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      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 Michel variety was replaced with Cavendish fruit, although the switch was prompted by the vulnerability of the former type of banana to Panama Disease and every effort was made to avoid changing either the appearance or the taste of the final product. Also, processing (aside from controlled ripening on board reefer ships and in storage facilities) has been a fairly unimportant part of the banana business, which is not the case with much of the food economy. Moreover, retail packaging today is indistinguishable from what it was in the past. Bananas have always been sold fresh and in the skins that nature provided them, adorned these days with nothing more than small stickers that advertise supplying firms and countries.

      But while the introduction of novel goods ceased long ago for many intents and purposes in the tropical fruit industry, other innovations have been a recurring part of the business. Methods of production have changed substantially, largely because multinationals have supported much of the experimentation from which better agronomic practices and disease-resistant cultivars stem. For much of the twentieth century, the firms’ willingness to finance research and development was a consequence of their dominance of leading markets, which enabled them to capture the benefits of technological advances not accruing to consumers.⁴ In addition, Standard Fruit had a special motivation to improve technology. Opportunities for the company to establish new plantations after existing farms had been ravaged by Panama Disease were limited because so much territory had been snapped up previously by United Fruit. It is therefore unsurprising that Standard Fruit, not its larger rival, came up with the Cavendish variety, which could resist the soil-borne fungus.

      To this day, U.S.-based multinationals invest in technological improvement, even though their standing in the banana industry is not what it used to be. One reason for this is that Chiquita Brands International (formerly United Fruit), the Dole Food Company (formerly Standard Fruit), as well as Del Monte Corporation (which has been in the banana business since its 1967 purchase of the West Indies Fruit Company) still handle a sizable share of the world’s banana exports, and so can gain much from any supply-side advance. In particular, the adoption by independent planters of better cultivars and farming methods created by the multinationals still benefits Chiquita, Dole, and Del Monte, since these companies continue to deal regularly in fruit raised by those planters.

      The ready availability of multinational technology in Ecuador, where independent growers

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