Harvesting History

The Untold Story of United Fruit in Costa Rica

During school hours, Costa Rica Division, circa 1925. United Fruit Company photograph collection, Baker Library, Harvard Business School (UF76.041).

Growing up in Costa Rica, we read Colombian author Gabriel García Márquez’ One Hundred Years of Solitude. This novel, inspired by the United Fruit Company’s actions in Colombia, speaks about the company’s exploitative practices, depicting them as neocolonialists. While fictional, the narrative is rooted in historical events like the 1928 labor dispute in Colombia, where a tragic massacre occurred during a strike over deplorable working conditions, highlighting the grim reality behind the company’s legacy.

The United Fruit Company (UFCo) was a multinational corporation headquartered in the United States and became highly controversial due to its impact on Central America.  This article delves into United Fruit’s unique role in Costa Rica, aiming to extract insights from its operations and broader implications, drawing lessons from Méndez and Van Patten (2022).

Our interest in researching this polemic company was sparked during our graduate studies. We were particularly inspired by a seminal paper by Harvard Professor Melissa Dell, which explored the enduring negative impacts of forced labor in Peru’s mining sector, imposed by the Spanish from the 1570s to the early 1800s. Dell demonstrated that the economic repercussions of this system persisted long after its abolition, significantly affecting Peru’s economic development over centuries. We decided to conduct a similar analysis, aimed at uncovering the UFCo’s long-term negative effects on their home country’s development.

Historical Background

In the late 1800s, the Costa Rican government sought to build a railroad from the central region, where the capital lies, to the Caribbean coast. To achieve this, the government procured a substantial loan for the construction. However, the complexities of railroad construction proved to be quite challenging, leading to the depletion of funds before the project’s completion. Faced with the dilemma of an unfinished railroad and drained finances, the government encountered an opportunity in the form of an American investor, Minor Keith. Keith agreed to complete the railway in exchange for a land concession rather than monetary compensation. With abundant land but no remaining funds, the government awarded Keith a land concession in 1884, which spanned 9% of the national territory, with a 99-year lease.

This concession laid the groundwork for what would become the United Fruit Company. This initial venture in Costa Rica served as a blueprint for United Fruit’s expansion across Latin America, adopting a similar model of obtaining land concessions, often in exchange for infrastructure projects like railroads, and cultivating bananas and other crops. The company operated in Costa Rica from 1899 to 1984, and the economic significance of bananas and the United Fruit Company to Costa Rica was profound. The United Fruit was responsible for 58% of the country’s exports, employing 14% of the agricultural labor force and 7% of total employment.

W713969_1 -Three-hole golf course at Hospital Point, Limon, Costa Rica, April 17, 1924, United Fruit Company photograph collection, Baker Library, Harvard Business School (UF76.051).

Challenges and Opportunities

The land concession granted for banana cultivation in Costa Rica was situated in a remote location, in a region near Costa Rica’s Caribbean coast. At the time, this area was sparsely populated, distant from the hustle and bustle of urban life and from San José, the capital city, where most of the population resided. This posed a challenge for the UFCo. As bananas have a year-round growth cycle, the company required a steady, dedicated workforce that could reside and toil in these isolated plantations consistently throughout the year; despite the initial low population density and minimal investment in the region, the need for a permanent labor force was paramount for the company to start and sustain its operations.

The key aspect of this challenge is that potential workers had alternative employment opportunities at the time, particularly in the coffee industry, a major export for the country. Coffee harvesting provided seasonal work close to the capital city and its amenities, as the environmental conditions for growing coffee were quite distinct from those suitable for bananas. Bananas thrived in the humid, low-lying regions, while coffee was best suited to the less humid highlands surrounding San José. Every season, therefore, coffee plantations often lured laborers away from the remote banana plantations.  

This geographical disadvantage led to significant challenges in worker retention, with a notably high turnover rate of approximately three months. Company reports frequently highlighted the difficulty in retaining workers. It invested in training employees in specific agricultural methods, only for them to leave just as they began mastering these techniques. This cycle necessitated constant retraining of new workers. Additionally, the company grappled with health concerns, particularly malaria, which was rampant in the humid, low-lying areas ideal for banana cultivation and which could spread more rapidly with a transient workforce. The constant movement of workers in and out of the region not only exacerbated the issue of maintaining a stable workforce but also intensified the challenge of controlling malaria within the company’s operations.

A Solution with Long-lasting Consequences

To address its workforce retention issues and health concerns, the UFCo began investing in local amenities, recognizing the importance of a long-term strategy for its operations in the region. Understanding that health challenges, particularly malaria, posed a significant barrier to maintaining a stable workforce, the company prioritized the establishment of a robust health system. This initiative included building high-quality hospitals to ensure workers had access to medical care, which was crucial for dealing with the prevalent issue of malaria. Beyond health care, the company expanded its focus to improve the overall living conditions for its employees. This involved providing larger housing options that could accommodate workers’ families, thereby making the prospect of staying on the plantation more appealing. Additionally, the company developed parks and recreational facilities near the living areas, enhancing the quality of life for its workforce. These investments in health, housing and community amenities were strategic moves by United Fruit to create a more stable and content workforce, reducing turnover and addressing the health risks associated with the region.

