are not entirely the result of entrepreneurial shortcomings. Low labor costs reduce the rate of obsolescence of machinery. New equipment must ordinarily pay for itself in a saving in wages, and if these are low the saving must be greater. But where new equipment would be economically justified shortage of capital, made more acute by the need for extending long credits to customers, has continuously checked replacement. A former Sears Roebuck executive surveying the Puerto Rican furniture industry in 1957 said that "This burdensome credit situation was found to be the most important factor in high costs throughout the chain of transactions." 19 On the other hand, prior to the efforts of EDA and other government agencies equipment was far more out-of-date.

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Left to themselves, without government stimulation, more Puerto Rican entrepreneurs might have remained content with obsolete methods that substantially raised costs.

6. The type of individualism in the culture has checked mergers among competitors. In spite of strong economic pressures on small wholesalers and sugar centrals, and the need for larger firms in furniture and apparel if export is to be undertaken, there is no record of mergers among Puerto Rican firms. Entrepreneurs do not find it as easy as do those on the mainland to get together and pool their resources. Men who have built up moderately successful businesses do not want to become just one of several executives in a larger company ( see page 96 ). The effects of the Spanish-American cultural traditions will be discussed more fully in Chapter VI, but meanwhile it should be remembered that many other agrarian cultures have developed values out of tune with those most favorable for industrial development. Each culture has its own stimulating or retarding characteristic. Nowhere has the progress from rule-of-thumb to well-informed entrepreneurship been rapid; nowhere have farm boys or girls automatically become good foremen, or merchants good factory managers. In the United States these initial problems of industrial entrepreneurship were partially solved in various young industries from 1790 to about 1850. This period of experimentation was as long as from Puerto Rico's initial experiments with factory industry to 1956. But the chronological analogy should not be pushed too far. Industrialists in the United States had to handle many of these problems without the benefit of outside experience. Puerto Rican manufacturers, in contrast, could get advice from mainland salesmen and agents and technical education in mainland schools and colleges.

ν Entrepreneurship and Type of Activity Even a cursory history of the last half-century makes it clear that the combined forces affecting Puerto Rican entrepreneurship have operated quite differently in different sectors of the economy. If the conventional divisions of retail and wholesale trade, light and heavy industry, and banking are chosen for analysis, this unevenness of entrepreneurial stimulation is evident. In fact, a range of the impact of United States ideas and techniques would probably proceed somewhat in the order stated, from rural retailing where the impact has been negligible to heavy industry and banking where it has been a major force. RETAIL TRADE

Although half a dozen retail merchants were interviewed, the relatively static situation in this field made it seem the least important area of business for the present study. On the basis of the six questionnaires plus discussions with men familiar with the marketing situations and reading of published materials there appear to have been only slight changes in the practices of the majority of retailers over the last fifty years. This is particularly true of the thousands of country colmados; it is less true of the few big city supermarkets, and house furnishing, department, or specialty stores. There seems to have been very little change in rural food retailing. Brookings Institution reported in 1930 that 92

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"small wayside stores with meagre stocks of staple provisions, canned goods, soft drinks, patent medicines, and cheap textiles still survive and, indeed appear to be multiplying. Their survival in the face of the modernization of urban trade is due largely to the poverty of the people and to the habit of hand-to-mouth buying, especially of food and other perishables found everywhere in the tropics." 1 Surveying food marketing some twenty years after the Brookings study Professors Galbraith and Holton found the same situation. "Puerto Rican retailers," they write, "have developed a live and let live attitude which allows for the business survival of the large number of people [fifteen thousand stores in 1950] found in the industry." 2 The individual retail entrepreneur, busy with daily tasks and short of capital, was in a poor position to introduce such innovations as voluntary chains and supermarkets. He needed the help of strong wholesalers ready to risk capital in new forms of organization. But the wholesalers did not respond. With one or two exceptions the locally-owned supermarkets or superettes (small self-service markets) which have appeared have been started with government aid and advice. Some of the local entrepreneurs who have entered into new methods of retailing appear to be well informed and vigorous. The owner of a new superette in a suburb of San Juan, for example, also owns a filling station, a restaurant, and, in partnership with a continental manufacturer, the only plant for processing acerola cherries. WHOLESALE TRADE

Many of the entrepreneurial characteristics of Puerto Rican wholesale trade have already been discussed (see pages 23-24). By the late twenties a distinct movement

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in the direction of mainland practices had taken place. The Brookings investigators wrote: "Business houses are, on the whole, competently managed and up to date. North American merchandise and techniques and advertising methods have displaced to a considerable extent the less aggressive trade practices and tactics of the leisurely colonial era." 3 Except for office machinery and better delivery trucks the mechanical equipment of wholesale distribution either in Puerto Rico or on the mainland changed little from the twenties on. Technological tranquillity made Puerto Rican wholesalers, in general, content with their existing methods. Furthermore, in relation to the total volume of trade wholesaling was a declining business, again a situation not generally conducive to innovation. Non-food wholesalers had quickly lost control of most of the Island's trade. In 1900 practically all trade moved through the hands of wholesale merchants. By the nineteentwenties much of it was handled by commission houses, manufacturers' agents, or by direct mail orders from retailers.4 By 1950 less than 30 per cent of non-food sales went through the hands of Island wholesalers.5 Over many decades about fifty firms controlled most of the initial distribution of food products. Drawn together by their Spanish origins, and inheriting certain cultural values that were in conflict with economic progress, they maintained an easygoing monopolistic competition. Most of the best selling brands had been imported by the same firms since the beginning of North American distributorships. Merchants reported little change over the years in the general situation. Ordinarily accounts were held or competed for by friendly service and extended credit rather than price cuts. A house that was willing to risk six months to a year in credit, and in some cases to renew old debts, could get some

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business away from importers who refused to carry the weaker risks. Promotional problems had always discouraged the introduction of new brands. As in rural areas of the United States before the coming of the automobile and supermarket, farmers' families became attached to familiar brands and were reluctant to change.® Whether in 1910 or 1950 the introduction of a new brand in Puerto Rico meant distributing cases on consignment, pricing low, and constant pushing by "missionary" salesmen, point of purchase displays, and advertising. Usually the United States producer shared the expense of the campaign which would often result in losses on the items for a couple of years. Such infrequent campaigns were another element in shifting trade from one importer to another. As in all business, the age of the chief entrepreneur affected the rate of adoption of new managerial practices. Men over fifty at the end of World War II, for example, were less likely to be affected in their business methods by the industrial upswing and its reactions on commercial activity than were younger merchants. One San Juan firm made rapid progress during these years partly because its senior partners were men under forty, educated in the United States. To these men, aggressive selling, management advice, delegation of authority, new office arrangements, and mechanized accounting were all matters for experiment. By the fifties direct orders to the mainland from wholesalers in the interior, as well as from supermarkets and cooperatives, were beginning to put pressure on the San Juan food importers. But the perishable nature of much stock and the large number of very small retailers left the big distributors in a relatively secure position. Up to 1955, at least,

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United States producers of branded products such as Del Monte or Heinz were protecting their "exclusive" agents by charging the direct purchaser a commission that was remitted to the by-passed distributor. The situation of the small local wholesaler who bought from the primary distributors was far less secure. With quick and easy truck deliveries all over the Island a dozen small food wholesalers in Ponce, for example, had a poor outlook for survival once supermarkets won a considerable share of retail trade. In the case of both big and small wholesalers the road to survival seemed to He in the direction of mergers of competitors and the promotion of voluntary retail chains. But these solutions, depending on cooperation, submergence of family ownership, and the development of new methods of management, made little progress. In answer to the question why the small food wholesalers in Ponce did not merge the son of one of them said: "This is my father's business and he won't turn it over to some one else." LIGHT INDUSTRY

Light industry in Puerto Rico may be conveniently defined to include chiefly apparel, furniture, food, beverages, and parts of building construction. Among entrepreneurs in these activities differences in levels of sophistication were striking. Judged by both the questionnaires and by the general situation, it seems probable that the differences between the most and least advanced were greater in the fifties than in earlier periods. Neither in Puerto Rico nor in the United States has any study set up the criteria of efficient management for various types of small business and shown what percentage of small business had such management. The general results of the interviews with the panel of thirty Puerto Rican manufac-

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turers, compared with a rather similar series of interviews in the mainland city of Norristown, Pennsylvania, would lead to the conclusion that the percentage of backward entrepreneurs would be higher on the Island. But there is an inescapable bias in this result. Vigorous, informed entrepreneurship appears to correlate with size of firm, and the Norristown firms were considerably larger than those in Puerto Rico. Turning first to the personal characteristics of these thirty Puerto Rican manufacturers, a composite or representative picture may be sketched. Drawn from series of non-homogeneous data the picture is necessarily somewhat misleading; there may be no single respondent possessing all of the "average" qualities. But it serves, at least, as a suggestive norm to apply to individual cases. On this basis the Puerto Rican industrial entrepreneur came from a middle-class family in which the father was a businessman or civil servant. The future industrialist received a high school education in Puerto Rico. He finally branched out for himself in a kind of manufacturing in which he had previous training as an employee either in making or distributing the product. With no initial help from the government or commercial bankers, early growth of the enterprise was hindered by lack of capital and inadequate plant accommodations.7 A scarcity of skilled labor and high turnover were additional problems. The influence of the United States, aside from supplying machinery, was not directly apparent. Outside of the textile business, North American information reached the Puerto Rican manufacturer in roundabout ways, in conversations, in a developing industrial climate, and in chance observations rather than by focused reading or other deliberate efforts. Many customs, attitudes, and techniques had no doubt been shaped over the years by the migration of mainland culture, but the manufacturer was not conscious of the

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process; he thought he was acting on the basis of his own experience in the local business community. Seeing his market as small, chiefly limited to the Island, and highly competitive, the manufacturer was not optimistic regarding expansion. Sales could be expanded by granting longer credit terms, but this required additional capital and involved large risks. Trade associations seemed ineffective in checking competition or influencing government and had little appeal. This relative isolation, added to lack of reading, still further reduced the flow of business information. Lack of organization and information was reflected in many ways. For example, price policies varied greatly within the same industry; styling and quality were not aided by market surveys or systematic assessment of trends.8 Plans were seldom made to take full advantage of taxexemption. A leading Puerto Rican member of EDA said that exemption was "subject to a remarkable degree of indifference among these predominantly local manufacturing firms," partly "because they do not know how to go about expanding. Their businesses tend to be governed, more by convention, in regard to such vital matters as product selection and design, technology of production, and method of merchandising, than by scientific rationalization and the profit motive." The range of entrepreneurial sophistication can be seen by looking at a questionnaire from each end of the scale. One is from an owner-manager making furniture. He had no direct contact with the United States either by visits or reading mainland literature, and did not think there had been any important change in machinery for his type of work. He employed a foreman and two salesmen. No advertising was done. The year before demand for his cheap furniture exceeded the supply, but he did not plan to in-

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crease production. He belonged to no business clubs or associations. In all, there was no superficial characteristic which would differentiate this entrepreneur from one doing the same type of business in the earliest days of Puerto Rican industrialization. The second questionnaire is from a manufacturer of men's clothing. The firm consisted of two active partners and an inactive capitalist. It had tax-exemption, a Development Bank Loan, and a loan from PRIDCO for 60 per cent of the cost of the factory building. The partner interviewed visited the mainland several times a year and read "all States literature concerning the business." There were two supervisors, two general foremen, four salesmen, an accountant, four clerical workers, and about a hundred employees. The firm hired a management consultant supplied by E D A to improve production. Advertising was placed on radio and television and in newspapers. The partner believed that they had detailed and accurate cost accounting. He belonged to the Rotary, Lions, and Exchange Club, and the firm was a member of the Manufacturers Association. In all, the entrepreneurship seemed on a level with that in similar companies in the industrial areas of the United States. Such contrasts could also be found between North American manufacturers of similar size particularly in the less developed areas. The differences between Puerto Rico and the United States were matters of degree. Whether mainland attitudes toward risk-taking, expansion, cooperation, and specialized education can be largely transferred to the Island with its small market area is problematical. Some new ideas concerning both technology and additional staff-work in management are probably not suited to the Puerto Rican scale of business. But better exchange of information would

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undoubtedly benefit Puerto Ricans, as it would small business everywhere. Alcoholic beverages form a separate branch of what may be classed as light industry. Unlike other forms of light manufacture this branch is carried on by relatively large, well-established companies. Eight firms, three locally-owned breweries and three distilleries and two distilleries owned outside the Island, have for many years constituted the industry. In 1954-55 the total production was fourteen million gallons of beer and four million gallons of rum. One of the local distilleries is part of a sugar central and refinery. With the exception of the smallest brewery all of the local firms entered the market shortly after the repeal of prohibition, some making use of pre-prohibition firms and equipment. The nature of the operations has led to close ties with the mainland and an emphasis on up-to-date technology. Without special studies of companies as large as those in either brewing or distilling it is hard to judge the character of local entrepreneurship. To the present writer, who has knowledge of United States brewing, the two larger breweries, at least, appear to be operating on as advanced a level of information and technology as their counterparts in the north. Local entrepreneurship was partly responsible for a 250 per cent increase in its share of the Island market for beer in the decade after World War II, and this upswing in production, in turn, did much to insure the adoption of up-to-date methods. The rum distillers had a great boom during World War II, reaching a total of over twelve million gallons in 1943-44. The market fell off to a low point of less than two million gallons in 1947-48. By 1950-51 demand had risen again to a relatively stable level of about four million gallons a year. The plant manager of the largest local producer of rum said

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that operations had become so routinized that they no longer bothered with the more exact accounting procedures of the boom years. Prices have been stabilized by monopolistic competition. In all, the situation does not seem to favor vigorous entrepreneurship, and by 1955 it may have been lacking. Building construction in Puerto Rico, as on the mainland, is both small and big business. Four construction contractors falling within the panel of thirty employed between ten and fifty men. On the other hand, a few construction companies, locally or mainland-owned, have several hundred employees and a number of college-trained engineers. Consequently, entrepreneurial efficiency covers a wide range from that of the small man who owns a quarry and subcontracts stone and cement work, relying solely on experience, to that of civil engineers educated on the mainland, in close touch with mainland practices, and possessed of enough capital to use up-to-date equipment. This latter type of firm might well be classed as "heavy industry." HEAVY INDUSTRY

If heavy industry is defined to include foundry work, manufacture of heavy machinery, chemicals, cement, and sugar milling, it can be said to be dominated by big business. Big is used in an Island sense to indicate a company with over five hundred employees and a capital investment of several million dollars. There were nine such companies listed (as of 1954) in the Statistical Annual for 1956. One familiar with the Island could deduce that the nine might include Empresas Ferré, Sucrs. de Abarca, Ochoa enterprises, Central Guánica, Central Aguirre and one or two other sugar mills, and possibly the India and Corona breweries.

