San José State University
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Political and Economic History of Panama

The Political and Economic History of Panama

Upon the independence of the territories of the Spanish Empire in the Americas the Isthmus of Panama achieved independence as a separate unit but joined Neuva Granada in keeping with Simon Bolivar's dream of an Hispanic-American superstate. Panama was annexed as a province of what later became the nation of Colombia. As many small states learned to their regret merging with a larger state is an irreversible step. Panama remained under the control of the government in Bogota until the early years of the twentieth century, although there were numerous attempts at secession. Often these rebellions were put down not by Colombian troops but by American forces on the terms of the 1846 Bidlack-Mallarino Treaty which gave the U.S. the right to build and operate a cross-isthmus railroad and protect the railroad and Neuva Granada's property rights with military force.

Neuva Granada joined with Venezuela to form what was called Greater Colombia. Greater Colombia later split back into the nations of Colombia and Venezuela. Colombia has been chronically troubled with civil wars. Often the basis of the civil wars was the dispute between people in the provinces who wanted Colombia to be a federation of provinces with a good deal of political autonomy and people in the capital who wanted Colombia to be a unified state of centralized power. The federationists were called Liberals and the centrists were called Conservatives. The Liberals and the Conservatives differed on the role of the Catholic Church in the state. Just before the time of the creation of the nation of Panama there was a Liberal revolt against the authority of the centrist regime in Bogota and many provinces, including Panama, had Liberal governments which refused to obey the dictates of the central government.

During the years of Colombian control the first steps toward the construction of an interocean canal were taken. The builder of the Suez Canal, Ferdinand de Lesseps of France, secured the rights from the Colombian government for his Compagnie Universelle Pour le Canal Interocceanic (Universial Company for the Interoceanic Canal). This interoceanic canal was projected to cost twice as much as the Suez Canal and require twice as long to build. Construction on the canal started in 1881 but the wet, disease-ridden jungles of Panama proved to be a much more difficult environment than the desert of Suez and by 1889 de Lessep's company was bankrupt. Its bankruptcy was a national financial calamity in France where the general public who invested in it lost heavily. Out of the bankruptcy a new company, Compagnie Nouvelle du Canal Interoceanic, was organized to take over the assets of the old company. The New Company of the Interoceanic Canal was not much more successful than the old company and by the mid-1890's the only hope for recovering some of the investment was to sell the operation and its building rights to American interests. In 1896 the New Company of the Interoceanic Canal hired a New York lawyer, William Nelson Cromwell, to lobby Congress for the U.S. Government to buy the interests of the New Company.

William Nelson Cromwell

Cromwell was well connected politically in the Republican Party but the task of promoting the Panama Canal was not an easy one. The U.S. was committed to creating an interoceanic canal but there had developed a vested interest in the U.S. for a Nicaraguan route. A route through Nicaragua was longer in distance but it had several engineering advantages over the Panama route. In Nicaragua there are two large lakes, Lake Managua and Lake Nicaragua, which could be incorporated into the canal. The altitude for Nicaragua was lower than for Panama. Since the French had preempted the rights to the Panama route the U.S. negotiated the rights to build a canal through Nicaragua. Powerful members of Congress developed an allegiance to the Nicaragua option.

In March of 1899 Congress had created and funded an Isthmusian Commission on Interoceanic Canals to study the merits of the alternative routes. That Commission reported in November of 1901 and eight out of the nine members voted for the Nicaraguan route. The only engineer on the Commission voted for the Panamanian route.

