his former boss, and makes clear that Zemurray put his stamp on United Fruit: “His company and his character were almost exactly matched: … tough, no-nonsense, quick to act.” McCann’s employment continued after Zemurray’s departure, which in his eyes diminished the company—causing it to become “forceful one minute, indecisive the next, living as much off its own past as for its future.”55
The years following Zemurray’s retirement were no time for indecisive management given the stiff competition The Octopus was encountering, from U.S. firms and South American entrepreneurs alike. Certainly, Noboa and other Ecuadorians were not to be taken lightly. Their environmental advantages were undeniable: a tropical setting ideally suited to tropical fruit production that admittedly was farther from leading markets in Europe and the eastern United States but that also was free of hurricanes, which were (and remain) a constant menace in the Caribbean Basin. The Ecuadorians had nonenvironmental advantages as well: being located in a port city with a long tradition of international commerce, complete with the business services needed to win over customers throughout the world. As is documented in the pages that follow, the skills and capacities of exporters based in Guayaquil exactly matched the entrepreneurial requirements for success in the international banana business.
Whether or not creative destruction has occurred in Ecuador can be debated. Defined narrowly, this process, which economist Joseph Schumpeter examined during the early 1900s,56 involves major strides in productive technology, which Ecuadorians have never undertaken. However, entrepreneurs such as Noboa were creative in that they established something that did not exist before: a tropical fruit industry in Latin America that was not controlled by major corporations headquartered in the United States. This development was also destructive: the emergence after World War II of a large and independent source of bananas south of the Panama Canal directly undermined the monopoly The Octopus had enjoyed previously thanks to the control of agricultural resources farther north, in the Caribbean Basin. Thus, the commercial rivalry coming out of Ecuador did not confine itself to the remote margins of United Fruit’s business. Rather, the country’s entrepreneurs struck at the very core of that business. If this was not creative destruction in the strictest sense of the term, El Pulpo could be excused for not appreciating the difference.
CHAPTER 2
El Pulpo’s South American Rivals
Latin American exporters and their contributions to trade and development are the subject of an incisive essay by Charles Sabel, a professor of law and social science at Columbia University. The essay draws directly on an insight about market prices from Friedrich Hayek, who along with Joseph Schumpeter was among the foremost economic thinkers of the twentieth century. These prices do not comprise a “detailed, reliable, and nearly exhaustive survey of current constraints and opportunities,” as Sabel puts it. Rather, they are “statistical aggregates” that indicate the scarcity of “general classes of goods,” which implies that entrepreneurship involves much more than a careful reading of market data. In Hayek’s view, businessmen and women find opportunities by complementing the broad guidance encapsulated in prices with information about their respective enterprises that is of critical importance yet is not provided by markets—to be specific, “highly detailed, local, or idiosyncratic information regarding inputs, production processes, or products.”1
This basic entrepreneurial task, which economists Ricardo Hausmann and Dani Rodrik characterize as “self-discovery,” obviously requires time, effort, and thought. Additionally, problems of appropriation, or capture, frequently arise. For example, one firm might go to the trouble of designing a new product and introducing it to consumers, only to see profits slip away as competitors supply facsimiles. Likewise, the improvements one business makes in production processes thanks to its expenditures on research and development benefit other businesses insofar as those improvements are easy to copy—as is often, even typically, the case. Patent law and other arrangements for protecting the intellectual property of innovators exist for the sake of enhancing benefit capture. However, these arrangements are hardly a perfect solution, so entrepreneurial innovation is always discouraged to one degree or another because of imperfect appropriation.2
Imperfect appropriation has been an issue on occasion in the fruit business. For instance, the Chinese gooseberry was unknown outside Asia and the Pacific before the mid-1900s. At that time, New Zealanders developed a variety that could withstand the rigors of international shipping. They also mounted an advertising campaign to acquaint European and North American consumers with kiwifruit, as it is now known throughout the world. However, the benefits of New Zealand’s investment in plant breeding and market development quickly spilled over to other countries—not least Italy and Chile, which are now the leading producers of kiwifruit.
Experiences of this sort have been irrelevant to entrepreneurial self-discovery in Ecuador’s tropical fruit sector, mainly because consumers throughout the world were thoroughly familiar with bananas decades before the country became a major exporter. Also, multinational fruit companies headquartered in the United States determined long ago that their interests would be served by providing technology to Ecuadorian growers, who consequently have been spared the difficulties of appropriation faced by any country, firm, or individual that engages in research and development. Under these circumstances, entrepreneurs such as Luís Noboa have been able to specialize in winning customers for their countrymen’s harvests. Their base of operations—the port city of Guayaquil—has been ideal for this endeavor.
Entrepreneurial Specialization in the Banana Industry
To understand the roles played by transnational firms, South American exporters, and other actors in the global banana business, it is useful to draw on a taxonomy of entrepreneurial innovations proposed by Joseph Schumpeter in the early 1900s. As he saw it, there are five ways that businessmen and women have an impact on the economy.
(1) The introduction of a new good—that is one with which consumers are not yet familiar—or of a new quality of a good. (2) The introduction of a new method of production, that is one not yet tested by experience in the branch of manufacture concerned, which need by no means be founded upon a discovery scientifically new, and can also exist in a new way of handling a commodity commercially. (3) The opening of a new market, that is, a market into which the particular branch of manufacture of the country in question has not previously entered, whether or not this market has existed before. (4) The conquest of a new source of supply of raw materials or half-manufactured goods, again irrespective of whether this source already exists or whether it has first to be created. (5) The carrying out of the new organization of any industry, like the creation of a monopoly position (for example through trustification) or the breaking up of a monopoly position.3
Formulated well before Schumpeter’s migration to the United States, this five-part taxonomy was not illustrated with a case study about transnational fruit companies operating in the Western Hemisphere. Such a study would have been fitting, however. What those companies were doing more than one hundred years ago was, first, to acquaint U.S. consumers with bananas. Second, the vertically integrated firms founded by Lorenzo Baker, Minor Keith, Andrew Preston, Joseph Vaccaro, and Samuel Zemurray and much of the technology these firms pioneered represented a genuine departure from old methods of production in the banana business. Third, those same entrepreneurs, whose companies imported and distributed bananas in large quantities, created something that had never existed in the United States: a mass market for tropical fruit. Fourth, new sources of supply were developed, in Central America and elsewhere in the Caribbean Basin. Fifth, the banana business was reorganized, admittedly in a less competitive direction.
Once the tropical fruit industry had established itself, some of the five business innovations identified by Schumpeter figured much in its subsequent unfolding, although others did not. The first sort of innovation, for instance, was unimportant. True, the Gros
