How Investors Influence Their Governments

OF COURSE, investors do not depend entirely upon their governments for aid in the placement and protection of capital abroad, even in relation to foreign political authorities. They have various means of self-help, some of them quite effective under the right circumstances. In the weaker investment countries there are not a few instances on record where outside business interests have financed and even organized revolutionary uprisings in order to replace the existing government by one more amenable to their wishes. Financial boycotts have been instituted by bankers in a few cases against governments that were thought to be treating investors unfairly, and some powerful foreign investors, such as the United Fruit Company in Central America, have such a dominant position in the economic life of particular countries that they are able to apply trade boycotts with devastating effect. Organizations of foreign investors, such as the Corporation of Foreign Bondholders in England, the Association Nationale des Porteurs de Valeurs Mobilières in France, and the recently established Foreign Bondholders Protective Council in the United States. while one of their functions is to secure the aid of national diplomacy to investors abroad, also are able to deal independently and exercise considerable pressure on recalcitrant debtors in some cases without political aid. They do this through their employment of skilled negotiators and their influence upon financial opinion and hence the credit ratings of borrowers. Wholesale bribery offers another means of control which has not been overlooked by those seeking to place and protect capital. Since the crude or subtle corruption of government at home is a standard technique employed by practically all types of business enterprise that depend upon governmental favors for their profitable operation---think of protective tariffs, public utility franchises and rates---it is not surprising that the same process should be used where privileges are at stake abroad, especially under the concession system, and especially in countries where the political mores are not particularly strong against bribery.

Private armies have sometimes been hired by investors in the hope, usually futile, of obtaining protection in that way. Finally, some great enterprises in weakly organized regions have built up their own governmental services in whole or in part, including sanitation, policing, and development of settlements. A few illustrations follow.

It seems sufficiently proved that American companies having interests in concessions supplied money and arms for the Nicaraguan revolution against President Zelaya in 1909.(1) It has been alleged, and denied, that the Madero rebellion against the Mexican dictator, Diaz, in 1910-1911 was aided by Standard Oil money, the alleged motive being that Diaz had shown particular favors to the British oil magnate, Pearson (Lord Cowdray). General Obregon charged that the Huerta rebellion of 1923 against himself was backed by British oil interests, particularly the Mexican Eagle Company of the Royal Dutch-Shell combine, and it is said that an American oil baron, E. L. Doheny, lent Obregon five million dollars to suppress the revolt. While these particular allegations may be wrong---it is hard to authenticate instances of this sort---there can be no doubt that foreign oil and land and mining interests in Mexico have many times backed one or another rival contender for power.(2)

A classic instance of filibustering in the service of investment interests occurred about 1856 in Nicaragua. Commodore Vanderbilt and associates had set up a transit line from the Atlantic to the Pacific and were using it in connection with their steamship service to carry gold-rush enthusiasts to California. Morgan and Garrison, two other financiers who held stock in Vanderbilt's Accessory Transit Company, broke with him, and a fight for control of the route developed. The anti-Vanderbilt opposition obtained the support of an American adventurer, William Walker, whose filibustering expedition had earlier been supplied with recruits by Vanderbilt himself. They gave him funds, arms, and ammunition, and when he had gained the upper hand in Nicaragua he confiscated, in the name of the Nicaraguan government, the wharves, warehouses and river steamers of the Accessory Transit Company. Thereupon Vanderbilt countered with money and arms to rival filibusters and sent the army of Costa Rica against Nicaragua.(3)

The pressure of German banks with interests in Rumania prevented the passage of a Rumanian law "for the encouragement of national industry" in 1910. These banks---mainly the Disconto Gesellschaft and the Deutsche Bank---possessed great influence in the country, for the government needed their support in placing loans abroad. Shortly afterwards a new law for the same purpose was proposed and adopted, but only after certain provisions had been altered at the instance of the German and Austrian ministers. The feature which met with most resistance from foreign interests was a proposed requirement that seventy-five per cent of the working force employed by every enterprise in Rumania must be native Rumanian.(4) In 1924 the Liberal government of the Bratianus passed a Rumanian mining law of a strongly nationalistic character which was directed against foreign oil companies and designed to benefit particularly the native capitalists of the Liberal banking clique. It closed state lands to foreign companies and by various means tried to compel them to take in Rumanian interests. The companies appear not to have taken aggressive steps or invoked particularly active diplomatic intervention against the law (though there may have been some diplomatic pressure, and it has been alleged that oil legislation had something to do with a war debt reminder from the United States in 1925)(5) but they adopted a passive policy and bided their time. The Liberals found the loan market in London and Paris closed to their government, partly through official influence, partly because of a determination on the part of the bankers themselves that they would not lend to a regime that showed such slight consideration for foreign capital. Royal Dutch and Standard Oil interests opposed the 1924 law and Sir Henri Deterding of the former carried on an effective campaign abroad against Rumanian economic policy and Rumanian credit. When the Liberal foreign minister, Vintili Bratianu, went to London in 1928 to negotiate a loan he found the atmosphere decidedly unsympathetic in City circles. He then sent a representative to discuss modification of the oil laws, and had the Liberals remained in power financial pressure probably would have forced them to adopt changes. As it was, the Peasants' Party took over the government and, in line with its policies, passed a new law in 1929 which was much more encouraging to foreign capital.(6)