Further, while it is straightforward to understand why the company had an incentive for workers to be healthy, another particularly surprising initiative by the UFCo was the establishment of schools for the children of its workers. These educational institutions mainly offered primary education, a level of schooling not commonly completed at that time, especially by children of agricultural workers. By providing educational opportunities for their workers’ children, the company could then better encourage workers to move and settle with their families in these isolated regions. This strategy aligned with a belief that a worker with their family in the area would be less likely to leave for seasonal employment. The company’s decision to provide such benefits rather than directly increasing wages was influenced by the need to offer competitive advantages over coffee plantations, which paid high wages during harvest season and were more convenient for workers.

We found that when a company like United Fruit pays its workers in amenities rather than cash wages, the dynamic of bargaining power decidedly shifts towards the company. This form of compensation strategy effectively ties the workers more closely to the company, as their ability to independently manage and allocate their earnings is significantly restricted. Consider the scenario in which a worker contemplates leaving their job: having cash on hand is crucial for covering the immediate costs associated with relocation and living expenses during the transition. However, if their compensation is largely in the form of amenities—such as housing, healthcare or education—their mobility is constrained, making the decision to leave more complex and financially challenging. What was the impact of this profit-driven strategy?

Community house, Hospital Point, Limon, residence of United Fruit Company single employees, April 17, 1924. United Fruit Company photograph collection, Baker Library, Harvard Business School (UF76.052).

Measuring the Long-Run Effects of the UFCo

We were somewhat skeptical when we began our research into the UFCo’s legacy in Costa Rica. We started with a crucial search for plantation maps in the national archives. Faced with the challenge of maps that had significantly deteriorated over time, the project’s viability was in jeopardy until we discovered a well-preserved copy of the maps in a local contact’s backyard. This pivotal find not only saved their project but also led to the digitization and donation of these maps, which enabled a precise demarcation of the United Fruit Company’s boundaries. This demarcation was fundamental to our approach of comparing living standards between households within the company’s influence against comparable households not directly influenced by the company.

We started out thinking that the company had a detrimental effect, influenced not only by Gabriel Gárcía Márquez, but also the Costa Rican classic, Mamita Yunai.  We gradually began to find that areas under United Fruit’s influence were actually more prosperous. These initial findings were met with skepticism by the researchers, who suspected that the aggregated nature of their data might have skewed the results. In pursuit of more granular data, we obtained geo-referenced census block data, allowing for precise measurement at nearly the household level. Upon reanalysis, the results consistently showed that households within UFCo areas were indeed better off.

Fearing that our findings might still be flawed due to missing comparative factors, we sought expertise from the University of Costa Rica. One historian specializing in land tenure during the relevant period provided us with new insights. This led the team to focus on a specific area where the UFCo land assignment was arguably random, armed with the detailed census block data for a more accurate comparison. Yet, the results remained the same: UFCo households were significantly more prosperous. This repeated confirmation of our findings shifted the research focus to uncovering the reasons behind the unexpected prosperity of United Fruit Company households.

We began with a dive into qualitative evidence, specifically historical reports produced by the company itself. These annual reports, which updated shareholders on the plantations’ operational challenges and strategies, provided a wealth of insights. Initially, the reports highlighted a significant challenge of high worker turnover, which was a major concern for the company’s operations. However, as they delved into later documents, a strategic shift became apparent. As described earlier, the company began to focus on investing in worker amenities as a tangible solution to reduce turnover. This investment extended beyond healthcare to include the construction of parks and schools, aimed at creating a more stable and attractive living environment for workers and their families. These reports explicitly outlined the company’s rationale, revealing a deliberate strategy to enhance worker satisfaction and loyalty by improving their quality of life. This shift in approach provided the initial clue to understanding why the United Fruit Company’s presence might have led to better outcomes for its associated households.

To quantitatively assess the impact of the UFCo on the living standards of Costa Rican households, we utilized detailed census data and documented that households employed by the UFCo enjoyed higher living standards than comparable households outside the company’s influence across various dimensions. Notably, these households benefited from higher consumption levels, better housing conditions, enhanced sanitation and higher educational attainment. This analysis was pivotal because it extended beyond mere wage comparisons to encompass a broader spectrum of living standards. By focusing on these diverse measures, we managed to capture the full extent of the amenities provided by the United Fruit Company, which played a crucial role in elevating the quality of life for its workers and their families.

We succeeded in documenting better living standards for UFCo households while the company was operating. But the question remained for us: what happened even three decades after the company’s closure?  Our data would allow us to explore this question. Analysis of census data up to 2011 shows that areas once under United Fruit’s influence continue to have higher living standards compared to other regions.

