The beginnings of export agriculture and oligarchical domination in El Salvador can be traced back to the 1850s. At that time, the government was becoming increasingly concerned about the consequences of the country’s reliance upon a single cash crop, indigo. The efforts to diversify, however, resulted instead in the monocultivation of coffee and the concentration of capital in only one sector of the economy. Rather than diversify the country’s agriculture, the government succeeded only in substituting one agricultural product for another, and this substitution had far-reaching consequences.
The expansion of coffee growing radically altered patterns of land utilization and the political economy of El Salvador. The exploitation of indigo had been accomplished with relatively archaic methods and had not created a dominant social group; nor had government policy reflected the interests of a dominant group whose strength was based on agricultural exploitation. The “coffee boom” created tremendous pressure for the commercial utilization of land. As a result communal and ejidal lands were abolished, and they quickly passed into private hands.1 The emergence of coffee as the dominant crop and of the oligarchic group that the boom supported helped consolidate the national government in El Salvador despite the lack of a unifying “national dictator” in the style of Mexico’s Porfirio Díaz, Guatemala’s Manuel Estrada Cabrera, or Venezuela’s Antonio Guzmán Blanco.
The crisis of the traditional system in El Salvador culminated in the “bourgeois revolution” of 1870. After that time “liberals” controlled the Salvadoran government. The cultivation of coffee entailed a modernization of the economy, and a preindustrial capitalist state emerged. The government was oligarchic because the principal leaders were recruited from a narrow social stratum which, in some cases, can be identified with two or three families: Araujo, Meléndez, and Quiñónez Molina. More important, they ruled in a manner that served the interests of the dominant group whether or not these coincided with the national interest. During these years the government was stable, since the economic base produced by the system of export agriculture afforded increased revenue. The average tenure of presidential incumbents increased during 1898–1930, and they left office peacefully (see Table 1-1). Finally, the ideology or value system that supported this form of political domination was “liberal.” The liberal Constitution of 1886—in force until 1944—provided legal justification and political legitimacy for a system that was relatively stable and successful until 1930.
Therefore, one can say that a preindustrial capitalist state has existed in El Salvador since the late nineteenth century. The powers of that state crystallized in a liberal-oligarchic government which evolved a political regime of markedly authoritarian character. Elements of this system included limited participation, decision making by elites, repression of discontent and of any attempt to organize by the popular classes, and a subordinate role for emerging urban middle-income groups. This system had only limited success, however, for, unlike in Colombia, where the typical unit of coffee production was of a small or intermediate size, in El Salvador the finca—a large estate—became the characteristic unit. These relatively few large estates also embraced satellite systems of subsistence agriculture that allowed for different forms of tenancy (small proprietors, arrendatarios [renters], and so forth) based on dependent relationships and, very frequently, coerced labor. In the Salvadoran case, the emergence of the finca as the basic unit of coffee production was not inevitable; it was simply a result of the manner in which capital and land became concentrated in a few hands. Control of the government and control of the process of land appropriation were the province of the same group.
The extent of oligarchic domination by the large cultivators of coffee becomes obvious in a closer observation of their role in the economy and government. The value of coffee exports increased from slightly over 2 million pesos in 1880 to 22.5 million in 1914. Between 1910 and 1914, coffee exports represented 86.9 percent of the average value of all exports, excluding gold and silver.2 Other export products, primarily gold and silver ores, were under foreign control and exploited through an “enclave” system. Therefore, they had very little impact on the socioeconomic system.
The connection between the coffee industry and government revenue was indirect. The government did not tax production or export but taxed instead the imports brought into the country and paid for with the foreign currencies earned by coffee. For the period 1870–1914 import duties contributed an average of 58.7 percent of government revenue, in contrast to an average of 40.5 percent during 1849–71.3
The political dominance of the coffee cultivators is reflected in the tariff policies of the governments. These were not intended to protect nascent industries that could grow to challenge the economic preeminence and political domination of the coffee oligarchy. In general, the symbiotic relationship between the government and the coffee industry operated in favor of the latter. During the period 1870-1914 government expenditures for infrastructure catered to the needs of the coffee establishment; military expenditures were reoriented from the defense of previously insecure borders against invasions by Honduras and Guatemala to the maintenance of order in the Salvadoran countryside. The government was able to pay back the public debt—the second largest category of public expenditures during 1870-1914—acquiring additional independence from social groups outside the oligarchy. Thus these groups had an even harder time making themselves felt on public policymaking, for not only was their access to policy decisions limited but their importance as fiscal contributors was reduced to relative insignificance.