Where the economic life of a country is dependent upon the marketing organization of a single foreign firm the boycott becomes a powerful weapon indeed. Even by 1898 the United Fruit Company under the leadership of Minor C. Keith was a quasi-public institution in Costa Rica and the weal or woe of the state was bound up with that of the company. When in that year a firm with which Keith was doing business went bankrupt, the fruit company itself was in difficult financial straits. To avoid the economic cataclysm which its failure would have meant, the government of Costa Rica came to the rescue with considerable advances. Some years later (1908) Costa Rica proposed to levy an export tax on bananas. The United Fruit Company presented its conditions and demands, but the government did not heed. Thereupon the company staged a suspension, or a reduction, of its business in Costa Rica, which meant severe economic depression for the land, dependent as it was on banana exports through the company's fleet. The purchasing power of the population fell to such an extent that imports declined nearly two million dollars in value, and that in turn seriously embarrassed the government, which got most of its revenue from import taxes. Finally, in July, 1909, agreement was reached on an export tax of one cent a bushel, but the government had to obligate itself not to levy any other tax on the export or the production of bananas for twenty years.(7) The Chamelecon Company in 1917 reduced the fruit loadings which it had been taking from the government railway of Honduras and the planters remained for eight months without overseas connections. This naturally meant ruin for them. Only after the government had agreed to reduction of freight rates by one-half, free use of wharves, and tariff concessions were shipments resumed.(8)

In the protection of property against the hazards of civil disorder investors in some countries have hired a bandit leader to protect them against other bandits, or perhaps against the regular government, but in most cases this method of self-help ultimately proved a failure, for the hired "protectors" sooner or later showed a tendency to exploit the hirers. This was the case in Persia, where the precursor of the Anglo-Persian Oil Company retained Bakhtiari tribesmen. They soon began to make threats themselves against the company's property, and not until a small escort of Indian troops appeared on the scene and the Bakhtiari chiefs were quieted by further payments in cash and shares did the British community feel secure.(9) American capitalists erecting a sugar mill on an estate in Santo Domingo accepted the offer of a local political chieftain to establish a guard to prevent bandits from molesting the property. This guard consisted at first of half a dozen ragged fellows, who soon assumed an air of importance in the neighborhood. In due course this guard became an army, its chief a "General," and the whole outfit a nuisance to the government and the American planters. In Santo Domingo City the "General" was referred to as a bandit, and a force of Marines had to be sent to put him out of business. Likewise in Tampico, the "army" of General Pelaez, supported and paid for by foreign oil companies, had a mushroom growth. He and his force of 3,000 to 27,000 men, depending on the authority quoted, received from $30,000 to $200,000 a month from the companies. Their representatives said they dared not turn him out, for he would blow up their wells.(10)

The United Fruit Company found itself impelled to undertake government-like functions in building up a permanent business in the tropics of Central America. It has, indeed, created whole cities, especially harbor cities, performing the necessary work of sanitation, laying out streets, building private and public buildings, public utilities, churches, schools, hotels, restaurants, and hospitals. The company has done important work in the promotion of medical research on tropical diseases. It has built railway systems to connect its plantations with the harbors. It is not too much to say that the United Fruit Company in Central America surpasses the limits of a private concern and is a sort of public institution, albeit managed by its stockholders to produce a profit. Like the Chartered Companies to be described in a later chapter, it has exported not only capital and management, but government and governmental services as well to the countries where it has invested. It differs fundamentally from the modern Chartered Companies, however, in that they usually pursued political objectives first and foremost, while the United Fruit Company has done its developmental work as an incidental but necessary step in a profit-making business.(11)

While these techniques of self-help indicate that in the placement and protection of capital abroad investors are by no means weaponless without the support of their home government, it still remains true that the aids which diplomacy can give---detailed in Chapter 7---are frequently very important to them. In order to get such aids, what procedures are available to investors? What brings those in control of the machinery of the state to act in support of private investments abroad, and by what methods do investors influence or seek to influence their decisions?



The most obvious procedure open to a foreign investor who wishes the support of his government is to approach a government official and state his request, with whatever justifying argument he can present. This is constantly being done. Diplomatic and consular agents abroad, foreign offices at home, receive countless written petitions and protests. They interview hundreds of callers---bankers, individual investors, managers of companies, attorneys for these and other interests---all seeking the assistance of their national government to themselves, as citizens, in their major or minor enterprises abroad. Many, perhaps most, of these requests can be dealt with and disposed of as mere matters of routine. They raise no questions which have not been decided before, call for no alterations of policy, are not matters of severe controversy, and are unlikely to cause misunderstandings with foreign governments. But sometimes the assistance desired by investors abroad demands grave decisions of national policy. Shall the government insist upon compensation to Mr. A. for cancellation of his concession, and how far shall it go in case of refusal? Should it defend the validity of B's mining claims, disputed by citizens of another power? Companies with property interests in Country X are demanding vigorous diplomatic representations, gunboats, even armed intervention, to resist drastic decrees promulgated in the name of the proletariat, the peasants, or nationalism. On the other hand, other citizens connected with labor organizations and liberal or socialist groups are answering "Hands off!" What shall the government do?

