The United Fruit Company in Latin America

By Stacy May; Galo Plaza | Go to book overview

VI.
Contribution to the Several Local Economies

TWO CONDITIONS, we believe, must be satisfied before investment funds will move from one nation into another: First, the return to the investor supplying the funds must be satisfactory in that it compares favorably with alternative uses of funds in his own nation. Second, the net return to the host nation, after deducting all out- payments, must make a contribution to the local economy that would not otherwise be realized and that compares favorably with the contribution of locally financed activities. If these conditions are met, both sides have an interest in encouraging private investment.

In the previous chapter we looked at United Fruit's operations from the standpoint of an investor in the company's stock. We saw that it has yielded a steady, though far from spectacular, return to the shareholder. The main purpose of this chapter is to measure the economic impact of United's operations in the six countries that produced about 92 percent of North American banana imports in 1955--Costa Rica, Honduras, Panama, Guatemala, Ecuador, and Colombia. In the process, we shall try to show how the company's production operations differ from nation to nation, thus amplifying the general discussion presented in Chapter IV.

How should one go about measuring the economic impact of the United Fruit Company on these nations? There are various procedures that have been used in measuring a company's contribution to the economy in which it operates. One widely used procedure is to measure what is termed the "value added" by a company's operations. The cost of purchased materials, services, parts, and fuels that a company purchases from other business concerns is deducted from the market value of what it sells and the remainder is the "value added" by the company's operations to the gross national product of the country in which it operates. Depreciation and indirect taxes are deducted to compute the value added to national income by the company's operations.

Such calculations would in some respects understate and in others overstate the United Fruit Company's contributions to the nations in

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