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Among Puerto Rican manufacturers the family combinations of the Abarcas, Ferrés, and Gonzalez have been in a class by themselves from the standpoints of number of trained engineers, use of consulting specialists, and scale of operations. In all three cases the original entrepreneurs were either raised or trained outside of Puerto Rico. Except for Antonio Ferré they all came with sufficient capital to set up a small business. Save for the shift that gave the Gonzalez complete control in Ochoa in the early thirties, each set of businesses has remained in the hands of a single family group while becoming a diversified multi-million dollar complex of corporations. But origins in these cases are probably not of great importance. The entrepreneurs responsible for the expansion that was to make the family companies big business were all born in Puerto Rico. The progressive corporate income tax law put a premium on organizing big businesses in several small rather than one large corporation. As a result each of the enterprises under discussion became a set of corporations coordinated by common ownership and top officers. As in early American practices the family tie took the place of corporate controls. The model was much the same in each case; the chief stockholders, representing one major family and a few outsiders who had reached top posts, sat on the various boards of directors and were presidents of the companies. Some of the vice-presidents are members of the controlling family group; others are professional managers of the operating companies. The top group, therefore, functioned the way a committee of the board of directors would in a pyramid where there was a single coordinating company. In Empresas Ferré, for example, all boards had a common executive committee made up of the four Ferré brothers and M. A. Mayoral, the general comptroller. At Abarca all boards

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had a common secretary. The legal disassociation of the constituent companies did not prevent the introduction in the middle-fifties of general management conferences, staff work, and other coordinating and advisory activities similar to those of big continental companies. By 1955, for example, Empresas Ferré was holding conferences of all managers every fifteen days. Rather more than in unified United States corporations of similar size, the Puerto Rican family groups diversified their services and products. Since the small local market showed diminishing returns if exploited for a single product beyond a certain limit, profits had to be invested in new Unes. This was the same pattern of expansion that had prevailed in the United States and other young industrial nations when businesses geared to local markets prospered. But on the continent localism broke down rapidly in the late nineteenth and twentieth century, whereas in Puerto Rico the jump to outside markets was much more difficult to make. Hence expansion in Puerto Rico usually meant diversification in both lines and companies. The often referred to scarcity of Puerto Rican capital for industrial operations and lack of an investment security market meant that established businessmen with managerial know-how were the only private interests likely to undertake a large new venture. Manufacture of structural steel, cement, or chemicals, or the erection of drydock facilities exemplified such new activities by the firms under discussion. By 1955 each of the three organizations was composed of from seven to fourteen associated companies. Undoubtedly families held together better than in the United States, and family groups that would have split apart there with the coming of a new generation remained intact in Puerto Rico. In addition to a more family-centered

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culture, the marketing problems of the Puerto Rican economy worked in the direction of keeping the group together, while greater apparent opportunity for individual success pulled it apart in the States. On the other hand, one only has to think of duPonts or Fords to see that the difference was one of degree. Marketing was a complex process with all of these firms because they not only had a varied line of their own products but also distributed for a large number of continental machine and hardware firms. Advertising was done for their own products and services both directly and in cooperation with their Puerto Rican distributors. Other advertising was placed for their mainland accounts. Except for Empresas Ferré, which advertised their enterprises as a group in newspapers and other media, the practice was to have each associated company advertise its own product line. Thus Caribe and Caparra Motors in the Ochoa group advertised extensively whereas Ochoa fertilizers and chemicals were not advertised by their companies. The reasons given in this latter case were relative lack of media that would reach farmers and careful coverage by salesmen. Salesmen were always the major reliance in selling those lines that were not bought directly by ultimate customers. Abarca, for example, came to fly trained salesmen to their areas in Puerto Rico in the morning and then back to San Juan at the end of the day. This again emphasized the key role of the salesmen, of personal contact in Puerto Rican marketing. In all these firms top-executives also visited the large accounts such as sugar centrals and construction companies. While in some parts of their business Abarca and Empresas Ferré enjoyed secure local advantages that enabled them to maintain prices higher than on the mainland, in

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services such as engineering consulting work they were in keen competition. To attract and aid customers Abarca ran a testing laboratory for metals from 1928 on, and, as noted, used Central La Plata as a showroom for sugar machinery. In distributorships there were a few areas of competition between each of the three companies and many with manufacturing agents and wholesalers. To hold their position the latter tended to specialize, as for example. Ricardo Davila Succesores in pumps and gas station equipment. Ochoa's competition was mainly outside the group discussed here, with Armour Fertilizer Works which had long had a fertilizer mixing plant in Puerto Rico, and with San Miguel, an old local machinery importing and fertilizer mixing firm. Without going into the lesser activities of the Gonzalez, Abarcas, or Ferrés, it is clear that these particular families of Puerto Rican born entrepreneurs successfully adjusted themselves to the complex business world of the mid-twentieth century. They seem to have surmounted the barriers to large-scale expansion noted in connection with importing, sugar, and needlework. One reason may be that all three families produced a goodly number of men of unusual ability, another that all of the mid-twentieth-century generation of executives were educated in leading mainland universities. In 1955 there were four active Ferrés, seven Abarcas, and eight Gonzalez in senior positions. This meant in each case a closely-knit top organization with enough executives for specialization of their activities. But impersonal reasons were also important. The three families were in types of business where reasonably rapid adaptation to technological change was essential to success. Prolonged satisfaction with obsolete methods would obviously lead to failure. Engineers, trained in scientific experimentation, were dominant in the top management. These

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factors produced attitudes different from those of businessmen less directly conditioned to continuous technological change. Another factor is that these companies were supplying products basic to the "revolution" in the Island's economy. Once they had established themselves as leaders in their type of activity they expanded with the economic life of the Island. They also had their major interests in activities requiring relatively large capital investment. In Puerto Rico, particularly, it was difficult to organize competition in such activities. Furthermore, bigness in the manufacturing done by these companies meant management of large factories. It necessitated experience with hierarchical organization, staff divisions for technical advice, and continuous study—elements less essential to trade or small business. Consequently when one of these family groups entered a new Une of business they were able to draw on their existing companies for experienced management, and they had staff members used to mastering new problems. The picture of local entrepreneurship in sugar refining is strikingly different from that of these three firms associated with expanding industrial activities. Many factors may account for differences. The sugar centrals were mainly in rural areas and were closely tied to unchanging agricultural problems. With a total quota set by the federal government, expansion had to be at the expense of neighboring centrals, and, as in food wholesaling, this was difficult. As a result, with the possible exception of the complex of Serrailles enterprises in milling, refining, distilling, and candy making, no locally-owned centrals became as big as the three industrial organizations just discussed. 9 But granting the

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limitations of the existing situation in sugar processing there still appeared to be weaknesses in entrepreneurship. Puerto Rican proprietors sent their sons to mainland engineering schools and put them in charge of operations in the central. But aside from any question of the ability of such family engineers, managers from the mainland regarded the locally-owned centrals as lacking in sufficient numbers of trained technologists. One of the largest Puerto Rican owned companies, for example, reported two collegetrained technical men on its staff in 1955 while a continental firm, with extensive administration lands but only about onethird larger grinding capacity, had some sixty graduate engineers. The frustrations of the technologist in locally-owned sugar companies is noted in a confidential report prepared in 1955 for industry use by a Puerto Rican analyst. Sugar mill engineers make up a nomad group, because the environment in which they work is more often than not discouraging, and they find it necessary to move from one mill to another seeking betterment. . . . For the mill engineer the high levels of management are often inaccessible to formally discuss far reaching projects and their feasibility. Failure to invest in experimental improvements was a part of a larger pattern of under-investment. Capital for such purposes was not readily available. This was particularly true for the smaller centrals that needed to expand in order to survive. But even small measures of improvement were often postponed. As one commentator expressed it: "The true problems of the sugar industry in this island are ultimately an attitude of complacency in the face of its problems." Mainland economists surveying the industry in the late thirties noted "the failure of the industry as a whole to engage extensively in experimentation and to adopt standard practices." 10

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As the pressure of costs mounted some reductions were made in managerial overhead, but, as in the case of mill improvements, these were necessarily small in comparison to the massive expense of cutting and handling cane and sugar. Central San Vicente, for example, gave up its San Juan office in 1955 and conducted its business from the mill. But smaller mills had no San Juan office to close. On the other hand, operating staff in many mills was already too small for maximum efficiency. One solution to the problems of lack of capital for improvement would have been mergers of centrals and sale of the equipment of the less efficient to raise money for modernizing and enlarging the remaining mills. In 1933, for example, there were a dozen centrals with less than one thousand tons a day capacity, and seven of these had less than five hundred tons. In 1955 there were still five independent centrals with capacities between eight hundred and nineteen hundred tons. These small mills not only needed a large labor force in relation to their output but they also had too small a gross income to support properly trained and specialized management. Yet there is no record of voluntary mergers of two or more mills to form a consolidated company, as distinct from occasional purchases of smaller mills by larger ones. The barrier to mergers, a process that seemed so inevitable in the United States, appears to have been the same kind of unyielding individualism and family pride that had prevented combination among importers. Not only did the sugar producers fail to coalesce into five or six big companies, they did little to promote joint action on industry-wide problems. The Association of Sugar Producers of Puerto Rico, formed in 1909, had carried on "practically no collective activities on a permanent basis."

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A stronger competitive position could also come from vertical integration and development of new products. Before the imposition of sugar quotas there was nothing to hinder milis from extending their operations to refining. It is interesting to note that this move was begun in the twenties by Felix Juan Serrailles, who controlled Central Mercedita near Ponce. He organized the Porto Rico American Sugar Refinery and built a plant next to Central Mercedita that could refine the entire output of raw sugar. Three years after the repeal of prohibition he added a distillery that converted the molasses that came from sugar milling into two brands of rum and went one stage further in use of sugar by setting up a candy factory. These strokes of business policy freed the Serrailles family from the problems of marketing raw sugar and gave their finished products a leading position in the local market. Of the five companies refining sugar commercially on the Island in the midnineteen-fifties, Porto Rico American Sugar produced more than the other four combined. A different type of vertical integration was the expansion of the sugar machinery and repair company, Succesores de Abarca, into milling. In 1931 they purchased Central La Plata at San Sebastian and in 1936 Central Combalache near Arecibo. The latter was sold to the government in 1945, but La Plata continued to be operated as a show place for new sugar machinery. The two largest sugar companies, which are owned in the United States, expanded horizontally and made use of byproducts. In the twenties South Porto Rico Sugar Company, which operated Central Guánica, bought San Domingan Centrals, which came to produce two-thirds of its sugar. In 1953 a subsidiary was set up in the Dominican Republic to manufacture furfural, an ingredient of nylon, from the resi-

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due of the ground cane. Central Aguirre expanded horizontally by buying two nearby Puerto Rican-owned centrals. Early in the depression of the thirties Aguirre entered into an ownership agreement with a subsidiary of Monsanto Chemical Company to convert molasses into alcohol. All centrals used the residue of ground cane, called bagasse, as fuel, although oil was more satisfactory if other uses could be found for bagasse. But the movement toward vertical integration or use of by-products was not widespread. The great majority of Puerto Rican centrals sold their raw sugar and molasses to other companies. One of the most promising means of reducing cost was shipment of sugar in bulk instead of in bags. As noted earlier this change was introduced by Aguirre in the late forties, but its spread to other centrals was checked by organized labor on the docks. While the political and economic difficulties of overcoming this government-supported opposition were great, the lack of progress over a period of ten years in finding ways to accomplish so important a reduction in cost indicates some lack of entrepreneurial initiative. To ascribe the failure chiefly to Puerto Rican culture encounters the problem that two of the four firms controlled by mainland stockholders also continued to ship the old way. All in all, the sugar situation has illustrated the major problem of industries "affected with a public interest." Because the sugar industry employed a large percentage of the workers of the Island it had been strictly regulated. As in other countries, regulation was held by leaders in the industry to be a major force in discouraging investment. The extent to which this was true would be hard to demonstrate. Certainly the industry suffered from an inadequate flow of capital into new facilities. In one case, at least, further investment of main-

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land capital was prevented by legal uncertainties in government relations. There seems to have been no question of the diffusion of knowledge regarding more efficient ways of operation. The top executives of Puerto Rican-owned centrals traveled to the United States, and studied conditions in Louisiana. Furthermore, some Puerto Rican central was always close to the vanguard of progress. The major failure appeared to be lack of vigorous action to acquire greater resources in both productive capacity and specialists by merger or other cooperative effort. BANKING

A comparison of entrepreneurship in banking to that in sugar centrals presents a paradox. Most of the banks had been under the control of the same general family interests since the early twenties. The managerial set-up was old and stable, but in the large banks, at least, the entrepreneurs were well informed and aggressive. The resolution of this apparent contradiction lies in the business situation. The Puerto Rican bankers had to be in close contact with the New York money market, and they built branch systems that forced advanced thinking regarding the structure of management. From the twenties on the local bankers began consciously to model their organizations on the branches of the United States and Canadian banks in the Island. In general the Island banks trained their own staff. Managers of all the rapidly growing ones complained of the difficulty in securing competent employees: those who could speak English, learn banking, and were willing to stay with the bank. Of the three requirements good English was said to be the most difficult to satisfy. Growth as rapid as that of the Banco de San Juan, which increased its assets 50 per

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cent between 1954 and 1955, made the problem particularly acute. College graduates were preferred by personnel officers. Some banks would hire only a limited number of people without college training but graduates were never available in large enough quantity. Most of the senior officers of the three big local banks had had either college education on the mainland or some training in continental business practices. To illustrate the latter, Rafael Carrion, President of Banco Popular, had taken a sales training course with Baldwin Locomotive Works in Philadelphia and had represented this company for many years, while Rafael Sanz, President of Crédito Ahorra de Ponceño, had been a branch manager for American Colonial Bank. In addition, long and close connections with New York banking, and in the fifties inspection by Federal Deposit Insurance Corporation, worked strongly in the direction of adopting United States practices. Except for certain differences stemming from size and from the existence of the government Development Bank for long-term lending, the banking system by 1955 was similar to those of the states in which general branch banking was permitted. The relatively small size of most of the local banks and their branches made them slow in departmentalizing their activities. In four small banks with less than five million in resources, elaborate subdivision would have been wasteful. Their continued existence in the face of the competition of bigger banks depended on direct and inexpensive ways of conducting business. Because of its large size and centralized control, in contrast to the dual structure of the Crédito y Ahorro Ponceño, Banco Popular led in departmentalization. In 1952, after some twenty years of departmental growth a complete management structure for Popular was designed by a firm of con-

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sultants from Chicago. The bank was divided into five major administrative divisions: loan, investment, operations, control, and public relations. The divisions were headed respectively by the chief officers of the bank, including Raphael Carrión, Jr., the executive vice-president. The divisions extended downward to the branches, although in the smaller ones the same managers participated in several divisions. In general, the plan, which provided for staff committees in each division, set up a strongly centralized administration in which subordinates had a feeling of participation. The Crédito y Ahorro Ponceño had separate departments in both Ponce and San Juan for auditing, personal loans, credit analysis, and personnel. As president, Mr. Sanz ran the Ponce division with its branches, while executive vicepresident Esteban A. Bird presided in San Juan. Monthly meetings were held for the staffs of the two divisions, but only the top officers, who were also directors, coordinated the organization as a whole. While on the basis of volume of business the head office should have been in San Juan, it was felt that a certain objectivity was gained by having the president and the majority of the board removed from the business enthusiasms of the booming metropolitan area, and the arrangement preserved the historic traditions of the bank as an institution of Ponce. The early relations of the head office of Puerto Rican banks to the branches was worked out largely on the basis of local experience. After World War II the trend was to delegate more authority to branch managers for making small loans, but to keep credit files at the head office. Coordination, as at Popular, by staff or committee meetings, rather than by visits from traveling officers, came only in the middle fifties.