Evidently the action taken on matters classified as routine and the effectiveness of arguments advanced by investors for action in their favor will depend upon certain accepted principles or traditions which are consciously or unconsciously applied by government officials---principles and traditions as to what the government may and should do for its citizens abroad. Likewise, the decisions on more crucial questions where new policy must be formed or serious political consequences must be weighed will be swayed by the beliefs, opinions, customs, doctrines, habits of thought and action, which exist in the community at the time and condition the reactions of government officials and those who have effective means of influence over government officials. These conditioning factors include many things not directly related to the policy of government toward citizens abroad. They include fundamental values and highly regarded symbols prevalent in the community: for example, attitudes toward private property, toward capitalists, toward revolutionists, toward various conceptions of national honor and national interest. Important among them are economic doctrines which may or may not be valid, but which condition thought and action: for instance, neomercantilist notions that exports should be encouraged because they enrich a nation, while imports impoverish it, or the belief that only through political control of colonies can industry be sure of getting raw materials. The origin of these beliefs, opinions, customs, doctrines, habits of thought and action is a large question which transcends the limits of this study.(12) Their fundamental importance as part of the environment under which investors seek the support of diplomacy must be emphasized, however. It makes a great difference whether prevalent attitudes regard capitalists in general as benefactors or scoundrels, capital placements abroad as good or bad for the nation, property rights as special privileges in the interests of an exploiting class or as eternal and unchangeable absolutes at the foundation of law and morality. Different attitudes on these matters issue in such divergent views on the proper response of government to the needs of private investors abroad as that found in some liberal quarters---to the effect that the investor takes his chances when he goes abroad, expects a high rate of profit to compensate for the risk, and should not expect his government to come to the rescue when he loses---and that expressed in President Coolidge's famous pronouncement: "Our Government has certain rights over and certain duties toward our own citizens and their property, wherever they may be located. The person and property of a citizen are part of the general domain of the nation, even when abroad. . . . The fundamental laws of justice are universal in their application. These rights go with the citizen. Wherever he goes, the duties of our Government follow him."(13)

The prevalent attitudes and the accepted principles of diplomatic action in the capital-exporting countries of recent decades have been, on the whole, favorable to the petitions of business men who come seeking support for investments. In the capitalistic cultures of Western Europe and America it has been a not uncommon assumption that "business enterprise discovers what is good for itself, and whatever is good for business enterprise is ipso facto good for the country." It has been uncritically assumed that the sum total of particular business interests abroad constitutes the national interest abroad, and therefore the true function of government in the national interest is to protect and promote private business ventures by various means. "A loan to a foreign government or industrial enterprise is about to be arranged by private bankers; if necessary the Government is to provide appropriate diplomatic assistance. An outlet for commodities is sought; the Government should aid in discovering markets and should protect them against discriminations and disorders." In short, "Acquisitive enterprises . . . are to supply the data and the substance for the policy of national interest and the Government ... is to derive its responsibilities in the premises from these sources."(14) Attitudes such as these have affected government officials and have facilitated the influence of business men on diplomacy.

Then the prestige of business men in a society organized economically around pecuniary pursuits, the esteem which clings to riches, the reputation and the real or fancied power enjoyed by the bigger merchants and financiers, insures them careful attention from government. Some of them are able to go directly to the topmost officials. Thus, the biographer of J. Pierpont Morgan records that when something went wrong with a Chinese railway project in which the financier was interested (probably the American China Development Company affair mentioned in Chapter 6) Mr. Morgan cut short a visit in Europe and "returning to America, went straight to call upon President Roosevelt at Oyster Bay. He intended to have a frank conversation with the President and to dispose of the matter in his own way.

He did both . . .(15) The business man abroad, furthermore, has in his favor the powerful psychological prejudice of his national group against the "foreigner" who does not belong to "us." A business victory over grasping foreigners abroad by equally grasping fellow citizens can be dramatized as a national success, and a defeat as a national humiliation. The business man abroad often has an intimate knowledge of detail which gives him an advantage in presenting his case to government officials. Foreign office executives, even diplomatic and consular agents on the spot, have much less information on many special questions that arise, or depend on him for their information. In countries far from home the citizens and government representatives, civil and military, of each nation are closely associated and tend to acquire similar viewpoints. "They form local colonies. They have business and social affiliations. They communicate constantly with one another. They have many common ideas about the scenes in which they find themselves and the opportunities of economic development there. In some matters the initiative for government action comes from private citizens; in others it comes from the official side. By such processes private and public views are fused, altered, consolidated."(16)

Sometimes governments have put themselves under obligation to investors abroad by using them in some of the ways discussed in Chapter 4. At other times the information and experience possessed by the investor renders him a valuable adviser to government officials, and this not only tends to shape government policy in accordance with business views, but sets up a coöperative relationship which gives the investor easy entrée when he wants to ask for support in the future. Charles R. Flint, for example, an American financier with extensive experience and interests in Latin America, was often called upon by Secretary of State Blaine for advice. His memoirs record participation in Pan-American diplomatic conferences, and when a revolution in Brazil broke out, Blaine summoned him urgently to Washington.(17)

All these factors contribute to the influence of private investors with interests abroad on governmental policy abroad. So do the social and personal ties which connect those who rule business with those who rule diplomacy. This aspect of the matter deserves special consideration.