Looking at organized interests, there is nothing comparable to the Asociación Cafetalera, the coffee growers’ association, which was under the control of the largest planters and represented their interests. Some have argued that this functioned as a second state or invisible government of El Salvador.4 This is a matter for conjecture, but there can be little doubt that government policy did serve the interests of the planters and that government leaders viewed this as one—if not the most important—objective of the government. Yet it would be inaccurate to limit this oligarchy to fourteen or some other such number of families, as many have done. To be sure, the economic resources of El Salvador have been managed by relatively few actors who, for the most part, have provided most of the investment capital.5 But one should not assume that this oligarchical group was perfectly homogenous and native. From the first, the coffee oligarchy incorporated some of the old latifundistas and merchant middlemen into its ranks, but a host of foreign immigrants also participated in the coffee boom and, later on, monopolized retail and wholesale trade.6 These immigrants ended up marrying into the “old money,” and therefore it may be better to speak of fourteen or quite a few more surnames that appear mixed in an endless stream of permutations.
Family connections are a crucial element in any attempt to understand the complexity and evolution of an oligarchical group. Whether by marriage to outsiders or as a consequence of family growth and the maturation of new generations, an oligarchical group is forced to diversify and, in so doing, to become more heterogeneous. In spite of their preference for labor-intensive methods and of their extravagant patterns of consumption, the coffee planters of El Salvador were a group of capitalists who understood their business. One finds them setting up their own banks to finance the operations of their fincas and beneficios (processing plants), trying to raise money for railway construction, or backing a government bond issue destined to subsidize one aspect of the business. They understood the requirements of their activities and the kinds of political mechanisms necessary to keep them going.
In comparison with Guatemala and Costa Rica, the conflict between merchant and planter appears muted in El Salvador, but there was some cleavage between the two, especially over such issues as the gold standard versus the silver standard, convertibility, devaluation, and the issuance of currency. In El Salvador, commercial banks—including the Banco Internacional (est. 1880), the Banco Particular (est. 1885), the Banco Occidental (est. 1889), and the Banco Agrícola Comercial (est. 1885)—were allowed to issue currency. It is difficult to tell which of these were controlled by the planters and which by the merchants, and which group benefited more. But in any case, the chaotic currency situation was not straightened out until the 1930s and the 1940s, when the Salvadoran monetary system was finally brought under public control. This division between the agricultural and business cliques seems to have existed from relatively soon after the consolidation of the liberal victory in 1870.
The appearance of some light industry in the early twentieth century did not alter the basic composition of the oligarchy or of the lower economic classes. The country remained a two-class society in which the peasants were effectively controlled, the urban working class was yet to appear, and middle-income groups were closely tied to the upper class. Any change in this structure would either have to originate outside it or be the result of an accumulation of pressures that the existing system of domination could no longer control.
The crisis of the oligarchical coffee republic of El Salvador came in 1931 as a result of demographic pressures on land tenure patterns, combined with a severe economic crisis and the activation of popular groups. Even though the state managed to survive, the nature of the government and of the regime was altered and a different system of political domination emerged. In a crisis of oligarchy it is no longer possible to form a legitimate government made up of members of the oligarchy and oriented to serve its interests exclusively. In the Salvadoran case, this did not mean that the coffee oligarchy disappeared as a social actor or that it lost most of its political power. If the oligarchy could no longer govern by itself, it remained the most influential among the few actors who were represented in the government. The crisis of the oligarchy in El Salvador marked the end of the period in which the control of the government by the coffee oligarchy was regarded as natural.
Custom prevailing under the Constitution of 1886 allowed Alfonso Quiñónez Molina to select Pío Romero Bosque to be his successor as president of El Salvador during 1927–31. A social conservative, Romero broke with the Meléndez-Quiñónez clan, forced his predecessor into exile, and held what was perhaps the only open and truly competitive election in Salvadoran history. During his term, Romero was forced to use repressive measures to quell increasing popular and labor discontent over economic conditions, and he wanted to make amends for this at the end of his term by allowing a free election. However, the high level of popular mobilization, the lack of effective party organizations, the obstructionism of the oligarchy, and the difficult problems confronting the nation made the chances for democratic transition through an electoral solution extremely poor in El Salvador at that time.
