This article originally appeared on Dec. 5, 1977, in Inquiry, vol. 1, no. 2: pp. 9–14. It has been reprinted in Wall Street, Banks, and American Foreign Policy (Center for Libertarian Studies, 1995).
The Panama Canal question has already established itself as the hottest political issue for the coming year. Ronald Reagan, who almost rode to the Republican nomination last year on a promise to keep the canal, is back again, leading the powerful forces opposing the new Carter treaties with the government of Panama. Alert to the polls that show that Americans are overwhelmingly opposed to giving up the canal, the Republican National Committee and most Republicans across the country have gleefully seized upon this issue, thus going flatly against the counsel of former President Ford, who vigorously supports the treaty.
In the liberal and "moderate" press, the contending forces are lined up in an all-too-familiar morality play. Opposed to the treaty are reactionaries and jingoists, emotionally and irrationally devoted to the mystique of American "sovereignty" in a foreign land; in its favor are sensible and moderate internationalists, people who believe in friendly cooperation between the United States and Third-World nations and who wish to jettison the last remnants of a nave and outdated American imperialism left over from the innocent if clumsy swaggering of Theodore Roosevelt. What could be a more clear-cut moral lineup: for the treaty, all the good guys, from Carter to Ford to the New York Times and the Washington Post; against, all the certified Bad Guys from Reagan to the American Conservative Union to the John Birch Society?
But you can’t always tell all about the game from a list of the players – and there is more to be said than the standard account in the Establishment media. The Reaganite bluster about sovereignty can easily be dismissed; there are, however, more important questions about the new Panama treaty: Does it really abandon US imperial domination of the canal and the Canal Zone? Does the treaty really turn this area of Panama back to the Panamanians? If we consider the treaty in the light of these questions rather than in relation to jingoist notions, we will come up with a very different view of the big political issue of the year.
Particularly revealing are the statements of high American officials and other advocates in assuring the American public of the fallacy of right-wing fears about the treaty. Thus, Henry Kissinger announced his "strong view" that the treaty "is in the national interest of the United States." Kissinger went on to explain that "the new treaty marks an improvement over the present situation in that it assures continuing, efficient, nondiscriminatory, and secure access to the Panama Canal with the support of the countries of the Western Hemisphere instead of against their opposition and eventually their harassment."[1] In short, it is better to stay in more subtly and induce Panama and the rest of the world to support our dominion than to stay in nakedly and face the hostility of the Panamanians and most other nations.
In his public statement announcing the agreement on the basic elements of the Panama treaty, President Carter stressed that he and the Joint Chiefs of Staff agreed that the pact will be "important to our long-term national interests." Specifically, the United States will formally continue in charge of the canal until the year 2000: "We will have operating control and the right to protect and defend the Panama Canal with our military forces until the end of the century." But even after that "we will have the right to assure the maintenance of the permanent neutrality of the canal as we may determine necessary. Our warships are guaranteed the permanent right to expeditious passage without regard to propulsion or cargo."[2]
Or, as the Carter administration’s summary of the Panama agreement put it, "The U.S. will have the permanent right to defend the neutrality of the canal from any threat, for an indefinite period." President Carter himself has stated flatly, "If it is attacked by any means, I will defend it." He has assured the public that "if we ever have to go into Panama, there will be no legal question under these treaties."[3] In short, there are no limits in this treaty on the actions that the United States will be able to take, even after the year 2000, to preserve what it deems to be the "neutrality" of the canal.[4]
Thus, in exchange for the mystique of sovereignty and formal national ownership, the United States has acquired the agreement of the Panamanian government in its perpetual ultimate control of the canal. Or, as Ellsworth Bunker, one of the two American negotiators of the treaty – the other was Sol Linowitz – admonished the critics, "It is not ownership but use that is important." He could have added the fact that the ability to use and control property is precisely the function of ownership.[5]
When the new treaty was announced, Bunker and Linowitz spelled out one of its major advantages to US dominion. As the August 13 New York Times phrased it, Bunker and Linowitz "said they thought that continued operation of the canal was threatened more by possible Panamanian sabotage or disorders that might follow a failure to carry out the agreement than by external threats that they asserted the United States would be free to curb."