Personal unions not infrequently unite the precincts of government where decisions on diplomatic support of foreign investments are made with the precincts of business where foreign investments are controlled. That is, some individuals hold positions of influence or authority in both realms at once, or they pass back and forth from one realm to the other, permeating each with the attitudes of the other and shaping the policies of each to accord with the desires of the other. Cecil Rhodes was such an individual. Karl Helfferich, director of the Deutsche Bank, son-in-law of its founder, and general manager of the bank's Bagdad Railway enterprise, was another. He started his career as a professor of political science in the University of Berlin. In 1901 he entered the government service and became assistant secretary in the colonial department of the Ministry of Foreign Affairs, where he was known to be in the good graces of the Kaiser and of Chancellor von Bülow. It was said that he became their chief adviser on Near Eastern affairs. Then in 1906-07 he took over the direction of the Deutsche Bank's railway interests in the Near East.(18) In France, M. Rouvier managed a private bank before he became Minister of Finance in 1902. As a private banker he had negotiated with the Deutsche Bank concerning Turkish railway affairs. He continued to be interested in these affairs while a member of the cabinet and also pushed a project for unification of the Ottoman debt.(19) In England, a former prime minister and secretary for foreign affairs, Lord Rosebery, belonged by marriage to the Rothschild family, and Lord Murray, a whip of the Liberal Party, was director of one of the greatest English firms (S. Pearson and Son) headed by Lord Cowdray, whose oil and other interests were spread throughout the world. In the United States,(20) Andrew W. Mellon, one of America's richest men, was Secretary of the Treasury under Presidents Harding, Coolidge and Hoover and then Ambassador to England. The ramifications of his extensive business interests and those of his family extended wide outside the boundaries of the United States and included oil and other property in Mexico and Colombia where diplomatic controversies with the United States went on during his years in office. There is evidence that he did not always avoid exercising an influence on these matters in which his official and his private status were not clearly separable.(21) Senator Dwight Morrow, before going on his conciliatory mission as Ambassador to Mexico, where he smoothed over the oil and land law difficulties, was a partner in the banking house of J. P. Morgan and Company. Willard Straight was first an official consular agent of the State Department in Manchuria, then a representative of the American financial group formed by E. H. Harriman, Kuhn, Loeb and Company, J. P. Morgan and Company, and others under the auspices of the State Department to handle Chinese railway and loan business and to participate in the Consortium. Later he was with J. P. Morgan and Company.(22) The Japanese chief of the Sino-Japanese corporation which helped secure control of the Chinese Hanyehping coal, iron, and steel works for Japan was the Vice-Minister of Foreign Affairs, Kurachi.(23) Among the French directors of a Franco-Russian company which was to have undertaken a Trans-Persian railway in order to extend Russian influence and to offset the German Bagdad line, was "an influential member of the Chamber of Deputies, M. Bluysen," and a former Director of Political Affairs in the Foreign Office, M. Raindre.(24)

These examples might be multiplied. If one were to include not only political personages with considerable direct influence on foreign affairs, but also lesser politicians and members of national legislatures, and if one were to count not only business leaders with important interests abroad, but business men generally, the list of personal unions showing the inter-permeation of business and state rulership would be still more impressive.(25) Or, if one were to direct attention strictly to personal unions between foreign investment and foreign policy, but were to include close family relationships, the list could be lengthened. We have noted that when the Banco di Roma was penetrating Tripoli the Vice-President of its Board of Directors was Romolo Tittoni, and the Minister of Foreign Affairs was Tommaso Tittoni, his brother.(26) Lord Revelstoke of Baring Brothers and Company, one of the bankers consulted by the British Foreign Office on important financial questions like the Bagdad Railway, was a brother of Lord Cromer (Evelyn Baring) who ruled Egypt for England; a cousin was Lord Northbrook, Viceroy of India .(27) When the Banque Industrielle de Chine, under Senator André Berthelot, suffered financial reverses in 1921, the French Foreign Office's diplomatic agents, under Philippe Berthelot, came to its assistance with a denial of unfavorable rumors, and this raised a cry of scandal in France.(28)

Close friendships between rulers of politics and rulers of finance have also been links connecting the two realms. A famous example is Chancellor Bismarck and the banker, Gerson von Bleichröder. The latter, who as court and state banker and also as administrator of Bismarck's own private fortune, had great influence with the Iron Chancellor, was for a time the only person admitted to his office unannounced. Bleichröder's connections with the Rothschilds of Paris and London, who in turn had confidential relations with the ruling persons there, made him a useful channel for the dispatch and receipt of secret political messages not suitable for the regular diplomatic routine, a channel of which Bismarck made full use. Bleichröder even considered himself an unofficial member of the Foreign Office staff and was in the habit of referring to Bismarck as "our honored chief."(29) It was Bleichröder and another of Bismarck's banker friends, von Hansemann, who handled the financial phases of the Godeffroy reorganization described in connection with Samoan affairs (Chapter 5) and they had a large influence on Bismarck's colonial policy in general. Sir Ernest Cassel, a born German who went to England in his early years and became one of the world's leading financiers and an important figure in Bagdad Railway negotiations, was on very friendly terms with the Prince of Wales, later King Edward VII. He was the King's banker, a trusted political adviser, and his almost daily companion at bridge for some years. Albert Ballin, head of the Hamburg-American Line, enjoyed similar intimacy with Kaiser Wilhelm II of Germany, and the correspondence between Ballin and Cassel carried feelers between the governments of their respective lands.(30)

Still more general, however, is the ordinary social connection between leaders of the interlocking worlds of finance or big business and high politics or diplomacy. They belong to the same clubs, they are invited to the same dinners, they meet at the hunt, or on the golf course or at the race track. The daughters of one marry the sons of the other. There is a class consciousness among the elite of business and government which in many cases is as strong as any class consciousness among the proletariat. It is inevitable that a "we" feeling arises which makes it easier for foreign policy to take account of business wishes and for investors abroad to assist the purposes of statecraft. Kaiser Wilhelm II writes in his memoirs that he often visited Admiral Hollmann's house "and there associated with the gentlemen at the head of the Deutsche Orient-Gesellschaft."(31) An American banker with wide international contacts has described to the writer the peculiar half-governmental, half-business composition of dinner groups to which he has been invited in various national capitals. "I know State Department men," he added, "and I go to see them when I am in Washington." These partly personal and partly business relationships naturally arise in the course of much dealing together and facilitate further coöperation. "I, as counsel for the National City Bank, have a long-standing acquaintance with many members of the State Department," testified a witness before the Senate committee investigating foreign loans.(32) Factors such as these rarely have a decisive effect either on governmental or on business decisions, but they smooth the way and help to explain how investors get the aid of their governments, and, conversely, how governments get the coöperation of private investors.



If the accepted principles of governmental action toward investments abroad, prevalent attitudes, economic and political doctrines, interlocking personal connections, ties of friendship, social and business acquaintanceship, and sentiments of class consciousness are insufficient by themselves to secure to the foreign investor what he wants from his government---and they frequently are insufficient---he is still not at the end of his resources.