A field of five candidates contested the election, which was won by Arturo Araujo with a plurality of 101,069 of the 217,405 valid votes. In order to prevent a maneuver by the oligarchy in the unicameral legislature that would have given the election to runner-up Alberto Gómez Zárate, who had obtained 62,931 votes and was the personal candidate of the Meléndez-Quiñónez clan, Enrique Córdova, the second runner-up with 32,778 votes, threw his support behind Araujo.7 Córdova’s Republican Party of National Evolution (PREN) was the outlet of landowners severely affected by the Depression, while Araujo’s Labor Party was really an ad hoc coalition, supported by student and labor activists looking for a replacement for radical leader Agustín Farabundo Martí, who was incarcerated at the time.
The fact that the oligarchy considered Araujo a renegade was not as significant as the fact that Araujo could not accommodate the demands of his popular and lower-class supporters without comprehensive changes in the society. To make matters worse the members of his Labor Party cadre were very much out for themselves and had no interest in creating a viable national organization. While thousands of peasants and workers staged demonstrations to press their demands for reform, Labor Party operatives enjoyed themselves. Student unrest aggravated matters. There was little hope that any member of the oligarchy would collaborate with the government. When coffee prices slumped even further, bankers refused to lend and the coffee crop was threatened. Army salaries were also in arrears. Finally, on 2 December 1931, Araujo was overthrown by a coup.8
The coming to power of Araujo and his subsequent overthrow seem to parallel events elsewhere in Latin America, where several leaders coming to power for the first time suffered from problems very similar to those confronting Araujo. In many cases the first time that populist and social democratic parties reached power in Latin countries, they were beset by similar problems and met the same fate. A direct and relevant comparison would probably be the government of Juan Arévalo in Guatemala, although Arévalo was a very different person and a more astute politician than Araujo.
The immediate outcome of the Araujo overthrow was the matanza (massacre) of 1932, which put down the popular insurrection led by Communist leader Farabundo Martí. Taking advantage of the crisis brought on by the Depression, of the desperation of the lower classes, and of the general confusion reigning in the country, Martí tried to organize and mobilize the popular classes. There had been a significant increase in labor militancy since the summer of 1930, when close to eighty thousand rural workers had joined the Regional Federation of Salvadoran Workers (FRTS). The level of political involvement was also high among the peasants. These developments convinced the Salvadoran Right that extreme measures were necessary.
General Maximiliano Hernández Martínez proved capable of performing such a task. The vice-president and minister of defense in the Araujo government, Hernández Martínez had managed not only to survive the coup but to become the president of a “provisional” government and, in the words of Abel Cuenca, a rebel participant, “to crush in blood and fire the mass campesino movement.”9 Martínez—as Salvadorans call General Hernández Martínez—had a simple solution for the revolt instigated by Farabundo Martí and his coconspirators. According to Cuenca, “The government exacted reprisals in the rate of about one hundred to one. . . . It appears that the rebels killed about one hundred persons altogether during the uprising; [but] about ten thousand rebels may have lost their lives afterwards in the matanza.”10
Thomas Anderson’s meticulous historical study of the matanza is complemented by a broader picture of the crisis of the Depression provided by Alejandro Marroquín. The latter attributes the severity with which the crisis hit El Salvador to (1) the leadership’s lack of sophistication, which left it unable to understand and react to the crisis; (2) an economic system which was too dependent on external sources for machinery, capital goods, consumer goods, monetary stability, and services; (3) the paucity of institutions that could plan and implement an orderly adjustment to the Depression and distribute its impact among different economic sectors and social strata; and (4) a social structure that passed the weight of the crisis on to the weaker and less influential members of the society.11
Marroquín’s essay provides some useful information concerning the class structure that existed in El Salvador during this time and also of some subtle yet real changes that took place in the state and in the government that made the regimes that followed the matanza different from their predecessors. Using occupation as an indicator of class, Marroquín utilized data from the 1930 census of El Salvador to estimate that less than 1 percent (640 or 0.2 percent) of persons with a known occupation at that time (854,127) could be classified “upper class”—primarily bankers, some industrialists, and the more successful planters. By contrast, 4.4 percent were “middle class” (38,247) and 95.4 percent, or the remaining 815,359, were “lower class.” Among those engaged in agriculture, only 8.2 percent were proprietors, that is, 117,680 of 1,316,681.12 Although these are only estimates, since objective measures of class status require education and income in addition to occupation and since one cannot assume that class identification patterns follow objective criteria, they indicate a very uneven and unequal social structure. The matanza put down the unrest brought about by the Depression, but this did not end the Depression crisis in El Salvador.