In January of 1902 the U.S. House of Representatives approved a bill which would authorize the construction of a canal through Nicaragua. In August the U.S. Senate rejected the House bill and approved a bill calling for a canal by the Panama route. This reversal of sentiments between January and August reflects some pretty agile political maneuvering on the part of William Nelson Cromwell. Although Cromwell was originally hired by the French New Company to lobby for the purchase of its assets, Cromwell joined forces with a syndicate of Wall Street figures, including J.P. Morgan, who bought out the French stockholders for about twelve million dollars and continued to lobby for the purchase of the New Company assets for forty million dollars. Even the twelve million dollars was a rather inflated price to pay for the rusting equipment of the New Company and the building rights secured from the Bogota government had only two years to run. The construction work already completed by the French was not likely to be of much value in that de Lesseps was trying to create a sea-level canal and this was a significant element in his failure.

Cromwell executed an extremely effective campaign. He secured the backing of Senator Mark Hanna of Ohio for the Panama route. Mark Hanna was the Chairman of the Republican Party and one of the most powerful men in Washington. Incidentally there is basis for a belief that the Wizard of Oz story was an allegory for the political battle over monetary policy in the U.S. The Wizard of Oz supposedly represented Mark Hanna, the behind-the-scene political manipulator. Cromwell promised a $60 thousand political contribution to the Republican Party on the part of the New Company. Cromwell was ably aided by the Frenchman Philippe Bunau-Varilla who represented the New Company.

Philippe Bunau-Varilla

Theodore Roosevelt had become President of the U.S. in 1901 as a result of the assassination of William McKinley. For geopolitical reasons Roosevelt was extremely interested in the interoceanic canal. He interviewed separately the members of the Isthmusian Commission on Interoceanic Canals that had looked into the relative merits of the Nicaragua and Panama routes. After the questionings by Roosevelt the Commission reversed its previous recommendation and unanimously recommended the Panama route.

The Panama route was shorter and would involve fewer locks but a surprising factor was the absence of volcanoes in Panama as compared to eight volcanoes considered active in Nicaragua. In May Mount Pelée on the Caribbean Island of Martinique erupted killing everyone in the city of Saint-Pierre except one person, a prisoner held in a deep dungeon cell. Later in May a cablegram was received from New Orleans saying that Mount Momotombo on the shores of Lake Managua had erupted. The opponents of the Panama route cabled the President of Nicaragua asking about the eruption. The President wrote back that no such eruption had occurred and that Nicaragua had not had a volcanic eruption since 1835 and that one involved ashes and no lava. This was not true but it was effective in the Congressional debate. The proponents of the Panama route pointed out that Nicaragua featured on its coat of arms and some of its postage stamps volcanoes erupting. Those proponents got a number of recent issue postage stamps showing a volcano erupting that happened to be Mt. Momotombo. The display of these stamps effectively countered the President of Nicaragua's assertion that there had been no volcanic eruptions in Nicaragua since 1835. Senator Mark Hanna made an effective speech supporting the Spooner Bill which called for the building of the interoceanic canal by the Panama route. The final vote in the Senate was 42 in favor of the Spooner Bill and 34 against it.

The construction of the canal by the Panama route required a treaty with Colombia. In August of 1903 Colombia rejected the proposed treaty. By November of 1903 a rebellion in Panama was organized and, with the backing of U.S. war ships, Panama became an independent republic. The sentiment for independence in Panama was there already but it would not have been effective without financial support from Wall Street financiers and political backing from Washington, D.C. The Panamanian patriot who negotiated the financial and political support for an independent Panama was Mañuel Amador Guerrero.

Mañuel Amador Guerrero

A Panama Canal Treaty was signed by the U.S. and the new government of Panama.

In 1914 the Panama Canal was opened. In 1922 Congress approved a $25 million payment to Colombia as compensation for its loss of Panama. On the last day of the twentieth century the U.S. turned control of the Panama Canal and the Canal Zone over to the Government of Panama.

The complete story is told by Ovidio Diaz Espino, a Panamanian who started uncovering the true story of Panama while working in New York City. His book, How Wall Street Created a Nation, is a superb investigative report. It is a story that required shifting through deliberate misinformation and disinformation promulgated by the principals in the story to sway public opinion, to panic their opponents and to cover their own role or give themselves legal protection if their plan failed.


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