Sometimes a foreign investment enterprise becomes so associated in the public mind with the prestige of the nation itself, or holds such a key position in some strategy of national political expansion, that a mere threat on its part to quit, and especially to transfer its undertakings to foreign hands, exerts a powerful pressure on the government. The Banco di Roma hinted that it might have to sell its interests in Tripoli.(33) The fact that the Godeffroy firm had mortgaged its Samoan establishment to English bankers intensified the German government's resolution to come to its rescue.(34) State Department officials now and then had to exert themselves with American bankers who had been persuaded to put capital into the Caribbean region in order to "keep them on the reservation," and this certainly gave the bankers' complaints a special claim to attention.(35) The Imperial British East Africa Company threatened to withdraw its outposts from Uganda and demanded a subsidy as the price of maintaining "British interests" which it had created there and protecting missionary stations that would be endangered by its withdrawal.(36) Only undertakings that are serving political ends have such means of influence.

Major foreign investments are usually administered by rich men, and the power of money in politics is well known. It can be used to influence diplomatic action as it influences other functions of government. Direct bribery of foreign office officials, diplomatic agents, and those connected with the formulation of foreign policy is doubtless extremely rare, for the mores in most capital-lending countries are opposed to the purchase of political influence at retail, and the personal integrity of the officials involved is usually high. Nevertheless, occasional exposures like those of the methods by which E. L. Doheny and H. F. Sinclair obtained the right to exploit naval oil reserves in the United States---extending to the corruption of at least one cabinet member---make one wonder what unexposed transactions may have promoted governmental assistance to the foreign investments of these and other investors at times. Doheny testified that "being the American with more property in Mexico than any other American" he had been particularly grateful to the subcommittee of the U. S. Senate Committee on Foreign Relations which, under Senator Fall, had conducted hearings in 1919-20 "to investigate the matter of outrages on citizens of the United States in Mexico." He sought to explain thus his willingness to "lend" his good friend Fall, who by that time was Secretary of the Interior, $100,000 in cash.(37) Indeed, the tendentious testimony given wide publicity by the efforts of the Fall sub-committee was an immense aid to the oil men in their campaign against Article 27 of the Mexican constitution.(38)

The power of money mainly exercises its influence upon government in more subtle ways, however, which are not ordinarily considered illegitimate, but which are nonetheless corrupting in the broad sense that they help to turn governmental action away from service to the masses of people toward service to those who have much wealth.(39) The system of contributions to party campaign funds does this, as does support of political machines, and strategic distribution of stock ownership among influential groups.

Cecil Rhodes made a large contribution to the Liberal Party in England on condition that it would not "scuttle" out of Egypt, the northern terminus of his projected Cape-to-Cairo railroad.(40) Usually, however, there is no stipulated quid pro quo with campaign gifts. The wealthy contributor purchases a general "pull" with party chiefs which simply assures a friendly reception for future requests he may have, and he helps to see that persons with his own notions of the relation of government to business come into political power.

Rhodes also secured powerful support for his enterprises by making eminent members of the nobility in England members of the board of the British South Africa Company and by selling its stock widely among all classes of people. In South Africa he brought out 125,000 shares and persuaded as many South African colonists as possible, both Dutch and English, to acquire a financial interest in the Company. He helped some members of the Cape parliament out of their difficulties, and "by the distribution of Chartered shares others were attached to his interests. Of conscious bribery he was no doubt quite guiltless, but his wealth and his manifold activities as chairman of DeBeers and the Gold Fields, as managing director of the Chartered Company, and as Prime Minister of the Colony inevitably tended to rivet many connections and incline a large number of Cape politicians to regard his tenure of power as indispensable."(41)

In Holland the stock of the leading oil company, the Royal Dutch, is said to be very widely owned, especially among the official class, which gives the company support as substantially a national enterprise.(42)

Those who have money can hire the services of attorneys, including attorneys who are prominent political personages, have an entrée to party councils, and know the ropes in government departments. Former government officials may be hired as attorneys or advisers, or may be taken into the business. The effect of this is twofold: In the first place, the connections of the men hired and their prestige may help their employers to influence the government more effectively. In the second place, as retiring officials step into lucrative business opportunities or into jobs with oil companies and banks and law firms representing big business interests, prizes are thereby dangled before the eyes of those who still remain in the government service. Public officials are often underpaid in any case, and talented and ambitious government servants may thus be led, consciously or unconsciously, to act in ways which keep them in the good graces of enterprises with which they have dealings.(43) It should be emphasized that in the examples which follow the personal integrity of many of the persons mentioned is of the highest, and that under accepted standards of conduct they have been guilty of nothing illegitimate. That is just the point. These are some of the legitimate, socially accepted practices which function in the social system as means whereby those who command wealth, among them foreign investors, may use that wealth to influence---some would say to corrupt---the government.