As a response to the Depression the governments of many capitalist countries sought a more active role for the state in the economy or enacted some redistributive policies. For example, in Mexico, where a commitment to reform existed but resources were not plentiful, an “active state” emerged to minimize similar crises in the future.13 In the United States, the New Deal put forth a new public philosophy of “positive government,” in which the state and the leaders of the different economic sectors came closer together.14 In short, the Depression brought about changes in the economic model in many capitalist countries. No “active state” emerged in El Salvador, however; nor does one find a philosophy of “positive government” coming to dominate the thinking of policymakers in the post-Depression era in the country. In essence, the Salvadoran capitalist state remained basically unreformed, although there were attempts to make the operation of the system of export agriculture more orderly and to make the formulation of economic policy truly public. In addition, measures adopted by the Araujo and the Martínez administrations opened the door slightly to some middle-class elements, who derived some concrete benefits from these measures, plus an increased capacity to survive future crises.
In 1931, in order to prevent a total economic collapse, the government had begun to increase its participation in the economy. Beginning with the decree of 7 October 1931 the Araujo government had attempted to impose some order on the chaotic monetary system. Convertibility was suspended and the government took over custody of gold in a special fund. Banks were required to extend credit to businessmen and to issue currency only in amounts authorized by law. Furthermore, they were prevented from raising interest on reissues and from foreclosing on nationals. Since the Araujo government was relatively weak and incompetent, the bankers flaunted their disregard for the decree and continued to demand convertibility, to withdraw currency from circulation, and to try to renegotiate credit on usurious terms.15 In 1929 three major banks held about 84.1 percent of the mortgages, and since the value of the properties had decreased by 50 percent—reflecting an identical decline in the export price of coffee—the crisis threatened to result in a tremendous concentration of the country’s wealth in a few hands, and at a bargain price.16
With Martínez in power the picture changed somewhat. Attempts to stop the wild and scandalous speculations by a few big planters and bankers had to be taken more seriously. Assisted by Miguel Tomás Molina and Napoleón Viera Altamirano, Martínez tried to put the house in order. He first addressed the problem of loans from the United States. Tom Anderson has given us a good description of this process.
El Salvador defaulted on her loan from the United States for $21 million, which had been contracted in 1922, [and] payments of foreign debts were temporarily suspended [by a decree of 29 February 1932]. The government further ordered that customs duties which had previously been given over to a representative of the American bankers, under terms of the 1922 loan, were to be paid directly into the treasury of El Salvador. The bankers, of course, protested; but although the United States had not recognized Martínez, the State Department refused to come to their aid, perhaps because it did not want to embarrass the dictator who seemed the only bulwark against communism.17
On 12 March 1932 the Moratorium Law ratified and reformed the decree, making the moratorium general, suspending convertibility, and cutting interest by 40 percent. There was resistance to this new attempt by government to deal with the economic crisis, but the flurry of decrees continued—with those of 28 May and 14 November 1932. The oligarchy was still strong enough to force a repeal of the Legislative Bill of 25 August 1933, establishing exchange controls—which were finally imposed in mid-1935.
The government was more successful in its attempt to create two new banking institutions. The Moratorium Law of March 1932 had been aimed directly at the three large banks that controlled most of the mortgages—the Banco Agrícola Comercial, the Banco Salvadoreño, and the Banco Occidental. On 19 June 1934 the government bought out the stock of the Agrícola Comercial and established the Banco Central in its stead. The Banco Central was to control credit and the money supply, supervise a newly created central reserve bank fund, assume responsibility for printing money, monopolize the gold trade, control the rates of discount and interest, and supervise the operation of private banks.18 These measures were “statist” in nature, for the Banco Central was chartered as a private company and modeled after the Bank of England.19 While this was not a blueprint for “state capitalism,” the creation of the Banco Central may have produced a realignment within the oligarchic power structure, making the groups interested in diversification somewhat less dependent on the more traditional elements.