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Business promotion was always in the hands of branch managers and bank officers rather than salesmen. Managers were selected for their knowledge of and standing in the community as much as for their experience in banking. If the latter were deficient they could be given an experienced assistant. The metropolitan San Juan banks advertised extensively in newspapers, other publications, and on television. A Puerto Rican Bankers Association was formed in 1917, but was inactive from the collapse of 1932 until it was given new life in 1954. A Bankers Club, primarily for luncheons, was established in 1940. Active cooperative action, as distinct from discussion in the reactivated association ran into the difficulty that the continental branches could not commit their head offices to local policies. Thus representatives of institutions that always controlled over a third of the commercial banking assets of the Island, while able to assume responsibilities as individuals, usually could not take the lead in positive action. A solution, advocated by Mr. Bird and others, was a separate association for the Puerto Rican-owned commercial banks. Leading bankers appeared to enjoy high public respect. Perhaps this resulted in the forties and fifties from an unusually able group of men at the head of local banking. Because bankers dealt directly with ultimate consumers in a fiduciary relationship they undoubtedly tried harder than wholesalers or manufacturers to win public friendship and confidence. GENERAL ENTREPRENEURS

The interests of a number of Puerto Rican businessmen have ranged so widely over different types of activity that they must be classified as general entrepreneurs. Aside from

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the major manufacturing families already discussed, the initial basis for capital accumulation was usually real estate or trade on a large scale. The prosperous years of the twenties encouraged new ventures, but not to the extent of the great period of prosperity and government aid following World War II. The general practice, encouraged by progressive corporation income taxes, was to set up a separate company for each activity and to put a relative, preferably a son or brother, at its head. Thus the original firm, per se, did not become bigger or more complex in its management but became one of a group of associated family enterprises. While there was undoubtedly a correlation between the vigor and intelligence of the entrepreneur and expansion into new activities, there was no apparent correlation of this type of energy with acceptance of more systematic, complex, and impersonal business procedure. One merchant family acquired three widely different outside enterprises, yet the original importing firm was still operated by the oldest brother in about the same fashion as in earlier years. He maintained direct personal relations with each salesman, acted as sales manager, and supervised accounting. Spanish tradition was further emphasized by his practice of lunch at home and a siesta. In rapidly-growing Puerto Rico these general entrepreneurs were almost bound to become involved in urban real estate and building operations. Another family cluster like the one described above was composed of companies for real estate operations, distributorships for hardware and many types of equipment, and production of iron reinforcing rods for concrete construction. The real estate company had secured Development Bank loans for its building operations in 1947 and 1951. The companies were operated by five brothers without much regard for corporate divisions.

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In contrast to the leaders of most of the largest family complexes none of the brothers had been educated on the mainland. In all, about three hundred employees were involved, and weekly meetings were held by the brothers, their assistants, and the salesmen. Their operations continued to expand. In the panel of forty older business leaders such a pattern was more the rule than the exception; there were few senior partners who were not involved in more than one type of business activity. To some unmeasurable degree the tendency to invest sums carrying a partnership type of participation in enterprises other than the one that was the original concern of the entrepreneur has been increased not only by the small size of the Island but also by the relative scarcity of local capital and the absence of a securities market. The Puerto Rican wishing to find profitable use for his money on the Island could not, in general, buy shares of readily marketable stock but must involve himself more irrevocably in his investment. Conversely the man looking for capital has had to rely largely on friends and relatives who will trust him, but may want to keep a close eye on the operations.

VI Cultural Differentials Materials coming from interviews and the recorded history of the Island indicate continuing differences between the behavior of Puerto Rican and mainland entrepreneurs. As we have seen, these are to a considerable degree reactions to different physical and economic situations. But efforts at causal explanation of the differences based solely on measurable environmental factors appear inadequate to both local social scientists and businessmen. This has necessitated an analysis of less tangible elements that have influenced Puerto Rican entrepreneurship. THE AGRARIAN HERITAGE

Social organization in nations whose economic life is devoted mainly to trade and agriculture has had marked similarities all over the western world. Status lines based on landholding have been well defined and rates of social mobility relatively low. Except where large-scale migration has been the rule, as in parts of the United States, the extended family, made up of many relatives living in the same community, has become a central focus of social life and economic influence. Puerto Rico with a plantation aristocracy and low rate of population movement, save in the major seaports, illustrated this pattern before 1898, and in many areas up to or beyond the nineteen-forties. Nowhere have the roles suited to a stable agricultural 117

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society been those required by factory industry in large cities. For example, the paternalistic role of the father controlling the family farm, providing the jobs and subsistence, and dictating most of the family actions loses meaning when livelihood comes to depend on skills rather than on land. Dependent on outside employment the family loses value as an economic unit and its members have to adjust to impersonal dealings with urban business and governmental agencies. The rate at which these changes have occurred in the last thirty years of Puerto Rican history has added to the usual problems of adjustment. As defined by the United States census, Puerto Rico in 1930 was less than 30 per cent urban, while by 1955 urban population was probably approaching 50 per cent. The family-centered pattern was undoubtedly weakening among those who worked for wages in the larger industrial centers, but our evidence indicates that among the business elite it survived in an altered form. Close relatives were turned to for assistance in managing business properties. In this way the extended family moved from a social system based on agriculture to a system of economic control based on the family firm. A large part of the attitudes found among Puerto Rican entrepreneurs that appear to differ from those on the mainland in the twentieth century mav be attributed to the stronger persistence of these habits of a family-centered, clearly-stratified agricultural society. But at many points in the two preceding chapters it has appeared that there is a margin of difference not fully accounted for by geography, economics, or family structure. Puerto Rican entrepreneurs of 1955 were not merely later day replicas of English or United States businessmen of an earlier period. For these

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residual differences an explanation based on cultural characteristics is suggestive. PUERTO RICAN CULTURE

Economists Buchanan and Ellis have warned their colleagues against attempts at relating economic growth to differences in culture, saying: "The subject is one of such vast proportions as to repel all but the most foolhardy." 1 While the subject is a large one, the amount of study that has been devoted to Puerto Rican and Latin American culture and certain developing ideas of anthropologists encourage some highly tentative hypotheses and cultural comparisons. Furthermore, since such hypotheses seem necessary to an adequate explanation of economic behavior they should be clearly and explicitly stated so that they may be investigated further and attacked where vulnerable. The Puerto Rican cultural heritage poses particularly delicate problems in analysis. With the rest of Latin America, except for Brazil, it was subject to the deliberate transplantation of Spanish customs. "Apparently in the field of religion, just as in government and economics, the desirable elements were determined and rigidly imposed." 2 Furthermore, close contact with Spain continued nearly a century longer in Puerto Rico and Cuba than elsewhere in the Latin American world. Another differentiating factor was the rapid assimilation of the Borinquen Indians. Whereas anthropologists regard Latin American culture in general as a fusion of that of the native Indians and invading Spaniards, no such pattern is apparent in Puerto Rico.3 While Indians left some traces and wandering non-Spanish Europeans and Negro slaves brought small cultural contributions, the dominant influences were those of Spain and other parts of Latin America

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modified to fit the geographical and social situation of a small, agricultural island that had high military value to the Spanish Empire. Right up to 1898 Spaniards in government and trade moved frequently between the colony and the mother countrv. y As may be surmised from this last statement, the fresh contacts with Spain were greater in government and commercial centers than in the back country, and greater among those residents of the latter whose wealth allowed them to spend time in San Juan, Ponce, or Mayaguez, or to travel to Spain. While the indigenous modifications of the Spanish heritage were likely to be in the direction of simpler patterns suited to a poor countryside, people with money could afford to maintain the more decorous Spanish ways. For both of these reasons the upper classes of Puerto Rico are generally held to have retained more Spanish culture than the lower. 4 In support of this hypothesis anthropologist Julian Steward writes in a study of Puerto Rico: "Many of the characteristics considered typical of Latin America are essentially upper class characteristics which depend upon wealth, leisure, and status and which would not function among the lower classes." 5 The old, pre-American upper-class of Puerto Rico was composed largely of landowners. This group, some of whose ancestors had come from other Spanish colonies, shared a type of Spanish culture, but save as they entered business or the professions they are not considered here. The presence of Spanish government and church officials together with the wealthy merchants of Spanish birth made San Juan more purely Spanish than other parts of the Island. After the American occupation merchants and other business and professional men either having, or anxious to assume, the mores of the upper-class perpetuated the Spanish cultural heritage

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in the growing business centers. After World War I, some large manufacturers and a few bankers became generally more Americanized than the merchants, but they formed a numerically small segment of the business community. Among the small manufacturers the Spanish type of culture was more modified by indigenous Puerto Rican traits than in the case of larger operators, and they remained less Americanized than most of the big manufacturers.® A survey of the occupations of the fathers of the seventyodd respondents whose views form the main basis for this study affirms the hypothesis, directly stated by several, that the business elite is of upper-middle or upper-class origin. Of the forty older business leaders twelve said their fathers were farmers, which occupation could, of course, cover all but the lowest statuses. But in four of these cases the son attended college in the States; so that for them, at least, it can be assumed that the "farmer" father was a man of considerable property. None said their fathers were artisans or laborers. The panel of thirty shows eleven "fanner" fathers, but again no artisans or laborers. Looked at another way, the respondents indicate that in the generations since 1900 successful Puerto Rican businessmen have not been selfmade in the sense of rising from the laboring class, and have generally come from business or professional families. At the beginning of the century the dominant business group, the food importers, prided themselves on Spanish birth and tried to prevent their children from marrying outside their own social circle. To the landholders as well as the common people, the merchants were Spaniards living in Puerto Rico rather that Puerto Ricans. The merchants perpetuated the situation by recruiting their employees from Spain. Early in the century a native-born Puerto Rican, even if educated in Europe, was said to have a hard time getting

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a good mercantile position. The Chamber of Commerce of San Juan at this time had almost no native-born Puerto Rican members.7 Employees on the managerial level who were not close relatives of the senior partner were generally young Spaniards recommended by relatives or friends in Spain. In the Spanish period there was economic force behind these close mercantile ties with the mother country. Forty per cent of the import trade in 1897 was with Spain, as against only 20 per cent with the United States, and food made up nearly half the total.8 Therefore, in studying the business actions of the merchants who, aside from bankers and the owners of sugar centrals, were the only important businessmen of the first three American decades, the characteristics of Spanish culture have direct revelance. But for most of the business elite Spanish culture may be taken as a pole toward which deeply patterned customs and attitudes have tended. Regardless of the more continuous Spanish influence in Puerto Rico's history than in the case of mainland Latin America, however, it is not necessary for the purposes of this study to argue for any exceptional force of the Spanish tradition. Characteristics of Spanish origins attributed by anthropologists to Latin America in general are sufficient to explain the characteristics suggested by our data. Anthropologist John Gillin sees the basic "components of the ethos," or what some writers would call high-level "themes" or "values," in general Latin American culture as: 1) a particular concept of the individual; 2) a concept of man in a stratified social hierarchy; and 3) a transcendental or idealistic view of the world.9 The Latin American or Puerto Rican conception of individualism is of central importance to entrepreneurial behavior: 10

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The Latin American notion of the value of the individual differs radically from that current in the North American culture. To put it as succinctly as possible, each person is valuable because of a unique inner quality or worth he possesses. The United States credo, on the other hand, holds (at least ideally) that the individual merits respect because he has the right to be considered "just as good as the next person" or, at least because he has the right to an "equal chance" or opportunity with other persons.

Thus in Latin America the individual is valued because he is not like anyone else. Whereas the effort of each man on the mainland to be "as good as the next person" inevitably produced a competitive type of individualism, the possession of a "unique inner quality" is quite divorced from external contests. "This inner quality is often spoken of as the 'soul' (alma, Anima). . . ." 11 The individual's defense of his inner integrity can interfere with cooperation in corporate or group aims. William L. Schurz, a North American scholar whose life had been largely spent among Latin peoples, wrote: 12 Above all the Latin American is an individualist. Though gregarious, he is averse to merging his personality in any group or to sacrificing its claims to any mass demands . . . he is not a good organization man, and his conferences and committees would probably be the despair of an American chairman. He does not take kindly to the restraints of teamwork and resents the discipline of the group. Among his interests his family comes first— and the family is only a prolongation of the individual.