E. L. Doheny, according to his own testimony, kept a large number of important ex-government officials on his payroll, unquestionably for the influence he thought they might have as well as for their legal talent. He secured the services of William G. McAdoo, ex-Secretary of the Treasury and son-in-law of President Wilson, in connection with Mexican oil difficulties by a $100,000 retainer to McAdoo's law firm soon after the latter retired from office and while the administration under which he had served was still in power. McAdoo testified that he scrupulously avoided personal appearances before the State Department while the Democratic administration was in office, sending his partner instead, but he went to Mexico for negotiations with President Obregon.(44) Doheny also employed ex-Secretary of the Interior Lane, who became vice-president of one of his companies and general assistant and adviser at $50,000 a year.(45) Ex-Attorney General Gregory was hired by Doheny's company and several others to seek the aid of the United States government for securing certain drilling permits from the Mexican government. "We thought his acquaintance with the State Department or the President ... would give us the entrée, open the door to it so that we could explain our situation."(46) Five months after retirement from the government service, where he had been head of the Committee on Public Information during the war, Mr. George Creel entered Doheny's employ as publicity consultant in connection with Mexican affairs at $10,000 a year, but resigned after three months.(47)

In the testimony taken by a United States Senate committee investigating foreign loans in 1932 It is interesting to observe how frequently former under-secretaries of the State and Treasury departments are mentioned as associated with counsel for the National City Company, or for the Morgan-controlled Carib Syndicate which interested itself in Colombian oil, or for other organizations having large interests abroad.(48) It also developed that Mr. Herbert, one-time chief of the Latin-American division of the State Department, subsequently represented the Gulf Oil Company in Venezuela,(49) and that S. A. Maginnis, former minister to Bolivia, went to Peru in 1927 to negotiate loans for J. and W. Seligman Company.(50)

In France the banks have often been expected to reserve places on their directorates for discharged ambassadors and retired officers of the Ministry of Finance. Poincaré made reservations for Philip Crozier, Ambassador to Vienna, and for George Louis, Ambassador to St. Petersburg. The Banque de l'Indo-Chine, in particular, was expected to receive such officials, and some were always on its board of directors.(51) M. Jules Cambon, former Ambassador to Berlin, after the war was a vice-president of the Banque de Paris et des Pays Bas and president of the affiliated Banque des Pays de l'Europe Centrale, which interested itself in banks, railways, oil, and other enterprises over much of Europe and outside Europe.(52)

Among the high officers of the Royal Dutch oil organization in Holland the following have been listed: Mr. de Jonge, formerly active in the colonial ministry and then minister of war; Mr. August Philips, former ambassador of Holland to the United States; Mr. Collin, former minister of war, who later severed his connection with the company and returned to politics. A former chief of the intelligence service of the British army is said to have entered the service of the Royal Dutch-Shell group. A Colombian minister to the United States resigned his diplomatic post in 1921 and went to work for the Andian National Corporation, a Colombian affiliate of Standard Oil.(53)

Finally, the influence of those who desire diplomatic support for their private projects abroad can be exerted upon government officials indirectly through the press and public opinion. They can usually count upon the spontaneous support of chauvinistic and sensational journals in any campaign launched for vigorous assertion of "our" interests abroad and in painting a black picture of the iniquities of foreign nations. The usual by-products of this method of influence are antagonistic emotions which may persist, which tend to intensify international difficulties, and which easily attach themselves to other issues than those that provoked the original agitation. In a previous chapter the propaganda activities of the Mannesmanns and the press manipulations of Rhodes and his associates in connection with the Jameson Raid were described. Other concrete illustrations of the same sort appear below.

The frequent revolutionary turmoil in Mexico and the long-continued controversy over rights of foreign property-owners under the Mexican reform constitution of 1917 led to considerable agitation in the United States by those who favored a "strong policy" towards the neighbor on the south. Prominent among these were the great petroleum companies, and also mine and land owners and commercial firms, whose profitable operations in Mexico were jeopardized by civil unrest and by the social policy of the Mexican government. These interests established a "National Association for the Protection of American Rights in Mexico" early in 1919 and provided it with a well-equipped headquarters on Fifth Avenue in New York City, presided over for $20,000 a year by Mr. Charles H. Boynton, who some years before had been the general superintendent of the Associated Press office in Washington. The Association also had a Washington bureau, which carried on lobbying and had a prominent part in preparing and presenting testimony before Senator Fall's sub-committee of the Senate Committee on Foreign Relations when the investigation of Mexican affairs was in progress.(54)

The Americans with property interests in Mexico and their propagandists did not, of course, confine themselves to open and avowed argument in behalf of their case. There seems to be plenty of evidence that uprisings were press-agented, evidences of disorder exaggerated, and systematic attempts made to build up a picture of Mexico in the American mind as a hotbed of radicalism and as more unsafe for life and property than it really was. This was partly the natural sensationalism of news reporting, but one observer friendly to the Latin-American countries wrote in protest: "I am firmly convinced that if the Associated Press and some of the leading American papers took the trouble to examine the personal records and the business connections of some of their representatives in Latin America, and particularly in Mexico and Nicaragua, they would discharge those men instantly."(55) William Randolph Hearst, who owned three to four million dollars' worth of property in Mexico besides his chain of sensational, chauvinistic newspapers in the United States, outdid all other propagandists. In November and December, 1927, his papers blazoned across their front pages day after day a series of documents tending to show that the Mexican treasury, on orders from President Calles, had paid out money destined for United States Senators La Follette, Borah, Norris, and Heflin and for men like Oswald Garrison Villard of the Nation and others who had shown sympathy towards the Mexican revolution. In addition, there were hints of connections with Japan, with the Bolsheviks, and with anti-United States parties in Nicaragua. The documents, reproduced in facsimile and translated with explanatory notes, were supposed to have been stolen for Hearst's agents from government offices in Mexico City, but a Senate investigating committee soon established that they were crude and obvious forgeries. "Anyone who would pass a consideration for the receipt of these documents [for which Hearst testified he paid some thousands of dollars] must have been in a very receptive mood," was the judgment of a Treasury Department expert.(56) Mr. Hearst's initiative may be explained on the basis of his patriotic impulses, or his large property interests in Mexico, or his taste for sensational newspaper "stunts." The explanations are not at all mutually incompatible, however. Yellow and patriotic journalism has always been an eager assistant to the propaganda of private interests striving for intervention abroad.

