The Last Word: The Canal and Beyond

The Canal and Beyond 

By Noel Maurer

On May 3, 2009, pro-business supermarket magnate and New York Yankees fan Ricardo Martinelli defeated equally pro-business former housing minister Balbina Herrera for President of Panamá by 22 points. Clearly, the majority of Panamanians thought that the proper business of Panamá was business. And in 2009, as today, business in Panamá centered on the Panama Canal.

The contemporary importance of the Panama Canal to world trade and Panamanian economic development is impossible to dispute. Panamá’s unique geographical location and historical position show how various economic and political themes replay themselves over and over through time.

U.S. “exploitation” occurred in two steps in 1903-04: first when the United States strong-armed a better agreement than it could have obtained through voluntary negotiations, and then when it effectively separated the Canal Zone from the Panamanian economy. Active intervention in Panamanian politics soon faded, perhaps for the best, given America’s inability to keep its own peculiar racial attitudes out of its foreign policy. Passive acquiescence in Panamanian authoritarianism became the norm.

The canal itself, however, would not be handed over until 1999, and the Neutrality Treaty provided the United States with a pretext to call off the handover should anything go seriously wrong. U.S. opponents of the handover doubted Panamanian ability to manage the canal for there was little in mid-century Panamá to reassure outsiders. Corruption ran rampant; parties existed essentially as patronage devices.

Ultimately, the United States did intervene by removing Manuel Noriega by force. Noriega had been 
useful for Washington’s foreign policy; this led him to miscalculate his worth to the United States. Noriega very well might have survived had he not made it clear that he intended to use the Panama Canal for 
political purposes.

The 1989 U.S. invasion could by itself no more create democracy in Panamá than had interventions in 1904, 1912, 1918, 1921, and 1925. Fortunately, a critical mass of the Panamanian electorate no longer felt obliged to follow traditional politics. Noriega transformed Panamá in spite of himself, breaking traditional patronage networks in order to advance his own personal power. In the process, a broad-based coalition of Panamanians mobilized against the dictator. After 1989, democratic candidates needed to gain the support of a suspicious electorate not obliged to any party machine. A large bloc of swing voters emerged, enabling the creation of a democracy in which a winning coalition could not simply rely on transferring wealth from the losers. The regime change of 1989 succeeded because there were already enough Panamanians convinced that electoral democracy was in their best interest. In 2006 Panamanians evinced enough faith in their government to vote overwhelmingly in favor of expanding the Panama Canal.

The Panama Canal is now better managed than ever before. Simultaneously, Panamá is more strongly positioned to capitalize on the canal than ever before. While Panamá still suffers from a relatively high level of corruption, the nation is better educated and more democratically governed than at any other time. Panamanians have reasons for optimism going ahead. The continuing growth of the Chinese economy stimulated a wave of new eastbound exports through the canal, from Brazilian soya to (astonishingly) U.S. coal.

U.S. imperialism was not particularly successful in terms of benefitting Panamanians. The modern, negotiated “empire by invitation” that re-placed the old system after 1989 appears to have been far more successful than the older version ever was. Rather than act as an imperial power, the United States now implicitly guarantees Panamanian security through the Neutrality Treaty and economic prosperity through the dollar and the U.S.-Panama Free Trade Agreement. In return, Panamá adheres to the norms of democratic rule and professional management of the canal, which also happen to be in the country’s own best interest.

In all likelihood, the new relationship between Panamá and the United States, centered as ever around the Panama Canal, will be healthier and more stable for both nations in the decades ahead.

Noel Maurer, an associate professor at Harvard Business School, is the author of The Big Ditch: How America Took, Built, Ran, and Ultimately Gave Away the Panama Canal, co-authored with Carlos Yu.