There are thinkers throughout history who offer grand overarching explanations of economic growth.
Karl Marx was an economic determinist who focused on perpetual struggle between economic classes. Philosopher Adam Smith argued that human ingenuity and enterprise should not be throttled by government. Biological scientist Jared Diamond’s “Guns, Germs and Steel” highlights the environmental and technological factors behind growth.
Such broad, or macro level, thinking at a is important. But micro-level case studies, those focused on specific individuals or groups, can also give rise to insights, if only by raising questions for further musing:. Why do some economies grow faster than others? Why do some use resources more efficiently, and distribute what is produced more fairly? These issues are the core of economics. Sometimes little examples push us toward broader answers.
Start with specific issues: Why does fruitful innovation occur in one set of circumstances but not another? Why in one location and not another? Where macro thinking provides the theories, micro provides the stories of how the thinking is applied.
Bananas are the first story. I remember my mother reading our little town’s mimeographed weekly and sardonically saying, “Well, Hank’s got bananas on sale for 10 cents a pound. Hank always has bananas for 10 cents.” This was about 1962. Somehow, someone could get bananas from Central America to rural Minnesota to sell for 10 cents a pound. That was an economic miracle. How did it come about?
Well, a century earlier, Henry Meiggs, an enterprising but dishonest forty-niner, hopped on the first ship leaving San Francisco to avoid police and people he had defrauded. He hopped off when it stopped in Chile. Wheeler-dealer to the bone, he soon contracted to build a railroad from the port of Valparaiso to the capital of Santiago and succeeded. This brought him contracts to build other railroads in Peru and elsewhere.
As the go-to guy for Latin American governments wanting railroads, he agreed to build one for bicoastal Costa Rica. It was to carry coffee from the highlands for shipment to Europe from an Atlantic-facing port rather than around South America, pre-Panama Canal, from a Pacific port. But the railroad had to cross disease-infested lowlands on the Caribbean coast. An aging Meiggs got his sister’s four boys to help. Three of these four Keith brothers were among the 4,000 workers who died of yellow fever and other tropical illnesses before 25 miles of railroad were completed.
However, the survivor, Minor C. Keith, was as enterprising as his uncle. Among other things, he planted banana seeds obtained from Caribbean growers. After a government bankruptcy, he ended up owning the unprofitable railroad himself along with millions of acres of land. He saw that shipping bananas might raise revenues from these assets. Refrigerated steamships, then new, could move fruit from the Atlantic port of Limon north through the Gulf of Mexico to New Orleans in three days. From there, iced railroad cars could get the fruit to U.S. cities and rural areas alike. Volume disbursed cost and ensured profit. Bananas had cost only five cents a pound when my mom was a kid.
Much of this network was constructed after Keith and a French Caribbean planter merged operations to form United Fruit, now Chiquita International. United deserved its dark reputation for brutal treatment of workers and corrupt domination of politics across Central America. But it was a marvel of logistics.
Would the northern U.S. and Canada ever have had tropical fruit without Keith? Certainly yes. But perhaps not as cheaply nor available as soon. Could Guatemalan or Costa Rican businesses have raised and exported the fruit themselves? Perhaps. But without knowledge and ability to integrate growing, harvesting, rail transport, ocean shipping, unloading and then distribution, they could not have succeeded like Minor C. Keith.
Now consider post-World War II industrialization in Brazil. A frustrating country politically with a dynamic economy, it’s seen dramatic spurts of growth mixed with doldrums. World-class Brazilian sectors include sugar, orange juice, soybeans, airliners, heavy construction, iron mining and more. But Brazil has failed to achieve the broad-based development of Taiwan or South Korea. An adverse political culture still holds it back.
The blockheadedness of World War II German U-boat captains gave Brazil’s economy an early kick.
During the war, the South Atlantic was full of cargo ships. Argentina always sold large amounts of wheat and beer to Britain. After the Italian Navy closed the Mediterranean to commercial shipping, wheat, meat, butter, cheese and wool from New Zealand and Australia had to come around the Cape of Good Hope, the southern tip of Africa, rather than through the Suez Canal. With North Atlantic cargoes from the U.S. or Canada facing a gauntlet of German U-Boat torpedoes, supplies from South America were vital.
Among these ships were some from neutral Brazil, most were not. U-Boat captains paid little attention to niceties. The shipping lane from Argentina to England ran right along the Brazilian coast. So people in Rio de Janeiro worshiping the sun on Copacabana and Ipanema beaches soon started seeing ships torpedoed before their eyes. The public outcry was huge and tipped the balance toward Brazil’s declaration of war on Germany in 1942.
Brazil immediately joined the U.S. Navy in anti-submarine operations in the South Atlantic and Caribbean, freeing up U.S. forces. Eventually a 25,000-strong expeditionary force of Brazilian ground and air units arrived in Italy to fight in the U.S. Fifth Army commanded by Gen. Mark Clark. Some 460 died. Its bloodiest fight was in April 1945, six miles west of where future Kansas senator Bob Dole was badly wounded the same day.
In return, Brazil became integrated into the U.S. industrial war machine. We built them a large integrated steel mill and supported a plant to overhaul aircraft engines. That eventually became a truck factory. New airports and air navigation systems were built. Ports were improved, machinists, electricians and other technicians were trained. Brazil’s industrial training system that taught Brazil’s president Luis Ignacio da Silva how to operate a lathe was based on U.S. military tech training.
After the war, Brazil entered four decades of rapid growth. Its war experience and relationship with the U.S. was not the only cause, but it was a major one.
The next example is the case of John Moses Browning, a Utah gun designer, and Herstal, a small Belgian town. This is on a far smaller scale than global trade, but it shows how fortuitous accidents can benefit a particular city or firm.
Browning, considered the most brilliant gun designer in history, never manufactured firearms himself. He sold his patents to Winchester, Colt and other firms. Thomas G. Bennett, son-in-law of Oliver Winchester and president of that firm, bought many Browning designs, including those for nearly all successful models entering production between 1880 and 1900.
As the 1890s ended, Browning designed a superb shotgun, the first successful semi-automatic. He wanted a per-gun royalty rather than a lump-sum patent fee as before. Bennett refused, then disparaged Browning to reporters. At the same time, Browning hit an impasse with Colt over rights to a semiautomatic pistol.
Fortuitously, Browning once had met Hart Berg, a German engineer trained at the University of Liege in eastern Belgium, who worked at Colt. When Browning’s new designs were ready, Berg was at Fabrique Nationale, a small, nearly bankrupt gun manufacturer in Herstal, a small town near Liege. Browning made the first of 65 Atlantic crossings and quickly signed a contract.
By the time a large banquet was held in early 1914 to celebrate the sale of the millionth Browning pistol, employment at FN Herstal was 4,200, six times what it had been in 1902, and the factory covered 30 acres rather than four. Some 1.3 million units of that model of shotgun would be sold over seven decades along with millions of later pistol, shotgun and rifle designs.
The effects on the world economy were trifling. Browning’s guns would have been made in any case by someone somewhere. But for eastern Belgium, the thriving of a company offering thousands of good jobs was important. A nearly random set of events led to a striking outcome. Minnesotans today can see parallels with Mayo and Rochester.
Sweeping forces may drive overall economic change, but little case studies like these are highly instructive.
St. Paul economist and writer Edward Lotterman can be reached at stpaul@edlotterman.com.