An amusing instance has come to light which shows that wealthy foreign investors do not always get the propaganda they pay for. C. W. Barron, publisher of the Wall Street Journal, records that the oil magnate, E. L. Doherty, told him in 1921:

"Dr. Dillon went to Mexico under contract with me at $20,000 a year for five years and he was to study the Mexican constitution and write articles which he was to send me. If he agreed with me, I believed the articles might be useful in informing the public. He became infatuated with Obregon and wrote those fulsome articles in the New York Evening Post which were really damaging to my interests. At the end of two years I told him what I thought of his actions for a man on my payroll and I stopped his payment.... We finally parted."(57)

In the period before the war André Tardieu was the influential editor of the "Bulletin de l'Etranger" in Le Temps---a paper whose intimations on French foreign policy were regarded as at least semiofficial. He figured in two "affairs" which illustrate how the press can be used to exert political pressure on behalf of, if not actual foreign investment interests, then promotion schemes connected with foreign investment projects. The first centered around a proposed railway from Homs, in Syria, to Bagdad. A young Turk, Youssouf Said Bey, applied for the concession from the Turkish government, and a levantine promoter named Bernard Maimon set out to raise capital in France and England. In Paris he allied himself with Tardieu, in London with Arthur J. Barry, who had been associated with engineering enterprises in China and elsewhere. These three enlisted the support of M. Pichon, the French Minister of Foreign Affairs, for their project, and in London there were conversations at the Foreign Office regarding the international aspects of the affair and what capitalists should be taken in. Tardieu also journeyed to Berlin to negotiate with the German promoters of the Bagdad Railway line. His plan was to have the French government secure the Homs-Bagdad concession from Turkey in return for permission to float a government loan in the Paris market which the finance minister, Djavid Bey, was then trying to arrange.(58) After various difficulties had been met, and some of them overcome, and tentative arrangements had been made for the distribution of shares and supply of materials (Tardieu was to be president of the board of directors), the project met the determined opposition of the French ambassador at Constantinople, M. Bompard. He pointed out that the Young Turks did not desire to construct a Homs-Bagdad line, that the traffic would be small, necessitating a governmental guarantee which Turkey was not in a position to give, and that in any case the Turks did not care to subsidize a line in competition with the German Bagdad line which they had already guaranteed. The Ambassador did not care to compromise French influence by pressing the concession upon the Turkish government. Thereafter Le Temps attacked the Young Turks and the proposed Turkish loan, and began to hint that French interests in Constantinople. were inadequately represented. On January 8, 1911, it said that "local habits of inertia and scepticism" weighed heavily on French policy there, which had broken "against the obstruction of those very persons who ought to have been the agents of its execution."(59)

The other episode likewise reached its climax in 1910-11. It centered around the N'Goko Sangha Company, which held a concession for exploiting a large tract of the French Congo. The Company, according to the report of a committee of the Chamber of Deputies which investigated its affairs,(60) did little to cultivate its acres in Africa, but spent a good deal of money and effort and ingenuity trying to collect an indemnity from the French government for infringements on its territory by German and English traders and for loss of territory through rectification of the frontier. Its claims amounted in 1910 to some 12,675,000 francs.(61) The head of the N'Goko Sangha Company was M. Mestayer, and one of his principal aids in seeking the indemnity was André Tardieu of Le Temps, who represented the Company in arbitration proceedings in 1910, and conducted its diplomatic and journalistic campaign. Mestayer one day said to the Minister of Colonies, "You do not wish to give us the legitimate satisfaction to which we have a right. Well, we will obtain it without you or in spite of you, for I have behind me the whole press and two hundred members of parliament."(62)

How did press support aid the Company? The parliamentary report cites several instances. In 1905 an unfortunate boundary incident due to ill-defined frontiers, lack of communication, and the rivalries of German merchants and French concessionaires occurred at Missum-Missum on the Congo-Cameroon border. At the risk of increasing the dangerous political tension, "several newspapers, in order to please the Company, which needed this polemic for its indemnity campaign, considerably aggravated the incident, serious enough in any case, and presented it as a deliberate violation of the frontier by the Germans."(63) Part of the Company's tactics was to urge that in the interest of Franco-German rapprochement the claims which it had against Germans for violating the frontier and gathering N'Goko Sangha rubber should be paid by the French government. It may have been significant, then, that on March 9, 1908, Le Temps published the following false information from its Berlin correspondent, M. Roels:

"In the matter of the delimitation of the Cameroon and the French Congo, I learn from a German source that the French and German governments, in order to facilitate the negotiations, have agreed to renounce claims for reciprocal indemnities on account of violations of the frontier and other damages, each party assuming the claims of its own nationals."

It was in regard to this and similar dispatches appearing in other papers that M. Jules Cambon, French ambassador at Berlin, wrote to warn the foreign minister in Paris. One correspondent, he said, when questioned about the allegations of his paper, "did not conceal that one should not give great weight to the criticisms themselves, but should see in them simply a means employed by the N'Goko Sangha Company to increase its concession, both in duration and extent."(64)

Now M. Tardieu approached Baron von Lancken of the German embassy in Paris with the suggestion that an end be put to Congo-Cameroon difficulties by promoting a consortium of French and German colonial companies.(65) This was acceptable to the Germans, who would be glad to have French capital to combine with their engineering and initiative, and negotiations went forward with a German colonialist and member of the Reichstag, Semler. The N'Goko Sangha was represented in Berlin for this purpose by M. Roels, correspondent of Le Temps. The Company now insisted that it could not enter the consortium unless its indemnity were paid, and the French cabinet showed signs of yielding to its demands. In April, 1910, an indemnity of 2,393,000 francs seems to have been agreed upon with the ministry then in power. But men like Félicien Challaye of the League for the Defense of Natives, who had helped to expose the horrible results of the Congo concession system that were then startling Europe, and others like Albert Thomas in the Chamber of Deputies, waged an ardent campaign against what they regarded as a "job" of the worst description.(66) They succeeded in bringing about the parliamentary report mentioned earlier and effectively blocked the indemnity.