It is interesting to note that penetrating students of Spanish culture in Spain affirm the same qualities. Salvador de Madariaga has written that the Spaniard "defends himself against the intrusion of gregarious passion by asserting his own personality against the group." 13 Amerigo Castro, perhaps the most widely respected historian of Spain, writes in a similar vein:

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This living-in-oneself makes the person feel himself a lost stranger when he enters into the otherness of the world, where he runs the risk of ceasing to be himself at the same time that he does not make a real place for himself in the otherness. This is what the Spaniards have felt as they opposed external innovation. . . . The person lives in watchful guard over his own wholeness, and this leads to the drama of being left without any personal awareness. 14

Raymond L. Scheele, one of Professor Steward's field workers, makes some observations sbout San Juan's upperclass families that add to the picture of regard for unique inner worth rather than conformity to the group in the individualism of the business elite. In contrast to the businessman's culture, which he thinks "fairly Americanized," he finds "a women's culture which is largely traditional." Yet, in spite of a surface acceptance of United States culture he found that for men "to surrender individual authority and waive personal status in order to achieve a common purpose by team work was a new disruptive pattern." He noted similar characteristics in the play of upper-class school children— "there is a notable absence of truly organized sports and a competitive spirit. Instead they go about in a random way, perhaps exploring the neighborhood for 'treasures.' " 15 The Latin American or Spanish type of individualism, the man's "watchful guard over his own wholeness," gives rise to the self-protective attitude known as dignidad. "On the basis of much time spent discussing this concept with Latin Americans of all social classes and of examining its use in literature," writes Professor Gillin, "I believe I am correct in saying the dignidad de la persona refers to the inner integrity or worth which every person is supposed to have originally and to guard jealously. It should not be confused with dignity of social position or dignity of office." 16 Ex-Governor Rexford G. Tugwell saw dignidad as a for-

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midable barrier to economic progress. The Puerto Ricans, he wrote possess a pride which is almost an obsession and which leads frequently to the substitution of fancy for fact . . . leads to the covering up of weakness and incompetence. . . . so fierce is the wish for dominance it might lead to the avoidance of outside competition, to the protection of mediocrity and so to a general lowering of the levels of competence. . . . Dignidad was a dysgenic force which ran all through insular life and there was no apparent means for correction.17 An allied characteristic of Spanish and Puerto Rican culture is personalismo or personalism. Professor Gillin says : The controlling concept of the soul is, I believe, logically and emotionally connected with the pattern of personalism in Latin American life. A more extended analysis of the matter would doubtless involve an analysis of security, psychosocially considered, as a product or precipitate of the operation and practice of the culture. Nevertheless, on the level we are discussing here, I believe that it is correct to assert that the pattern prescribes that for the Latin American only those persons with whom he is in personal, that is, intimate relationships can be expected to have with him a reciprocal appreciation of his soul. On the psychological level, this means that only with such persons can he feel secure.18 "The roots of personalismo in Puerto Rico," writes Henry Wells, "i.e. of the habit of deference to and dependence upon personal authority are to be found in the distribution of political and economic power during four centuries of Spanish rule. . . . Because of the overwhelmingly rural character of the island and the immobility of the peasantry in Spanish times, it seems likely that the large landowner was more important than the colonial official in the development of the personalismo tradition." 19

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This type of feeling has existed in many agricultural societies. Anthropologist Clyde Kluckhohn even finds it in the contemporary South.20 But wherever it exists it is a modifier of the classic ideal of the free impersonal market. Professor Gillin notes that "the impersonal confidence which, say, a buyer has toward a salesman of a large established corporation in the United States is not yet part of the pattern in Latin America. There, you have to know him as an individual and to understand his 'soul' really to have confidence in him." 21 Obviously establishment of this confidence requires a cordial face-to-face contact. Professor de Madariaga has written: "The importance of personal contact is well known wherever people of the Spanish race are concerned. Whether the question in debate is a trivial affair or the most important business, a relation from man to man is indispensable if results are to be obtained." 22 Although personal contact has probably been emphasized in all simple, agricultural societies, including that of the early United States, the concept of protecting the inner uniqueness of the individual and the strength of dignidad seem to stem directly from the Spanish heritage. As has been emphasized, they impose different conditions on business contacts and business evolution from those on the mainland. Turning to Professor Gillin's second component of the ethos, the concept of man in a stratified social hierarchy, our empirical findings in Puerto Rico would bear out his thesis that "all participants in Latin American culture are 1) very class- or social-position conscious; and 2) likewise conscious of the possibilities of mobility." 23 These characteristics are shown in the tendency of members of the large new middle-class of San Juan to seek marks of social prestige such as expensive homes or automobiles, and to seek identification with the upper-class. Again, these are usual char-

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acteristics of an industrial urban middle-class, but it appears that recognition and tentative acceptance of a specific position in the social hierarchy may be clearer than on the mainland. Combined with pulls still inherent in the extended family system clearer recognition of stratification tends to encourage business relations based on family, friendship, and status rather than maximum exploitation of economic opportunities. Finally Professor Gillin's third component of the ethos has pervasive significance. Anthropologist Eugenio Fernández Méndez put a series of articles by various authors on Latin American or Puerto Rican culture in a multigraphed volume called Portrait of a Society. In the opening article Professor Gillin writes: 24 Ideologically this culture is humanistic rather than puritanical if such contrast is permissible. Intellectually it is characterized by logic and dialectics, rather than by empiricism and pragmatics; the word is valued more highly than the thing; the manipulation of symbols ( as in argument ) is more cultivated than the manipulation of natural forces and objects (as in mechanics). . . . I believe, that ideas from abroad find more ready acceptance in the Latin American culture than artifacts and their associated techniques. In his later discussion of ethos Professor Gillin adds: "It is just possible that technology and pragmatism alone do not ring a bell in the Latin America culture. . . . In terms of the Latin American culture they must be combined with something more." 25 Professor Steward, who is cautious about ascribing general culture characteristics, nevertheless agrees that Puerto Ricans share "emphasis upon spiritual and human rather than commercial values; interest in poetry; literature and philosophy rather than science and industry; and emphasis

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on interpersonal relations rather than a competitive individualism." 26 He qualifies these generalizations by adding that such traits, not found equally in all strata, tend to be stronger in the upper-classes.27 These attitudes and values coming from the agrarian and Spanish traditions may well be a formula for a good society. The Puerto Rican social problem, as indicated in the government's Operation Serenity which stresses maintaining the best parts of the Island culture, mav be to preserve this humanistic heritage. But from the purely materialistic standpoint of judging the impact on economic development it is interesting to compare these historic attitudes and values with those of mainland entrepreneurs. SOME UNITED STATES CHARACTERISTICS

In comparing Puerto Rican and mainland business attitudes it should be remembered that analvsis of the characteristics of special subcultures is at an early stage in both areas. While the North American anthropologists speak in the idiom of science, their findings, just as those of humanists like Castro or de Madariaga, rest on deductions from observations of situations seldom set up as controlled experiments. What is significant is that most of the observers of each culture respectively see characteristics that help to explain differences in business development and economic growth. In contrast to the emphasis on soul or inner worth in Latin American individualism, and its corollary of self-justification from feeling rather than external criteria, anthropologist Clyde Kluckhohn has written of the United States type of individualism as placing great emphasis on justification by external success.28 Responsibility to external criteria was also emphasized by the team of economists and sociologists who

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wrote The American Business Creed. They said that United States businessmen hold that "each individual must direct his actions according to moral norms and be prepared to accept the consequences of his actions." 29 In similar vein, Kaspar D. Naegele, who surveyed the opinions over a hundred years of a number of well-known writers on American value systems, notes: "The emphasis on the justified visible deed in relation to tangible accomplishment thus produces virtuous materialism in line with 'externalism.' " 30 In contrast to the personalism of Puerto Rico, United States businessmen have been moving, with perhaps alarming rapidity, toward concepts of team or committee work and group decisions. In larger companies, at least, negative sanctions are brought to bear against the man who is too individualistic or "different." In the words of sociologist George C. Homans, the man of independent ideas is likely to be regarded as "not an accepted member of the group," or even as "maladjusted." 31 While face-to-face contact is important in all cultures, North Americans are coming to work increasingly with written reports, whose authors may never appear. Instead of seeing emotion or feeling as a major justification for behavior, North Americans, according to Naegele, regard emotions as "inconvenient disturbers of the peace . . . as the source of that ineradicable irrationality which is both a welcome asset ( for it makes romance possible ) and an unwelcome unknown quantity in the calculations of individualistic politics, business, and manipulation." 82 Professor Kluckhohn writes that North Americans believe "Man is essentially a 'rational animal.' The individual if 'let alone' and not 'corrupted by bad company' will be reasonable." 33 It is a cliché among writers on United States culture that achievement of man's hopes or values is assumed to follow

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from material success. Since the arts and abstract ideas generally do not lead to material success, whereas the cultivation of good business relations and familiarity with technology do, the latter are more highly regarded. A premium is put on being friendly or 'outgoing" and on technological innovation, whereas innovations in abstract ideas tend to be treated as unimportant or, if in the social field, as dangerous. "Practical" doctors of medicine take social precedence over "impractical" doctors of philosophy, and the numerous poets who have been the national idols of Puerto Rico and other Spanish cultures are rare in the United States and largely unknown to the upper-income elite. In 1953 Professor Kluckhohn prepared a brief summary of North American culture "characteristics" on which he believes there is essential agreement. Among many other characteristics he pointed out: 3 4 They are geared to success and to winning. Winning is somehow always possible. Obstacles are invigorating. For defeat there is just no answer and no rationale. . . . It is not, on the whole, their privilege to develop individual uniqueness, to cultivate individuality that might accompany their individualism. . . . Americans avoid intense involvements. They move through particular situations and analyze their behavior in terms of external events or the particular acts of others. It is to others that they are primarily oriented. . . . THE BASIC CONTRASTS

Puerto Rico and the United States are both parts of a Greater European culture. Although originating from the migration of people representing quite different parts of Europe the two countries share many common character-

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istics. Depending upon his purpose, therefore, an analyst may emphasize either similarities or differences.35 In seeking differential factors in economic growth attention necessarily rests on contrasts. It should also be repeated that these contrasts are used here only to help explain the observed attitudes or behavior of men for which the study has data, those involved in business management. For the business elite the evidence of the study and the statements of students of Latin American or Puerto Rican culture present a picture of entrepreneurs differing from those of the mainland in being: 1) more interested in inner worth and justification by standards of personal feeling than they are in the opinion of peer groups; 2) disinclined to sacrifice personal authority to group decisions; 3) disliking impersonal as opposed to personal arrangements, and generally preferring family relations to those with outsiders; 4 ) inclined to prefer social prestige to money; and 5) somewhat aloof from and disinterested in science and technology. Like all culture generalizations, these only suggest norms. As the reader has seen there have been many Puerto Rican businessmen who deviated markedly from one or another of these assumed attitudes and values. The Puerto Rican attitudes originated largely from considerations of how to lead a good life and make peace with the infinite. As one local leader put it "To become a slave to ambition . . . aggravates frustration and neurotic tendencies by generating hopes that can rarely be fulfilled in a country of such minute size and limited natural resources." 38 While the mainland attitudes are to an almost equal degree the product of an economic crusade to develop a continent, where great opportunity always beckoned. Consequently, it is not surprising that the latter traits may appear the better adjusted to rapid economic growth. They may not be better suited to a good society.

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Unquestionably Puerto Rican culture has been undergoing a gradual change necessitated by urban industrialism and influenced by increasingly close contact with the United States. From the evidence collected in the present study the thesis emerges that among the business elite many aspects of the inherited culture have not been deeply affected by mainland contacts. Culture change may be going on at a gradually increasing rate. The degree of cultural persistence described here applies to entrepreneurial attitudes of 1955, not necessarily to those of the present or future.

VII Channels for Culture Transfer Did the Spanish type of cultural heritage of the Puerto Rican business elite endure because contact with the United States on any deep cultural level was less than might be supposed from the superficial relationships? The evidence of this study suggests, without being able to substantiate, both an affirmative answer and a qualifying hypothesis. The qualification is that it is difficult to estimate the degree or extent of cultural transfers through specific channels because frequently the channels of influential communication are not obvious to those on the receiving end. When, for example, a mainland and a Puerto Rican businessman converse about management the latter may say that he learned nothing he didn't already know, yet some subtle reconditioning of his attitudes may have taken place. The following discussion, therefore, merely suggests the channels apparently open, and some of the limitations on acculturation. CONTACTS THROUGH GOVERNMENT

The continual contact, from the earliest days, between Puerto Ricans and members of the federal administration was undoubtedly an important avenue for transfer of North American culture. But the relevance to business ideas and practices of this channel of communication is uncertain. Government officials were interested in developing Puerto Rico, but most of them were not businessmen and, up to the 133

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mid-thirties, the United States government attempted no program. Starting with the Reconstruction Finance Administration in 1932 new federal agencies brought Islanders and continentals together for discussion of business and economic affairs. The Puerto Rican Reconstruction Administration was the outstanding example of such contacts. A later illustration may be found in bank regulation. Because of the small size of Puerto Rico and the large number of bank offices, it was possible for local management to know their customers well and to lend quite expertly without resort to much special investigation.1 This contributed, however, to two weaknesses in local banking; first, lack of adequate credit files and second, a tendency toward over-endorsement. The Federal Deposit Insurance Corporation, which between 1950 and 1952 extended guarantee of deposits to all Puerto Rican banks except the Canadian, maintained a steady pressure for more complete credit files. It was difficult, however, for the banks, particularly in financing small business, to get any adequate balance sheets from those applying for loans. Improvement was slow at first, but between 1952 and 1955, according to an FDIC examiner, credit files rapidly approached United States standards. In the Development Bank, Fomento, and the Planning Board many of the intermediate officials were drawn from the mainland. Within such agencies there was a penetrating interchange of Puerto Rican and continental ideas. But until the mid-nineteen-fifties the mainland officials had much more external contact with representatives of United States firms than with local entrepreneurs. This relatively low rate of culture interchange resulted not only from the government's emphasis on attracting mainland capital and know-

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how but also from the failure of Puerto Rican entrepreneurs to make full use of the opportunities open to them. UNITED STATES L I T E R A T U R E

There seems little doubt that the most widely read forms of mainland literature were the local advertisements of United States firms and their sales catalogues. Respondents who claimed to read nothing else from the States read these. This obviously raises the question of the acculturating force of artifacts as such. How important was it that Puerto Ricans read the merits of and came to use United States packaged foods, refrigerators, radios, and automobiles? Was there any cultural difference involved in using a Volkswagen, Hillman, or a Ford? While no attempt is made to answer this question here, the reader is warned that the bias of the present study is to discount such artifacts as carriers of specific national cultures as against industrial culture in general. Neither large nor small businessmen said that they put much reliance on trade journals or general business magazines published in the United States. A leading merchant, for example, found American Exporter too general, and read Business Week selectively. Of executives interviewed in eight relatively large and well-established apparel firms only one mentioned trade journals as an important source of technical information. Of the panel of thirty small and mediumsized manufacturers a bare majority read any United States trade journals. Five read no mainland literature beyond catalogues and advertisements. It is worth noting that two of this latter group were in the apparel business, one of those most closely linked to the mainland, and that they visited New York regularly. Four furniture manufacturers and one building contractor, who did not read trade journals, read popular magazines on the American home. From 1955 on,

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the Industrial Services Division of Fomento has made a large number of special bulletins such as those of the United States Small Business Administration freely available to Puerto Rican entrepreneurs. While Puerto Rican businessmen, with some marked exceptions, did not appear to rely on specialized business periodicals for essential information, by the fifties the circulation of such magazines was fairly large. The following table gives the figures available for the Puerto Rican circulation of the Spanish language editions of some important United States trade journals. In view of the large circulation of American Exporter it should be noted that this publication is sent free to a large number of men in business and government. No respondent mentioned it as an important source of United States information. TABLE 1 β Periodical El Exportador Americano Revista Industrial Industrial Facteas Transporto Moderne El Embotellar

Puerto Rican Circulation 1955

1954

1953

1950

1940

5563 456 251 783 71

5500 479 245

5889 371 239

5504 409

4593

" Source—statements received from the respective publishers.