New swimming pool at Hospital Point, Costa Rica Division, December 31, 1923. United Fruit Company photograph collection, Baker Library, Harvard Business School (UF76.054).

Mechanism Behind the Better Living Standards

Was the investment in local amenities responsible for these better living standards? To answer this question, we analyzed areas within the company’s plantations facing more labor market competition, particularly from higher-wage agricultural sectors like coffee. They discovered that UFCo areas closer to these competitive zones received more investments in amenities compared to those further away. This pattern aligns with a deliberate use of amenities to retain workers in the face of external labor market pressures.

We then expanded our examination of the company to include temporal variations, specifically investigating how the company’s behavior changed over time in response to fluctuations in the coffee market. Through analysis of historical reports detailing the company’s expenditures on wages and amenities over several years, we observed a trend in which the proportion of amenities in total worker compensation increased during periods when coffee prices significantly outpaced banana prices. This pattern supported our hypothesis that competition, particularly from the coffee sector, drove the United Fruit Company to enhance its investment in amenities as part of total compensation, rather than solely increasing wages.

Further, we also show that areas within the UFCo which were close to regions in Costa Rica with high suitability to grow coffee, and consequently, where the competition for workers was more intense, had better living standards both while the company was operating and even three decades after it left.

What We Learned

 This research sheds light on the crucial role of labor mobility in mitigating the potential for economic exploitation by large companies like the UFCo. Through an economic model, we demonstrate that lower labor mobility—had it been half of what was observed—would have allowed the company to potentially exploit workers, negatively impacting the local economy. This result might explain why the impact of United Fruit varied significantly across Central America. For instance, data from Colombia (echoed by García Márquez’s novel) suggests that areas once under UFCo’s influence perform worse economically today compared to similar regions not exposed to the company, and historical accounts indicate worker repression in Colombia, including restrictions on movement. In Guatemala, areas associated with United Fruit show a more disconnected road network, implying potential barriers to labor mobility. These contrasts highlight the pivotal role of labor mobility in determining the socio-economic impact of United Fruit’s operations.

Furthermore, Costa Rica’s stable democracy, characterized by the regular alternation of power between two main political parties, created an environment in which the government aimed to maintain public satisfaction to secure future reelections. This political stability contrasted sharply with the situation in other Central American countries, where frequent coups and a focus on short-term gains often led to government decisions that did not prioritize the well-being of the population. In countries where political instability was the norm, United Fruit might have found it more profitable to influence or capture government policies to its advantage, rather than investing in higher wages or amenities for workers. This strategy, however, was not viable in Costa Rica due to its democratic framework, which incentivized policies that benefited the broader population.

Our research on the United Fruit Company in Costa Rica presents findings that diverge significantly from other scholarly work examining the impacts of large producers operating in well-defined land extensions in other countries, such as Melissa Dell’s study on mining and forced labor in Peru and studies of land concessions in Africa. These studies often reveal negative and enduring consequences of such economic arrangements. They note that a key factor distinguishing their findings is labor mobility. In contrast to settings like Africa’s concessions or Peru’s mining industry, where workers’ ability to move is severely limited, Costa Rica’s context allowed for greater worker mobility. This mobility complicates the analysis as it introduces variability in who enters or leaves the area, which must be accounted for when estimating effects. However, it also underpins the mechanism driving their results: the ability of workers to move gives them leverage, incentivizing the United Fruit Company to invest more in worker amenities to attract and retain labor.

The provision of amenities by private companies to their workers, akin to United Fruit’s practices in Costa Rica, is not a novel phenomenon in history. It has been observed in various contexts, such as Unilever in Britain and Ford in the Upper Peninsula of Michigan, among others. These companies recognized the importance of attracting and retaining a stable workforce by offering amenities, indicating that the strategy employed by United Fruit reflects broader, historical corporate behaviors aimed at enhancing worker welfare and company productivity.

Amid a resurgence of land concessions, particularly driven by biofuels and food security since the early 2000s, our research offers critical insights for governments considering such agreements with foreign companies. Our findings underscore the importance of evaluating the potential impacts of land concessions on the local population. A pivotal aspect identified is the availability of outside options and labor mobility, highlighting not just the physical ability of workers to move but also the presence of viable employment alternatives. We suggest that in the absence of a competitive sector, governments might benefit from granting multiple concessions to different companies. This approach could foster competition, enhance labor mobility and ensure that land concessions contribute positively to the country’s economic development and the well-being of its population.

Diana Van Patten is an Assistant Professor of Economics at the Yale School of Management. She received her Ph.D. in economics from UCLA, was a postdoctoral associate at Princeton University, and an Academy Scholar at the Harvard Academy of International and Area Studies at Harvard University.

Esteban Mendez is a researcher at the Central Bank of Costa Rica. He received his Ph.D. In economics from Cornell University, after obtaining a B.A. in Economics at the University of Costa Rica.