The proposals for Franco-German coöperation in the Congo had meanwhile become an item of high diplomacy in relation to the dangerous Moroccan controversy, and when the French now went back on the consortium scheme the German irritation over this and other matters approached a climax. The reaction on the Moroccan affair was most harmful.(67) M. Tardieu could urge with reason in Le Temps(68) that the check of the consortium idea complicated the problems of diplomacy. Opponents of the N'Goko Sangha answered that the international involvement had been skillfully manufactured as a pretext for collecting the indemnity. They also claimed that the editorial guns of Le Temps were again in the service of finance when on January 31, 1911, six days after the government had refused to pay the indemnity, a very vigorous criticism of Foreign Minister Pichon's policy appeared. M. Pichon himself declared in the Senate that "a week ago the author of this article found the foreign policy perfect.... Then, suddenly, he declared that nothing was going well any longer.... I do not know, I do not want to know, what has been the cause of such a rapid evolution."(69)

This discussion of the technique by which investors seek to influence their governments through the press may well be concluded with an excerpt from the brief but luminous analysis supplied by J. A. Hobson in The Psychology of Jingoism(70) of the way in which English sentiment acquired its antagonism against the Boers before the South African War. The period here in question is the space of a few years which intervened between the Jameson Raid and the war itself. The impetus for the propaganda came, of course, not only from financiers but also from those to whom imperial expansion was a good for its own sake and from local quarrels (racial and other) in South Africa.

"The information from South Africa which impressed upon the public mind a conviction of the justice and necessity of war, and which aroused and sustained the passion of jingoism, did not flow freely into the country through many diverse, unconnected channels, as is commonly supposed. The extraordinary agreement of the metropolitan and provincial press, Unionist and Liberal, religious and secular, in its presentation of leading facts, in its diagnosis of the situation and its pressure of a drastic policy, is doubtless responsible for the unwavering confidence which the great majority of the nation placed in the policy of the Government at the outset of the war.... It is little wonder that people unacquainted with the structure of the press, and with methods of educating public opinion, should have been imposed upon by this concurrence of testimony. If the papers which they read, and the speakers to whom they listened, had drawn their facts and their opinions from a variety of independent sources, the authority they exercised would have been legitimate. But what was the actual case? ... The great majority of provincial newspapers, and most of the weeklies, metropolitan or provincial, religious as well as political, derive their information regarding foreign and colonial affairs entirely from the chief London 'dailies,' supplemented, in the case of the more important organs, by 'cables' from the same sources which supply the London 'dailies.' . . . The otherwise miraculous agreement of the British press is, thus, first resolved into the agreement of a few journals, chiefly in London, and of two or three press agencies. We have next to ask from what sources do these latter get their information? On this point the case of the South African War is peculiarly instructive. All the leading London papers received their South African intelligence from correspondents who were members of the staff of newspapers in Capetown and Johannesburg, supplemented in two instances last year by information from special travelling correspondents, who, in their turn, derived most of that information from newspaper offices in South Africa. In particular, the two London newspapers which exercised most influence upon the mind of the educated classes in this country, the Times and the Daily News, were instructed, in the former case, by the newly-appointed editor of the Johannesburg Star, in the latter case by the editor of the Cape Times. The two chief cable companies also drew most of the Capetown intelligence from the Cape Times and the Argus Company....

"The press unanimity in Great Britain is thus traced to certain newspaper offices in Capetown and Johannesburg. . . . But they were neither independent nor reliable; they are members of a bought and kept press. The Cape Argus, bought some years ago by Messrs. Rhodes, Barnato, and Eckstein, is now the nucleus of a Company, owning some half dozen papers in South Africa, and among them the Star of Johannesburg, whose editor instructed the readers of the London Times in the necessity of war(71).... The newspapers at Kimberley and at Buluwayo are in the same hands, and the Cape Times is financially controlled by Mr. Rutherford Harris, a colleague of Mr. Rhodes in his several financial ventures. The principal organs of public opinion at all the political pivots in South Africa are thus owned by the little group of men who also own or control the diamond mines at Kimberley, the gold fields of the Rand, and the government and resources of Rhodesia.

"Since this control of the press by business men for business purposes lies at the very root of jingoism, it is desirable to make this charge quite clear.... The personal instruments of their educational policy are the editors of their papers. It is by no means necessary to assume that these editors are corrupt or dishonest. . . . When these editors were appointed, it was ascertained that they favoured the policy of the proprietors, and that they would be likely to work vigorously along the desired lines; if they departed from these lines they would be dismissed from their post and other editors appointed who would write what was wanted. . . . The control of the London press by the Rhodesians is thus perfectly intelligible. It is right to add that for purposes of popular education they were particularly favoured by the efforts of the Daily Mail, which enlarged the bounds of London journalism in the provinces, spreading its yellow light in regions hitherto unapproached. Although the proprietors of the Daily Mail have been shareholders in the Chartered Company, and that paper received its South African intelligence from the same sources as the rest of the great London newspapers, such influences are, of course, not essential to explain the jingoism of the cheap sensational press in any country. In order to get an effective mastery of the press, it is only necessary for the operators to purchase or control a certain number of influential papers, which shall be used to mark a path of sensational policy and set the pace; the self-interest of yellow journalism will do the rest."

Chapter Eight

Table of Contents