The effect of all business periodical reading on the interchange of basic culture traits is probably weaker than would be assumed from the foregoing table and discussion. In studying the effects of reading on voting behavior mainland sociologists find a tendency to read and see only those things that reinforce the reader's preconceptions. They report that "the more strongly partisan the person, the more likely he is to insulate himself from contrary points of view." For ex-

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ample, a Republican under pressure from culture conflicts "turned to business publications to reassure himself, to convince himself that he was right . . . " 2 Translated to the Puerto Rican business situation this could mean that the local reader would tend to pay attention to those articles that reconfirmed his existing attitudes. The sociologists also found that only 15 to 25 per cent of the people in their sample read magazine articles at any given stage of the presidential campaign of 1944. 3 Their findings plus those of other investigators call attention to the need for theoretical models for the analysis of information dissemination. The effect of recreational reading, radio, television, and moving pictures was too large and intangible a field for investigation by the means available to the present study. But the total influence of these channels in transferring mainland culture traits may be less than is often supposed. To begin with, a good deal of such material is not of United States origin. Local Spanish language magazines and those from Cuba and other Latin American countries are widely read. Radio and television are well supplied with local programs and artists who reflect Latin American culture. The lower priced and the non-metropolitan moving picture theatres show many Latin American and European films. North American films are frequently westerns which convey the traits of an idealized culture that never existed anywhere but is closer to agrarian society than to modern industrial culture. As will be discussed in more detail in the next chapter, in social life Puerto Rican culture is still predominantly Spanish or Latin rather than Noith American. CONTACTS THROUGH MAINLAND BUSINESSMEN

It seems reasonable to assume that among businessmen acculturation through contacts between individuals repre-

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senting private enterprise on both sides was more important in the long run than that through government officials, various types of literature, or the arts. From the beginning to the present day personal contacts were undoubtedly the most numerous in wholesale trade. While the census of 1949 reported only 913 wholesalers as against two thousand manufacturing establishments, many of the former had close relations to firms in the States whose products they distributed, while many manufacturers for the local market had no regular contact with any North Americans Even before the advent of the United States government officials in 1898 the ubiquitous North American salesman with his illustrated catalogues had established business connections in Puerto Rico. Over the years salesmen and manufacturers' agents and their sales literature, rather than newspapers, magazines, books, or formal education, appear to have been the most extensive carriers of continental customs to Puerto Rico. In assessing the importance of salesman contacts it must be remembered that they were not trying to explain manufacturing processes or industrial know-how. They were men selling food and manufactured products, and the kind of information transmitted centered around United States market conditions, credit terms, and sales methods. It is paradoxical that the closest contacts were probably in food wholesaling where little if any transfer of industrial knowledge took place in the course of business. But indirectly the salesman was familiarizing Puerto Ricans with North American business ways and overcoming insular uncertainties regarding dangers to the inner self from further mainland contacts. In a few instances entrepreneurs from the mainland invested in Puerto Rican distributing firms. The Plaza Pro-

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vision Company was an outstanding example of this process. In 1907 New York investors organized this corporation for wholesale distribution of food products in Puerto Rico. While the local manager was from the mainland the staff were Puerto Ricans. The firm introduced new brands in the Island market, regarded at all times as a very difficult process. First, small quantities were sent from the States to see how the new brands would go. Confident of their product, Del Monte of California advised Plaza salesmen to go to the small retail colmados and open cans of Del Monte and rival products for comparison and also for a treat for the proprietors. Salesmen split cases and left goods on a trial basis. These sales methods, learned from consultations with men on the mainland, were in this case financed by North American capital in the distributing house. But in most other instances the capital was local and assistance was offered by mainland producers only in sales promotion. In other lines where the Puerto Rican wholesaling system had been less well developed than in food products, mainland firms established manufacturers' agents on the Island. In the early decades, at least, a majority of these agents appear to have been non-Puerto Ricans.4 But for the Puerto Ricans fortunate enough to have distributorships of major continental firms, knowledge of North American business came quickly. The early career of Rafael Carrión, Sr., the builder of Banco Popular, illustrates the pattern. His uncle and guardian had the distributorship for Baldwin Locomotive Company. Young Carrión took a three-months course with Baldwin in Philadelphia, and when his uncle died in 1909 the eighteen-year-old boy was able to persuade Baldwin to give him the distributorship. This was during the period of the expansion of the sugar-carrying railroad system. Carrión added a distributorship for other railroad equip-

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ment and soon learned the sugar business as well as the ways of North American finance. By the nineteen-twenties he had the capital and connections necessary to ^ain control of Banco Popular and the experience to run it successfully. As in the case of food products a few of the most important machinery firms had branch offices in San Juan, but the practice was not uniform. International Business Machines, for instance, established its own branch office about 1930 and sent its own men out to sell office equipment, while Remington and several other companies sold through Casa Lee, an old importing firm of San Juan. During the period of intensive government efforts to attract North American industry for 1946 to 1956 some three hundred fifty North American manufacturers started successful enterprises in Puerto Rico. It might be supposed that this would have led to a quite complete interchange of technological information between local and mainland entrepreneurs. But several factors intervened. Many of the mainland enterprises, such as those in electronics, plastics, and brassieres, were in lines closely geared to North American outlets that were not readily available to Puerto Ricans. In old and technologically simple lines such as apparel, the Puerto Ricans thought that there was little to be learned. Personal contact between mainland and local entrepreneurs, particularly in small business, was slight. None of the seventy questionnaires indicated conversation with mainland entrepreneurs in Puerto Rico or study of North American plants as a source of information. This undoubtedly illustrates a weakness of questionnaire procedures. The Puerto Ricans may have learned better techniques from the above sources but were too proud to admit it. The information is passed on as it was received. Geographical and social situations also worked against

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close relations betweeen Puerto Ricans and resident businessmen from the United States. Most of the mainlanders were located in San Juan with a few more in Ponce and Mayaguez. In the smaller cities, where distributors bought from San Juan houses rather than directly from the mainland, there continued to be relatively little direct contact with North Americans. Second, even in San Juan the business community was less integrated than in the United States. Except for the exclusive Bankers Club of San Juan, founded in 1940, there were no business clubs serving luncheon daily. Rather than meeting with their friends in the trade at noon, executives, whenever possible, went home for lunch. In 1918, thirteen years after the first Rotary Club in the United States, the San Juan Rotary Club was organized. During the next thirty-five years eighteen more Rotary Clubs were started on the Island.® Meanwhile, starting with a San Juan club in 1937, the Lions formed 19 additional clubs by 1945.® But the weekly meetings, largely given over to listening to speakers on general subjects, did not take the place of the continual discussion of specialized business that went on daily at lunch time and on many social occasions in the United States. Trade or regional associations were also relatively ineffective as devices for spreading North American ideas. Of thirty-three such organizations founded since 1875 and still operating in 1955 only the Chamber of Commerce of San Juan produced a regular periodical. No businessman interviewed in 1955 regarded trade or other local associations as an important source of business information. 7 There was relatively little social contact between resident North Americans and Puerto Ricans. Initially this was an outgrowth of upper-class Spanish traditions according to which the women of the family should not be exposed to

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intimate contact with strangers of uncertain origin. The tradition was reinforced in many instances by the women's poorer command of English and lack of familiarity with North American customs. Furthermore, Americans in the early decades often assumed an attitude of superiority and made no effort to associate on a social level with the Puerto Ricans. The latter responded with added dignidad. The longrun effects of these early attitudes were hard to overcome. Even in 1955 men who talked the language of North American business in the office might cling to Spanish customs at home. For these people, keeping the home Spanish was a way of preserving their inherited culture, at the expense of a somewhat split personality. An additional element observed by visiting anthropologists is the Puerto Rican preference for deep and lasting friendships and disinterest in superficial passing acquaintances. Since most friendships with visiting North American business representatives are likely to be temporary there appears to be a disinclination on the part of Puerto Ricans to make the emotional investment necessary for a satisfying relationship. Social barriers also have reflected attitudes regarding class or status. The successful native businessmen, particularly in banking, wholesale trade, and the older types of manufacturing, had become part of a loosely organized but recognizable upper-class. Local representatives of firms from the mainland were usually not the ablest or most important men in their companies. One merchant complained that Puerto Ricans seldom saw anything but third-rate North American businessmen. Rightly or wrongly, Puerto Ricans regarded most mainland representatives as lacking in inner "substance" or "depth," neither well brought-up, learned nor poetic. As a result, upper-class Puerto Ricans preferred to keep their contacts with such men on a strictly business

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level. This might mean an occasional lunch or dinner at a hotel, but it did not mean the kind of intimacy whereby new attitudes are acquired from long and close association. Regardless of social remoteness, from, at least, the nineteen-thirties on there were no formidable barriers to free acquisition of United States sales and technical knowledge. It seems probable that conversation with salesmen or other representatives of North American firms was continuously the most effective source of new business information. The fact that Puerto Rican sales methods continued to be less aggressive and relentless than those on the mainland seemed to depend on factors other than the existence of open channels of communication. CONTACT BY VISITS TO THE UNITED STATES

For those businessmen who could afford it, frequent or extended visits to the mainland was a major element in the communication of United States customs. Such visits were, of course, most effective when they were of long duration, and, therefore, visits to attend secondary school or college appear to be the most important. To supplement private efforts the Department of Industrial Services of Fomento in 1951 started a fellowship program for advanced and specialized training at United States universities. By 1955-56 fortyseven fellows had completed their course or were in training. The families that developed the very biggest companies of the Island had a majority of their active members educated in the United States. The second generation of Abarcas, who created a group of interrelated large scale enterprises, started going to the mainland to college. The first member, Enrique Abarca, graduated from Cornell in 1909. Before World War I the company was hiring young men who had attended continental engineering schools. From then on one

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of the top executives said "they brought in the American way of doing business." Both their engineers and accountants in the twenties were from the United States or had had training there. Empresas Ferré has the same type of history. As the Ferré foundry and machine shop prospered in the early twenties the four sons of the founder, Antonio Ferré, went to college on the mainland, the eldest to study business administration at Boston University, the remaining three to Massachusetts Institute of Technology. From that time on the sons commuted between Puerto Rico and the United States, keeping track of new developments in the field of technology and, on occasion, employing continental technicians and consultants. Luis Gonzalez, who changed Ochoa from a mercantile house to a large diversified business, represented continental influence almost as fully as though he had been brought down from the mainland. Graduated from the Massachusetts Institute of Technology in 1912, he taught there for a year and then worked for five years with two United States chemical companies before returning to San Juan. When Ochoa approached him he was the engineer for a local fertilizer plant, Sobriños de Ezquiaza. Mr. Gonzalez and his family of nine brothers interested themselves in Ochoa Fertilizer on the basis of a 50 per cent stock interest. The Royal Bank of Canada aided both the Gonzalez and the Ochoas in financing the new company. Thus the family that was ultimately to control all of the Ochoa enterprises was led by a man with a mainland background. Since the middle or late nineteen-twenties these firms have tried to keep pace with developments in continental technology. In the beginning young consulting and operating engineers were brought from the United States, but in the thirties the engineering school of the University of Puerto

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Rico at Mayaguez was supplying the engineers. By the fifties only a few of the older men among the score of engineers employed by these three organizations had been educated in the United States; the rest, including many of the salesmen, were from Mayaguez. Of the panel of forty top-level executives interviewed for their knowledge of the history of Puerto Rican business, fourteen had attended college on the mainland, three others vocational school, and two more elementary school, making a total of nineteen, or about one-half, who had lived in the United States for educational purposes. The panel also indicated a correlation between San Juan residence and mainland education. Of the total of forty members, thirteen were from Mayaguez, Ponce, Manatí, and Humacao, and of these only two had any United States training. In contrast to the educational records of these leaders of large locally-owned companies, the careers of the panel of thirty small to medium-sized manufacturers, chiefly in the San Juan metropolitan area, showed only two educated in the United States. Since wealthy families had tended to send children north for education since the early part of the century, some of this difference in educational background suggests a relationship between family status and business success. The rich had a chance to acquire mainland education and this, in tum, seems to have given them an added advantage in business. The frequency of visits to the mainland by businessmen appeared to depend on the same factors that influenced visits for education plus additional pressures dependent on the type of business. Wealthy men went to the mainland for the sake of travel and recreation as well as business. The large importing merchants and apparel manufacturers had to have some members of the firm go to New York periodi-

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cally to keep in touch with suppliers. Bankers went north to attend conventions and promote Puerto Rican industrial opportunities. Hence all but a few members of the panel of forty went to the mainland occasionally, and the majority of them at least once a year. Among important businessmen only the operators of sugar centrals and a few firms geared to European markets had no economic incentive to go to the United States. Among the panel of thirty smaller manufacturers the closeness of contacts with the United States also varied greatly depending upon the type of business. Of eight apparel manufacturers all but two visited the mainland at least once a year, and one of the two non-visitors maintained a resident buyer in New York. These close contacts had always been necessary for Puerto Rican apparel firms (see Chapter I I I ) . Aside from entrepreneurs in apparel, one furniture designer was the only respondent who made regular visits to the mainland. Four men in food and furniture production visited the mainland when they wanted to buy new equipment. In general, contact with North America was through manufacturers' representatives. As in the case of education, the cost of trips north in both time and money was a strong deterrent to small businessmen. Aside from the members of the two panels, there seems no doubt that in all types of activity size of operations correlated in some degree with visits to the mainland. The information acquired on these visits, in turn, gave the wealthier businessman an added advantage over his smaller competitors. T H E M E C H A N I C S OF C U L T U R A L MIGRATION

The hypothesis that developed from the factual material on types of communication with North America, reinforced

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by the impressions gained during interviews, was that the main cultural flow toward the Island was through personal contact. This conferred a considerable advantage on those able to visit the mainland frequently or for extended periods. Among those who stayed in the Island a more gradual transference of North American culture took place without much consciousness of the process. No member of the panel of thirty, for example, could recall learning anything about management directly from United States sources. This poses a major problem for all studies of acculturation. Many or even most of the changes in methods and techniques would have come from developing industrialism in any culture. Better accounting methods, depreciation accounts, closer supervision, worker-training for industrial discipline, more aggressive selling were parts of the industrial complex. In Puerto Rico these elements had a certain North American look because of political and business connections, but this surface character was not necessarily basic to the particular process. As Professor Steward says: "It is probable that very little cultural change is ever a simple mechanical process in which detached items are borrowed from elsewhere and added to the local inventory." 8 In fact, a contrary thesis could be argued, that Puerto Rican business generally adhered to its traditional forms and expanded or modified them when forced to by technological pressures without conscious copying of mainland models. Yet, in spite of the validity of the argument that Puerto Rico had developed its own type of industrialism, the speeding of the process by mainland contacts had undoubtedly been marked. In the handling of bank credit, for example, North American practices greatly altered the system, between 1920 and 1955, in ways not clearly required by local industrial growth (see page 111 f ) . The supermarket in retail selling is an im-

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portation from the north that except for the activity of Fomento might not have grown naturally from the Island situation. Yet, a Puerto Rican retailer would probably not be able to recall when or how he first heard of supermarkets.