Marroquín believes that the creation of the other major new financial institution aimed to compensate these ruling elements for the creation of the Banco Central—which had deprived them of the opportunity to engage in reckless monetary speculation. On 18 December 1934 the Banco Hipotecario de El Salvador was created by a legislative decree.20 The Banco Hipotecario was created as a sociedad anónima to take over the lending functions monopolized by the Agrícola Comercial, the Salvadoreño, and the Occidental. The aim was to make credit cheaper and more available to growers of other crops as well.21 The stock of the Banco Hipotecario was subscribed by the coffee growers’ association, the Asociación de Cafetaleros de El Salvador, which had 40 percent of the shares, and by the livestock association, the Asociación de Ganaderos de El Salvador, which had 20 percent.22 The Martínez government also organized a federation of savings and loans associations (Federación de Cajas de Crédito), and after reorganizing the coffee growers’ association he formed the Compañía Salvadoreña de Café, which became the chief marketer of Salvadoran coffee, buying from the beneficios, grading the beans, and servicing export orders.23
The consequences of these reforms have been summarized by Webre:
All [these changes] helped bring order to an anachronistic system and served to protect the interests of property owners at all levels. The fact that all these institutions, although organized on state initiative to serve public functions, were in fact private corporations subscribed by private capital indicates that the advance in El Salvador from the sacred principles of laissez-faire liberalism to the concept of the economically active state was still quite tentative. Although these reforms were prejudicial to the interests of individual oligarchic families heavily engaged in banking and finance who might have hoped to profit from a credit squeeze upon less dynamic landholders, they were beneficial to the industry as a whole. During the Martínez period and for years thereafter, oligarchs dominated these new organizations and operated them to their benefit. Future governments, however, would take advantage of their existence to increase state participation in the economy and augment the capacity of the state to function as a defender and promoter of capitalism as a system rather than the not infrequently contradictory interests of a few individual capitalists [emphasis added].24
In a class sense, the reorganization protected Salvadoran capitalists from future crises, prevented the financial sector from becoming predatory, and allowed for the orderly operation of the sensitive sectors of the economy, such as agriculture, banking, and finance, as well as the emerging industrial sector. It was less a reform of the capitalist state than an attempt to put everyone in his place. The policy measures were not reformist but corporatist.
Yet these were not simply policies imposed on the oligarchy by a relatively strong government. To be sure, Martínez was able to make the banking and currency reforms stick, but he was acting on behalf of a wide array of capitalists who were hard hit by the Depression and vulnerable to the maneuvers of oligarchic speculators playing with the currency. Efforts that dated back to the previous century finally resulted in a stable national currency—the colón was pegged at 2.50 to the dollar and stayed there for a long time—and instruments for the pursuit of monetary and fiscal policies were put in place. The oligarchy’s controlling interest in the new banking institutions, however, suggests that Martínez’s measures did not lay the foundations for state capitalism or state corporatism. The dominant group retained its ability to participate in decision making in economic policy.
The fact that the reorganization carried out by Martínez fell considerably short of social reform is witnessed by the fraudulent attempts made by his administration to improve the lot of the popular classes. Once the matanza had been completed, Martínez realized that it would be necessary to redress some grievances. But the thoroughness of the repression enabled him to make only token moves. Bogus redistributions of (non-coffee producing) lands were enacted through the Mejoramiento Social, with less than 2 percent of the campesinos benefiting from them. The real benefits from these went to the friends of the dictator.
In summary, the experience of the Depression did not shake the commitment of the Salvadoran ruling class to laissez-faire liberalism; nor did it question the logic of the system of export agriculture on which the coffee republic had rested. The republic was gone, but the oligarchy remained a ruling class in a social and economic sense. The personal dictatorship of Maximiliano Hernández was made possible by the crisis of oligarchic power culminating in the matanza, which created a new division of political labor. The regime had become explicitly authoritarian, and grounded in a personal dictatorship.
The “ruling elite” and a personalistic dictator found it convenient to collaborate because their objectives coincided. The oligarchy did not want reform and redistribution, since these would come at its expense; Martínez did not want them because he did not believe them possible or necessary, and he insisted that El Salvador had to live within its means. This suited the oligarchy fine.
But Martínez was not merely a trustee of the oligarchy. He showed his ability to implement some measures that were not exactly welcomed by the financial speculators and the big planters. His ability to enforce their acceptance of these shows that Martínez could play a very strong hand in certain areas. While this does not imply that the oligarchy had lost all its power, it does indicate that it had to accommodate a new reality. The system of oligarchic domination was in crisis. The oligarchy retained the ability to prevent others from usurping its role and the power to resist attempts by any administration to enact reformist policies that could erode its economic base. This crisis of the oligarchy created a political vacuum. The lack of legitimate rule in El Salvador—with the possible exception of the Osorio (1950–56) and Rivera (1962–67) administrations—added a crisis of hegemony to that vacuum.