Vili Summary: Factors in Business Change The most important physical deterrents to economic development in Puerto Rico are obvious and unquestionable; the more important findings of this study, therefore, bear upon cultural elements and their interrelations with the economic situation. Our findings are necessarily limited by the small number of entrepreneurs that could be visited, the usual problems of interview methods, and the subtle character of some of the evidence. The hypotheses advanced regarding the deterring effect on economic growth of certain Puerto Rican characteristics can be only suggestive and tentative, but if valid they point to factors of major importance. CULTURAL DIFFERENCES

A number of cultural factors appear to differentiate norms of Puerto Rican entrepreneurial behavior from those of similarly placed men in the United States. Some of these come from the Puerto Ricans being closer in both time and space to a non-mobile agricultural society. The older entrepreneurs are only one generation removed from a traditional society that had preserved the aristocratic, family-centered attitudes of an earlier age. Recognition of social distinctions based on family connections and land-holdings, and reliance on the family as a source of authority and security, have been carried over into Puerto Rican industrial enterprise. 149

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Besides being more immediate in its influence, the Puerto Rican agrarian heritage differs from that of the United States in being based on Spanish rather than on English or other northern European cultures, and in not being conditioned by a high rate of internal migration. As North Americans moved with bewildering rapidity from farm to farm, from farm to city, and from one city to another, the ties of the extended family loosened. The patriarchal father now far away ceased to be a source of help or authority and the individual was forced to rely on pragmatic relationships with relative strangers. In contrast, the size of Puerto Rico and character of settlement preserved family ties on the Island and made it easy for a father and his sons, and even his daughters, to enter into a business without sharply changing the traditional relationships. Together with Cuba, Puerto Rico was intimately associated with Spain for almost a hundred years longer than other Latin American countries. San Juan was a center for Spanish officials of church and state. Most of the external trade was in the hands of merchants of Spanish origin who maintained close ties with families and friends in the mother country. In addition the native Indians of Puerto Rico had been too few and too weak to give the strong coloration to the later culture that occurred in most other parts of Latin America. In view of these facts and the well recognized pressures of Spain for cultural conformity in her colonies, it is reasonable to presume that Puerto Rican culture of 1898 was more Spanish than that of Latin America in general. But from the standpoint of this study it is not necessary to defend this proposition. According to the anthropologists who have most carefully studied these cultures, all Latin Americans tend to illustrate the attitudes of a Spanish type found among these Puerto Rican businessmen. Anthro-

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151

pologists also hold that Spanish characteristics have been preserved more among the upper-classes than the lower. The seventv business leaders interviewed were generally from business or professional families, with a few from among the wealthy land-owners, but none from the artisan or laboring classes. The assertion that attitudes inferred from interviews in 1955 are typical of either Spanish or Latin American culture implicitly assumes one of the major hypotheses of the present study : that some of the most important traits of the hereditary culture of Puerto Rico have been only slightly modified by over half a century of relationships with the United States. This, in tum, appears to depend upon the depth and strength of some of the earlier culture patterns and limitations on the frequency and intensity of contacts with North Americans. Certain Puerto Rican cultural traits that run counter to entrepreneurial efficiency appear to be so basically different from the traits of most North Americans that they are little affected by superficial contacts between people of the two cultures. One of the most important of these basic differences is in types of individualism. In cultures of Spanish origin individualism is manifested in a respect for the inner uniqueness of each person, and each seeks to preserve his "wholeness" against threats of being merged into or routinized by some outside group. He is averse to the restraints of teamwork or group discipline. A relatively low value is placed on external standards such as the opinion of others. Situations are appraised more on the basis of feeling than on external norms. In contrast North American individualism puts major emphasis on certain external rights and relationships within a group. There is no general fear of ceasing to

152

The Puerto Rican Businessman

be unique; in fact there is an obvious desire to conform to group attitudes. The reciprocal respect for unique inner qualities felt in Puerto Rico has important corollaries affecting behavior. It implies high regard for the dignity of the individual regardless of his social status. Undoubtedly, this defensive attitude was increased by three hundred years of colonialism. The result has been a degree of, and respect for, dignidad in Puerto Rico that can interfere with business efficiency. It can hinder the disciplining of inefficient employees, diminish the willingness to take risks, and interfere with communication with strangers. This latter involves a further corollary of inner worth: it can only be appreciated through prolonged acquaintance and leisurely discussion. The salesman must really make friends with his customers. Few matters can be settled except by satisfactory interpersonal relations. This obviously interferes with the adoption of many of the impersonal practices that North Americans have thought necessary in order to do business rapidly and efficiently in large organizations. A greater regard for social status may come in Puerto Rico either from the agrarian or Spanish heritage. It tends to make various types of prestige more desirable than money and thus defeats the operation of the "laws of the market." Another way of stating this is that, like the North America and Northern European people of earlier ages, the Puerto Ricans are not yet wholly capitalistic This can lead to social satisfactions that lessen concentration on maximizing profit and to levels of conspicuous personal expenditure that drain away money needed for expansion or technological improvement. Social considerations may also lead to business deals based on improving family status and friendship rather than making the most money.

Summary: Factors in Business Change

153

In addition to more preoccupation with social position than appears to be the case in the north, Latin Americans are widely held to appreciate poetry and abstract discussion more than technology and pragmatic action. While poetry and philosophy may not occupy much of the time of Puerto Rican entrepreneurs, they represent ideals of interest or tendencies of thought. To repeat the observation of Professor Gillin, "the word is valued more highly than the thing; the manipulation of symbols ( as in argument ) is more cultivated than the manipulation of natural forces and objects (as in mechanics) . . . " 1 The difference between such attitudes and those of North America scarcely need illustration, but a statement from The American Business Creed shows the opposite position. "The whole ideology" of American business "is shaped by a certain distrust of abstract theory and systematic argument, of theorists and intellectuals. The creed prefers common sense to abstract argument, shirt sleeve economics to academic theories, the ordinary meanings of words to professional niceties of definition . . . " 2 The Spanish heritage conduces to a distrust of innovation that will change the economic or social order. Professor Castro noted the Spanish opposition to physical innovation, and Professor Gillin said that "ideas from abroad find more ready acceptance in the Latin American culture than artifacts and their associated techniques." 3 While North Americans have not always welcomed innovation that disturbed their own interests, their basic belief in the value of material progress has made physical innovation an essential element in the business creed. J. Frederick Dewhurst has written of North American management's receptive attitude "toward experimentation and change, toward the substitution of new products and methods for old ones, toward

154

The Puerto Rican Businessman

progress and expansion, even at the risk of disappointment and loss." 4 These observations regarding the culture of entrepreneurs in Puerto Rico represent, of course, only certain selected traits from a highly complex whole. To repeat the summary in Chapter VI, these traits tend to differentiate Puerto Rican entrepreneurs from those of the mainland in being 1 ) more interested in inner worth and justification by standards of personal feeling than they are in the opinion of peer groups; 2 ) disinclined to sacrifice personal authority to group decisions; 3 ) disliking impersonal as opposed to personal arrangements and generally preferring family relations to those with outsiders; 4 ) inclined to prefer social prestige to money; and 5) somewhat aloof from and disinterested in science and technology. COMMUNICATION

That these particular cultural characteristics have been modified so little in sixty years of business and governmental contacts with North Americans directs attention to the nature of communication between people of the two cultures. It appears that communication directly affecting deep or basic levels of culture was unusual. The effect of more superficial interchange is hard to estimate because the channels through which new ideas or attitudes were implanted appear, in most cases, not to have been obvious to the recipient. An initial subject for investigation was how and to what extent Puerto Rican entrepreneurs and operatives have learned new methods from the industrially more advanced North American area. While consultants suggested a number of ways of measuring the crude volume of such interchange by quantitative indexes, such as sales of office machinery or

Summary: Factors in Business Change

155

circulation of United States magazines or trade journals, none of these was relevant enough to use. In this study only the identification of types of interchange and rough estimates of their importance have been possible. The agencies of government, periodical and sales literature, salesmen and other businessmen, and formal education appear to have been the chief channels for spreading the North American business customs in Puerto Rico. During the first three and a half decades of American rule contacts through government officials were largely concerned with political matters. The United States government did little to develop Puerto Rico or alter its economy. Afterward the New Deal federal agencies concerned with agriculture, banking, social security, and minimum wage made for more intimate economic contacts. In the late thirties the Puerto Rican Reconstruction Administration, largely staffed by local men, made plans for the future development of the economy. But it would appear from interviews that in general the direct transfer of technological information through personnel of the federal government to non-agricultural entrepreneurs has not been an important factor in economic growth. Furthermore, since World War II Puerto Rican government agencies have brought specialized personnel from the mainland. But the main task of the latter has been to attract firms from the United States. Prior to the mid-fifties Puerto Rican entrepreneurs, as a whole, had relatively little contact with the mainland specialists. Periodical literature, including Spanish-language editions, have been less important as an agency of cultural transfer than might be supposed. From 1940 on the American Exporter, in a Spanish edition, had a circulation, including free distribution, of between forty-five hundred and six

156

The Puerto Rican Businessman

thousand copies in Puerto Rico. No other specialized magazine approached this level. The next highest for which figures were available, Revista Industrial, had a circulation of around five hundred. The circulation figures for Englishlanguage magazines such as Business Week are meaningless for our purpose, as there is no way of knowing how many of the subscribers were mainland businessmen resident in Puerto Rico. But the interviews cast doubt on the value of any circulation figures. Merchants subscribing to both El Exportador Americano and Business Week said that the articles were too general for their interests and they read them selectively or scarcely at all. Advertisements were probably read more than the text. Of the panel of thirty manufacturers only a bare majority read any trade journals. Of eight old and well established apparel manufacturers, from the panel of forty, only one mentioned trade journals as an important source of information. Analyses by mainland sociologists of the selectivity of reading habits leads one to doubt that entrepreneurs read material that would change their basic ideas. While about half of all the respondents read no United States periodicals, all of necessity read sales catalogues. To determine the ideas conveyed by catalogues and brochures over a sixty-year period would in itself be a major research project. At the minimum they called attention to new products and machines; beyond this thev probably set higher material goals and suggested methods of achieving them. They probably strengthened the standing of material possessions as against humanistic qualities in Puerto Rican values. Perhaps in the words of Edwin F. Gay they "broke the cake of custom" and pictured new ways of doing things. How much more rapidly the United States of 1800 might have been industrialized had Great Britain tried to sell its

Summary: Factors in Business Change

157

new equipment abroad rather than keeping it secret! But that such literature would directly aflect traits like defensive individualism, dignidad, or personalismo seems unlikely. From 1898 to the present day business contacts between Puerto Ricans and North Americans were undoubtedly most numerous in wholesale trade. In such personal contacts it must be remembered that salesmen were not trying to explain manufacturing processes or industrial know-how. They were men selling food and manufactured products, and the kind of information transmitted centered around United States market conditions, credit terms, and sales methods. Furthermore, wholesalers were the most consciously Spanish businessmen, and perhaps the least likely to adopt mainland patterns. Aside from the tendency of many people to cling to their customs in the face of external challenge there were elements in the Puerto Rican situation that retarded cultural interchange. For example, in the post-World War II period of government efforts to attract North American industry hundreds of mainland manufacturers started enterprises in Puerto Rico. But communication between these mainland entrepreneurs and local businessmen was limited by several factors. Most of the United States firms in lines such as electronics or plastics that had not previously been developed on the Island depended upon established mainland outlets. Since local men did not see much chance of establishing the necessary sales connections in the north they did not enter the new lines of business and consequently had little interest in talking to the mainland managers.5 In the older lines of business, such as apparel, Puerto Ricans doubted that they would learn anything valuable by studying the methods of the visitors. It would appear from the questionnaires that, in general, the smaller the business the

158

The Puerto Rican Businessman

less the likelihood of frequent contacts with North Americans, but none of the seventy respondents admitted that conversations with mainland entrepreneurs or examination of their plants had been a valuable source of information. Radio and television have been largely Spanish in language and Latin American in their music and humor. United States moving pictures have had strong competition from those of all Latin countries, and in so far as the North American films have been westerns they scarcely reflect industrial culture. Business life has been organized among Puerto Ricans on a family and friendship basis, providing a grapevine for information of a personal rather than a technical character. Business was not, by mainland standards, well organized in clubs and associations whose meetings could provide exchange of specialized thought. Even in downtown San Juan businessmen who lived nearby continued to go home at noon rather than lunching with each other. There was relatively little intermingling of continentals and Islanders on an intimate social basis. Even Puerto Ricans who talked like North Americans in business life often clung to Spanish traits in their private life. Understandably, they preferred the company of people who spoke their language and shared their culture to that of strangers from North America with whom they lacked common social or intellectual interests. The fact that most continentals stayed in Puerto Rico for only a few years discouraged the formation of the deep Latin American type of friendship. In addition, the top-level of Puerto Rican businessmen regarded most of the resident North Americans as lacking in humanistic understanding as well as in social prestige. Whatever the reasons may have been, there were few examples of close friendships between continentals and Islanders.

Summary: Factors in Business Change

159

T H E I M P A C T ON ENTREPRENEURSHLP

Physical env ironment, technological change, inherited culture, and North American influences have created and altered the attitudes of Puerto Rican entrepreneurs. In analyzing the negative effects of certain situations or attitudes on economic and business growth it is useful to divide these deterrents into three classes : first, those that have been important in some countries but not in Puerto Rico; second, those that have usually been present in the early stages of industrialism in other countries and also in Puerto Rico; and third, those that have been especially important in Puerto Rico—at least, more important than in the United States. In the first category, influences that have not been important in Puerto Rico, is the retarding of early industrialism by the attitudes and power of an established aristocracy. In some agricultural societies manufacturing is accorded low social status by the landed, governmental, or even mercantile aristocracies. In consequence the ablest young men seek careers along the established avenues to prestige. Since the old aristocracy is likely to be strongest in the interior regions and less affected by change, the backcountry lags far behind the port cities. Control of the government by the aristocracy is used to favor enterprises run by inefficient or corrupt members of the ruling class. As a result of the demonstrated ineffectiveness of these native entrepreneurs, government officials interested in progress favor concessions to foreigners. None of these deterrents appear to have been important since the beginning of United States control in Puerto Rico. Because of continued colonial status the insular upper-class lacked political power. This, in turn, weakened their sanctioning force against new types of careers. The government, both territorial and commonwealth, favored mainland enter-

160

The Puerto Rican Businessman

prise, but seldom at the expense of local entrepreneurs, The Puerto Rican backcountry has been too small effectively to resist changes in life originating in the seaports. Two hindrances to growth have affected all young industrial areas: fear of untried activities which results in scarcity of capital for manufacturing and shortage of administrative personnel. Accompanying the inadequate trickle of wealth into industry has often been a heavy flow into real estate, buildings, and exploitation of raw materials for export. This situation has existed at some time in most new areas in the United States; it has been as true of Texas as of Puerto Rico. The same may be said of shortage of administrative personnel. A leading Houston, Texas, banker in 1950 remarked that industries coming to the Gulf Coast should bring their management with them. But, as noted presently, cultured characteristics have somewhat added to the shortage of administrative personnel in Puerto Rico. The third class of attitudes deterring growth, while more important in Puerto Rico than in the United States, also have a certain universality. The hypothesis here is only that the Spanish cultural heritage and the Puerto Rican situation have given them added force. The most obvious of such attitudes is aversion to or disinterest in the language through which much of the technological and managerial information has been transmitted. Only with a small percentage of Puerto Rican entrepreneurs is this barrier an absolute one; usually it takes the form of their saying that they lack sufficient interest in Englishlanguage publications to subscribe to and read them. Technical or trade journals dealing with the problems of another country are seldom inviting reading. When the universal tendency to slight difficult or dull reading is reinforced by even a mild language barrier and lack of a real interest in

S u m m a r y : Factors in Business C h a n g e

161

technological and sociological material, communication in such subjects must suffer. For example, no one interviewed had read any of the voluminous literature of the United States Small Business Administration. 6 With increasing wealth and the pressures of North American salesmen the traditional disinterest in gadgets and physical innovation is lessening but some of the feeling that these are not matters of importance survives. Interviews in 1955 still indicated less search for the new and a greater resistance to experimentation with new devices than in the United States. Puerto Rican entrepreneurs still favor paternalistic, personal control of their businesses and have been loath to delegate authority to middle management. There is a situational basis for such an attitude. The Spanish commercial code, continued in force by the United States, put a premium on exact bookkeeping. In addition, to train a manager to know the business was often to create a new competitor. But the Puerto Rican's attitude goes beyond this; his inclination to treat business enterprise as an extension of the family has led to a willing reliance on relatives rather than on outsiders with professional experience. The combination of these factors has perpetuated backward office procedures, too little management, and lack of a supply of young, aggressive, professional careerists in the business community. Puerto Rican dignidad has made the problems of supervision and essential discipline more difficult than in the United States. The dignity and superiority of the supervisor have often clashed with the dignity of the worker, and the latter's answer is to quit the job. Matters connected with special privileges or minor differences in status often create serious problems. Hence in Puerto Rico high productivity and reliable attendance at the plant are more delicate mat-

162

The Puerto Ri can Businessman

ters of morale than they are generally thought to be on the mainland. This has led to some failures to achieve a profitable level of productivity at wages 50 per cent or more lower than those in the United States. While there always has been a real difficulty in moving from the limited local market into the remote and highly competitive United States market, and a general scarcity of capital for expanding Puerto Rican enterprise, the cultural complex has reinforced these limitations. Men have thought more in terms of comfortable, dignified living than continuous expansion won by unrelenting attention to business. A few men on the mainland have had similar attitudes but they have been a minority, whereas among thirty small to medium-sized manufacturers in Puerto Rico only one had plans for expansion. Probably the most important business effect of the culture of the Puerto Rican entrepreneurial group has come from the conflict between family prestige reinforced by the Spanish type of individualism and the demands of modern technology for expert consultants, teamwork, and the large scale of operations necessary to support such a staff. At the stage of industrialism reached in Puerto Rico as late as the nineteentwenties the disinclination of local entrepreneurs to add staff activities by specialists who were not members of the family or to merge their family's affairs and their own personalities in outside groups did not seem important. Aside from a few sugar centrals, manufacturing, trade, and finance were satisfactorily carried on by relatively small family enterprises. But by the middle fifties the smaller enterprises in sugar, food processing, general manufacturing, or trade were being faced with a challenge to combine into larger units with more up-to-date technology or to perish. In both food wholesaling and sugar processing fewer con-

Summary: Factors in Business Change

163

cerns would lead to greater efficiency, and in both lines some of the smaller enterprises seemed doomed. Yet, among the fifty-odd primary importers of food products or the twenty-odd locally-owned sugar companies there has been no record of mergers. Entrepreneurs admit the situation but say that their competitors will never agree to give up control of their own business and submit to group decisions. Faced with similar pressures mainland processors and wholesalers have voluntarily combined in pools, trusts, holding companies, and chains. That this has not happened in Puerto Rico appears to be a continuing case of cultural differences. In summary, certain specific traits in the culture of the Puerto Rican business elite appear to have made the timing and direction of economic growth different than it would have been had United States entrepreneurs faced the same situation. The Puerto Rican social and cultural heritage has often sacrificed progress for family interests, fostered nepotism, hindered the building up of a supply of professional managers, increased the difficulties of supervising production, reduced interest in new and more efficient technology, lessened the urge for expansion, and made entrepreneurs unwilling to merge in order to gain larger volume and secure essential technical advice. The possibilities for change in culturally-induced attitudes is shown in the wide range of entrepreneurial adjustment to new conditions. The factors working for change have generally been intimate contact with the culture of the United States or some immediate characteristic of the Puerto Rican business situation such as the need for trained engineers in chemicals and machinery manufacturing. Entrepreneurial innovation has appeared in the form of adopting methods already employed in technologically more advanced areas. Cultural differences stemming from the family back-

164

The Puerto Ri can Businessman

ground and education of the entrepreneur often reinforce the effect or lack of effect of the business situation. Men in retail trade, for example, are in general out of direct touch with North American influences and usually poorly educated, and, except in the largest cities, the business situation has not been conducive to change. At the opposite pole are the few large industrialists educated in the United States and forced by their business situation to make an effort to keep up with technological progress. While the Spanish heritage still shows in these firms in a paternalistic company structure and control, its general business effects have been greatly reduced. An important factor in this has undoubtedly been four or more years of education in the United States for almost all the top executives. Merchants and bankers illustrate contrasts resulting in part from different business situations. The merchants, as the most directly Spanish group in the business world, have clung tenaciously to their customs. Up to the nineteenfifties nothing in the business situation forced them to modify their basic attitudes. If expansion was undertaken it was usually in new types of enterprise because the food market was regarded as inelastic and not susceptible to quick growth. While some of the leading bankers had fathers or grandfathers born in Spain, the close connections of metropolitan banking with the New York money market and the pressures of managing a decentralized branch system forced continual changes in practice and attitudes. Furthermore, the size of the total of banking business grew with the prosperity of the Island and competitive alertness would be rewarded by a larger share of the new business. A business situation combining government regulation and low profits has produced in recent years a certain pessimism

Summary: Factors in Business Change

165

and inaction among the owners of sugar centrals. As in the case of mainland railroad executives from about 1910 to 1940, it was not a matter of lack of knowledge of what might be done but rather a lack of faith that much could be accomplished. Perhaps Spanish type culture has added to the negative reaction, and it has undoubtedly stood in the way of profitable mergers of competing centrals. This interplay of cultural characteristics and business situation makes it impossible positively to correlate entrepreneurial progressiveness with a weakening of Spanish or Latin American traits. While the food wholesalers have the most direct heritage of Spanish culture their business situation has not been conducive to progress and expansion. One can only point to scattered indications that other things being equal such a correlation might be true. Two of the most progressive entrepreneurs in food importing, for example, claim that they are more at ease with North Americans than with Puerto Ricans. The discussion of big companies in Chapters III and V might also support such a conclusion. But the data on entrepreneurship in banking would be confusing. In attempting to evaluate the effect of cultural attitudes on Puerto Rican business change it must continually be remembered that one to two million people on a crowded island could not have generated the expansive optimism or reproduced the patterns of a population of tens of millions exploiting a sparsely settled continent with great natural resources. It should also be remembered that economic change at the expense of other values may not be desirable, and that slow change suited to a cultural heritage may be better than disruptively rapid change. The observations in this brief discussion are merely offered as illustrations of

166

The Puerto Rican Businessman

how a complex of forces in Puerto Rico seem to have slowed business change and economic growth, as generated from within the local system, not pronouncements on whether the hindrances could have been or should be eliminated.

Appendix A The

Questionnaires

The following questionnaires were filled out on the basis of conversational interviews. Where the situation suggested it, additional information was secured by subsequent visits. QUESTIONNAIRE I

Categories for interviews. Mercantile form for older firms. I.

Identification 1. Name of interviewee 2. Name of firm 3. Type of organization ( partnership, corporation ) 4. Age of firm

II. The Transition to North American Connections 1. Change from Spanish or European suppliers to North American How and when were North American contacts established? How were suppliers selected? How was price and quality information secured? How were exclusive distributorships obtained? 2. Need for personal contact with suppliers 3. How was information secured on special discounts and special transportation rates? 4. How was information secured regarding probable future price movements in the North American market? 5. New sources of credit and capital Were accounts opened with New York banks? 167

168

The Puerto Rican Businessman Did the North American banks make some types of credit cheaper? Did mercantile firms loan to contractors and industrialists? 6. Changes in partners and managers connected with the new trade relations

III. Management Practices 1. Sources of knowledge of North American management practices B y personal contact, education, business, literature, or other means Frequency of and duration of trips to United States 2. Relations with subordinates in the firm W h o helped to shape policy? W h o knew the details of policy? How was information exchanged with various levels of management? Authority delegated to middle management Were social meetings important? 3. Accounting practices W e r e periodic balance sheets drawn up? Was cost accounting used? Were CPA's hired? W e r e periodic outside audits made? 4. Employment of specialists and consultants Did inadequate information discourage forward planning and expansion? 5. Employees How were wage and salary rates set? How were managerial employees secured? Role of family connections How was information secured on labor supply? W a s college education regarded as important?

Appendix A IV.

169

Customers 1. How does information regarding product or service reach the customer? Advertising through public media Direct mail Salesmen and agents Jobbers, brokers, and independent wholesalers Personal contacts, by whom in the firm, and under what conditions (business, social, religious, political) 2. Knowledge of customer reactions and desires Through the personal reports of sales organization Market surveys and analyses Personal contacts of executives Other means of maintaining contacts with customers 3. Pricing, quality, and service What information determined prices? What information determined quality or style? What determined amount of service? How were these activities by competitors known? Entertainment or personal friendship as a means of reinforcing information What distinctions between ethical and unethical practices? 4. Credit Credit ratings Protection against bad accounts Knowledge of usual and special terms granted by competitors

V.

Government 1. Information gained by personal contact with government personnel 2. Aid secured from government agencies 3. Information regarding impending changes in government policy

170

The Puerto Rican Businessman Role of Manufacturers Association and Chamber of Commerce 4. Business influence in government policy. To what extent do businessmen take an active part in local or Island politics?

VI. The

Public

1. Contacts with the public 2. Formal public relations 3. Informal contacts through clubs, civic activity, politics, etc. 4. Are business leaders looked to by the community for reliable information? More than priests, editors, or politicians? 5. Do some types of business enjoy higher prestige than others? VII. Personal

Information

1. 2. 3. 4.

Knowledge leading to choice of career and initial position Extent to which family ideas influenced choice Attractiveness of non-business careers Knowledge supplied to other members of family to guide or help their career or business decisions 5. Use of travel as source of information QUESTIONNAIRE Π

Executive Career Line 1. NAME 2.

ADDRESS

Business Home 3.

BERTH

Date

( Place )

(Municipio and Barrio, or City and State)

Appendix A 4.

171

FATHEB

Name Birthplace Occupation 5. BROTHERS, number of younger older 6.

EDUCATION

Elementary, (Name and Location of School)

Secondary, University or College,

( Name and Location of School ) ( Name and Location )

Postgraduate 7.

WIFE

Name Birthplace Father's occupation Date of marriage 8.

CHILDREN

Boys, number of Girls, number of Are children being educated in U. S.? 9.

BUSINESS POSITIONS,

with dates

10.

DIRECTORSHIPS IN OTHER COMPANIES

11.

PUBLIC

SERVICE,

political, military, or other positions, with

dates 12. CLUBS, orders and honorary societies 13.

RELIGIOUS A F F I L I A T I O N

172

The Puerto Rican Businessman QUESTIONNAIRE

III

Categories for interviews. Manufacturing form for older firms. I.

Identification 1. 2. 3. 4.

Name of interviewee Name of firm Type of organization (partnership, corporation) Age of firm

II. Origins of

Manufacturing

1. Origins of firm Why this type of enterprise? ( Sources of information ) Sources of initial capital 2. North American contacts How established Type of relations 3. How was information secured on North American market? 4. How was information secured on technology? 5. Applicability of North American technology. (From this point on the categories duplicate questionnaires I and II ) QUESTIONNAIRE IV

Categories for interviews. Manufacturing form for newer firms ( those started since 1940 ). In addition to questionnaire data for each of these firms we had the information filed for a Development Bank loan. I.

Identification 1. Name of interviewee 2. Name of firm

II. Origin and

Growth

1. Origin of the firm Where did respondent get knowledge and motivation for this business? What part of his background was most important?

Appendix A

173

What were the three most difficult problems in starting the business? What unforeseen problems arose after starting? Why have so few Puerto Ricans started firms? What could the government do to encourage more local enterprise? Would his enterprise have been possible without government aid? 2. North American contacts How established, and type? Reading of North American literature. 3. How is information secured on technology? 4! Is North American technology suited to the situation? (From this point on the categories duplicate questionnaires I and II) QUESTIONNAIRE V

Categories for interviews. Banking form. (A considerable amount of information on each bank is available from public records. ) I. General 1. Age of bank 2. Type of ownership 3. Initial capital II. Operation 1. Deposits Time in relation to demand Fluctuations Cash position Interest or service charges 2. Portfolio Types of loans Renewals Investments in Securities 3. What have been the chief sources of profit?

174 III.

The Puerto Rican Businessman

Management 1. Who makes a policy? How is policy communicated in the organization? 2. Delegation of Authority To branch managers To others 3. Employees How recruited? Importance of education Salaries 4. Use of specialists or consultants Does bank have a controller, lawyer, or specialist in particular loans? IV. Customers 1. Promotion through advertising 2. Use of salesmen 3. Importance of certain accounts Entertainment or personal friendship as a source of business What distinctions between ethical and unethical practices? 4. Credit Credit ratings Protection against bad accounts Knowledge of usual and special terms granted by competitors (From this point on the categories duplicate questionnaires I and I I )

Appendix Β Characteristics of Manufacturers The following tables were constructed from answers to questions on the form for the panel of thirty newer (since 1940) manufacturing firms. TABLE 1 W H E R E D I D THE RESPONDENT G E T KNOWLEDGE AND MOTIVATION FOR T H I S BUSINESS?

Number of Answers

Type of Answer Experience in same type of manufacturing Experience in handling, but not manufacturing, the same product Business experience unrelated to product Chance to go in with experienced craftsmen or buy firm with experienced personnel Desire to work independently (not counted unless specifically stated as a major motivation ) Too many partners in existing firm Tax exemption Quarrel with father who was in same line To profit from increase in value of land on which factory was located Lived near quarry and observed business Had surplus supply of lumber for furniture Desire to use native resources and waste products 175

13 e 12 2 8 4 1 1 1 1 1 1 1

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The Puerto Rican Businessman

Forced out of sugar business by 1932 hurricane Attractive terms on plant and equipment from previous owner Vertical integration: owned trucks, rented quarry

1 1 1

* Totals may exceed 3 0 on this and subsequent t a b l e s , as e a c h r e s p o n d e n t might give more than one answer. TABLE

2

W H A T PART OF H I S BACKGROUND W A S MOST IMPORTANT TO ORIGIN OF THE F I R M

Ή umber of Answers

Type of Answer Experience in dealing with the product Father in the same Une of business Specialized education, engineering or vocational Saving money Knowledge of the market for the product General business experience Experiments with new products Living near a quarry TABLE

23 4 4 3 3 2 2 1

3

W H A T W E R E THE T H R E E MOST DIFFICULT PROBLEMS IN STARTING BUSINESS?

Type of Answer Lack of capital plus other problems Lack of capital, no other problem Securing adequate space Lack of skilled personnel Lack of knowledge and experience Inadequate machinery Poor credit ( also listed under lack of capital ) No contact with U. S. market

Number of Answers 13 6 9 7 5 3 1 1

Appendix Β

177

Had to build a local market Advance difficulties with product No initial difficulty TABLE

1 1 1 4

W H A T UNFORESEEN PROBLEMS AROSE A F T E R STARTING

Type of Answer

BUSINESS?

Number of Answers

Initial capital proved unexpectedly inadequate (usually because of extension of credit to buyers or need for increasing the scale of production) High labor turnover, and absenteeism Lack of skilled personnel at wages offered Inadequate machinery Strong competition No adequate answer to this question Bank credit not available Lack of experience or know-how High cost of operation because of unskilled labor Poor quality of product Lack of sufficient raw material Inadequate plant Inadequate managerial control Lack of market for new product None remembered

11 6 5 3 3 3 2 2 2 2 2 1 1 1 1

TABLE 5 WHY

H A V E SO F E W PUERTO RICANS STARTED

Type of Answer

FIRMS?

Number of Answers

Puerto Ricans are conservative and unwilling to risk their capital Dislike of dealing with workers and their problems Inability to raise capital

8 6 5

178 The Puerto Rican Businessman Lack of trained personnel Too much help given to competing continental firms Difficulty in securing government aid Fear of U. S. competition Large companies prevent smaller ones from developing... Many Puerto Ricans do start business T A B L E WHAT

COULD

6

GOVERNMENT LOCAL

3 3 2 1 1 1

DO

TO

ENCOURAGE

ENTERPRISE?

Number of Type of Answer

Answers

Long term loans with less restriction on types and amount of collateral 12 More government training for workers 6 More government encouragement to local entrepreneurs, including management training 5 Extend present tax exemption 3 Government cooperative buying of materials 2 Publicize the results of EDA studies 1 Five-year tax exemption for existing business 1 Continue the industrial forum 1 Government is already doing enough 1 T A B L E WHAT

NORTH AMERICAN

Type of Answer

8

LITERATURE

DO

YOU

READ?

Number of Answers

Trade journals 16 General "Home" magazines 5 No North American magazines 5 Reads for special information, but not often 2 No suitable literature for business 2 Reads North American magazine but not for business purposes 1

Appendix Β TABLE How

179

9

I s INFORMATION SECURED ON TECHNOLOGY?

Number of Answers

Type of Answer

No special source of information 9 Reading North American magazines or books 8 From Economic Development Administration 8 From salesmen or catalogues of North American manufacturers 5 Visits to factories in the States 2 Department of Agriculture 1 TABLE

10

ADVERTISING

Number of Answers

Type of Answer El Mundo or El Impart ial Television Radio Other means Tried and abandoned No advertising

9 6 5 3 1 6 TABLE

11

CREDIT T E R M S TO RETAILERS

Type of Answer 30 days 60 "

Number of Answers 7 4

90

-

6

180

"

4

Special arrangements

9

The Puerto Rican Businessman

180

TABLE

12

A B E B U S I N E S S L E A D E R S L O O K E D TO B Y T H E C O M M U N I T Y

Type of Answer Looked to but less than priests, editors, or politicians Looked to mainly for donations more than other leaders but not much " a s important only for business information Not sure No opinion TABLE FATHER'S

. . . ?

Number of Answers 4 4 2 2 1 1 3 13

13

OCCUPATION

Number of Answers

Type of Answer Businessman Farmer Civil Servant .•awyer Labor Leader No information

12 11 3 1 1 2 TABLE H I G H E S T L E V E L OF

Type of Answer No schooling Attended elementary school Attended high school

14 EDUCATION

Number of Answers 1 8 7

Appendix Β Attended Attended Attended Attended

high school and vocational school college in Puerto Rico college in Spain college in the United States

181 1 6 1 2

Notes CHAPTER

I

1. Harold F. Williamson and John Α. Buttrick, eds., Economic Development: Principles and Patterns (New York: Prentice-Hall, 1954), p. 17. 2. S. Herbert Frankel, The Economic Impact on Under-Developed Societies (Cambridge: Harvard University Press, 1953), p. 18. 3. For some general descriptions of Puerto Rican economic life see: Victor S. Clark et al., Porto Rico and Its Problems (Washington: The Brookings Institution, 1930); Biago di Venuti, Money and Banking in Puerto Rico (Rio Piedras: University of Puerto Rico Press, 1950); Samuel Ewer Eastman and Daniel Marx, Jr., Ships and Sugar: An Evaluation of Puerto Rican Offshore Shipping (Rio Piedras: University of Puerto Rico Press, 1953 ) ; Paul K. Hatt, Backgrounds of Human Fertility in Puerto Rico, A Sociological Survey (Princeton: Princeton University Press, 1952); Northwestern University, Department of Geography, The Rural Land Classification Program of Puerto Rico (Evanston: Northwestern University Press, 1952); Eleanor E. Maccoby and Francis Fielder, Saving Among UpperIncome Families in Puerto Rico (Rio Piedras: University of Puerto Rico Press, 1953); Harvey S. Perloff, Puerto Rico's Economic Future, A Study in Planned Development (Chicago: University of Chicago Press, 1950); Rafael Picó, The Geographic Regions of Puerto Rico (Rio Piedras: University of Puerto Rico Press, 1950); Lydia J. Roberts and Rosa Luisa Stefani, Patterns of Living in Puerto Rican Families (Rio Piedras: University of Puerto Rico Press, 1949); Julian Steward et al., The People of Puerto Rico: A Study in Social Anthropology (Urbana: University of Illinois Press, 1956); Milton Taylor, Industrial Tax Exemption in Puerto Rico (Madison: University of Wisconsin Press, 1957). 4. See James H. Soltow, "Manufacturing in Norristown, Pennsylvania in the Twentieth Century," Dittographed Ph.D. Thesis, University of Pennsylvania, 1954; James H. Soltow, "The Small City Industrialist, 1900-1950: A Case Study of Norristown, Pennsylvania," The Business History Review, XXXII (Spring, 1958), pp. 102-116; and Thomas C. Cochran, The American Business System (Cambridge: Harvard University Press, 1957), Chapter 9. CHAPTER

II

1. Clark et al., Porto Rico and Its Problems, pp. 400-401. 2. List of foreign corporations appearing in register of Executive Secre183

184

The Puerto Rican Businessman

tary in Report of Governor of Porto Rico, 1922, Mss., pp. 100-103, ΒI A, National Archives. 3. See John Kenneth Calbraith and Richard H. Holton, Marketing Efficiency in Puerto Rico (Cambridge: Harvard University Press, 1956), pp. 157 ff. 4. Central Aguirre Sugar Company, Fiftieth Anniversary Report, 1949, pp. 15-16. 5. Farr & Co., Manual of Sugar Companies 1953/54 (New York: The Company, 1954), pp. 138, 58, 21. 6. Earl Parker Hanson, Transformation: The Story of Modern Puerto Rico (New York: Simon and Schuster, 1955), p. 32. 7. General record of sugar culture, BIA 422, National Archives. 8. Clark et al, Porto Rico and Its Problems, p. 621. 9. Arthur D. Gayer, Paul T. Homan, Earle K. James, The Sugar Economy of Puerto Rico (New York: Columbia University Press, 1938), pp. 306-307. 10. Ibid., p. 150. 11. Clark et al., Porto Rico and Its Problems, p. 632. 12. Perloff, Puerto Rico's Economic Future, p. 64, and Gayer et al., Sugar Economy of Puerto Rico, p. 66. 13. Gayer et al., Sugar Economy of Puerto Rico, p. 62. 14. Puerto Rico Emergency Relief Administration, 1st Annual Report 1933-1934 (San Juan: Bureau of Reports, 1935), p. 530. 15. Data collected by Bureau of Labor, pp. 64-67 in Governor's Report, 1919, Mss., BIA, National Archives. 16. Newton D. Baker to E. B. Overton, June 29, 1930, Business Prospect Inquiries, BIA 64, National Archives. 17. Report of Commissioner of Agriculture and Labor, p. 51 in Governor's Report, Mss., BIA, National Archives. 18. 28th Annual Report of the Governor of Puerto Rico (San Juan: Bureau of Supplies, Printing, and Transportation, 1928), p. 43. 19. Report of Commissioner of Agriculture and Labor, p. 5 in Governor's Report, 1922, Mss., BLA, National Archives. 20. United States Census, Manufactures, Vol. Ill, 1939 (Washington: Government Printing Office, 1939), p. 1141. 21. Clark et al., Porto Rico and Its Problems, p. 456. 22. U. S. Census, Manufactures, Vol. Ill, 1939, p. 1141. 23. Maria Luisa Arcelay, "History of Needlework Situation in Puerto Rico," Mss. in Spanish, in possession of author. 24. Mss. Survey by J. Roderick McKay, Assistant Trade Commissioner, San Juan in Clark et al., Porto Rico and Its Problems, p. 470. 25. Clark et al., Porto Rico and Its Problems, p. 375. 26. Report of Treasurer, Governor's Report, 1912, Mss., BIA, National Archives. 27. Clark et al., Porto Rico and Its Problems, p. 385. 28. "Comparative Financial Condition of Banks in Puerto Rico," September 30, 1955, Government Development Bank of Puerto Rico, Dittographed.

Notes

185

29. Consolidated Report of Banks and their Branches and Trust Companies in operation in Porto Rico at the close of business, June 30, 1930, Treasurer's Report in Governor's Report, 1930, Mss., BLA, National Archives and also Clark et al., Porto Rico ana Its Problems, pp. 376-377. 30. Clark et al., Porto Rico and Its Problems, p. 386. 31. Spanish Bank of Puerto Rico Report, dated 1917, BLA. 747-13, National Archives. 32. Governor's Report, 1930, Mss., pp. 23-30, BLA, National Archives. 33. Governor's Report, 1932, Mss., p. 28, BIA, National Archives. 34. Consolidated Report of Banks and Trust Companies in operation in Porto Rico at the close of business, June 30, 1932. Treasurer's Report in Governor's Report, Mss., BLA, National Archives. 35. Banco de Ponce ö e , June 1, 1933, ΒΙΑ 28002-15A, BLA, National Archives. 36. See the "International Financial Statement for 1927-1928," in Clark et al., Porto Rico and Its Problems, pp. 582-587. 37. General records, conditions, etc., BIA 1175, 25-50, National Archives.

CHAPTER ΠΙ 1. Governor Winship to the President, June 26, 1938, Classified Files, Department of Interior, Office of Territories, File 9 - 8 - 5 9 , National Archives. 2. Interview with Carlos Chardon, January 15, 1958. The Report is in the National Archives. For a readable account of these years, see Hanson, Transformation, pp. 131 ff. 3. For a more detailed account of these developments, see Hanson, Transformation, Chapters VII and VIII. 4. Descartes, Basic Statistics, p. 62. 5. Harvey S. Perlofi, "Transforming the Economy," Annals of the American Academy of Political and Social Sciences: Puerto Rico, A Study