But particularly fascinating is the argument on behalf of the Panama treaty by the most sophisticated of American conservative organs, National Review. National Review begins its editorial by assuaging the hurt to the "national pride" of conservatives, and assuring their conservative followers that it understands their "soul-searing" pain. Then, NR proceeds to instruct its constituency in the realities of today’s world. "Conservatives are realists, and here is a test of realism." Specifically, and echoing Kissinger, Linowitz, and Bunker, NR points out that "our own military men support the treaty on the ground that the canal can be better defended with the treaty than without it." First of all, under the new treaty Panama agrees that the United States may continue to use its air and sea forces to defend the Panama Canal against an external attack. NR then turns to the "most realistic kind" of military threat to US rule over the canal, namely "guerrilla warfare, and defense against that is very difficult under any circumstances." And then NR adds the clincher: "One thing is sure – it could be done far better together with Panama than without it; or worse, against it." In short, the Panamanian government would now be ranged against such guerrilla warfare rather than overtly or covertly supporting it.
Addressing a common fear of the treaty critics, NR supposes that Panama violates the treaty. In that case, the magazine concludes, "we will still be in a position to act if and when necessary. And what is most important, we would almost surely be in a stronger position to act at some later time in response to an actual threat or violation of the treaty than we would be now in defense of our own refusal to ratify."[6] In other words, far better for the United States to exercise its power in defense of a treaty – and therefore in command of wide international support – than in isolation after refusing to ratify.
In a similar vein, Carter’s national security adviser, Zbigniew Brzezinski, told a White House meeting of prominent Georgians and Floridians that "if he were in the Kremlin and he could think of anything that … might alienate countries against the United States even further, it would be defeat of these treaties."[7]
A common conservative charge is that the treaty will hand over the canal to a "Communist" Torrijos regime in Panama. Far from being a "Communist," however, General Torrijos is in hot water in his own country, especially among the anti-imperialist critics on the Left.[8]
Panamanian newspapers were highly reluctant to reveal to their readers the details of the agreement with the United States. The New York Times reported that "rather than expressing joy at the culmination of the long negotiations, most Panamanians appeared today to be uncertain and confused. " Addressing a meeting of the Panamanian Student Federation, that country’s chief negotiator of the agreement, Dr. Romulo Escobar Bethancourt, admitted that many aspects of the treaty were "bad" and even "ugly"; in defense, Escobar demagogically posed the only alternative to the treaty as a "confrontation" with the United States and the "massacre of the best of our youth."
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The Panama government announced its intention to hold an early national plebiscite to decide on ratification of the treaty, but it is clear that the plebiscite, which endorsed the treaty by two to one, was held in the midst of a propaganda campaign branding any criticism of the treaty as "treason against our fatherland." More important, it was held while many of the leading opponents of the treaty were languishing in exile. For, over the past three years, the Torrijos regime has systematically deported its most outspoken critics, including likely opponents of the new treaty, to Miami, Mexico, and Venezuela.[9]
Indeed, one of the major unsuccessful demands of the Panamanian Left was that Torrijos keep his promise to declare a general amnesty for political prisoners, and that he allow all the exiles to return to Panama and challenge the treaty. In the light of this situation, it must be considered a joke in questionable taste for Dr. Escobar to condemn the Panamanian exiles in Miami for urging US senators to vote against the treaty. Obviously, a simple way for Panama to put a stop to this activity would be to allow the exiles to return to their Panamanian homeland.
Moreover, a full and fair debate over the plebiscite was precluded by the Torrijos regime’s iron control of the media. Every one of the newspapers and television stations is owned or controlled by the government, and the radio stations are also effectively ruled by the regime.
Press censorship and restrictions on public assembly were officially lifted during the 40 days prior to the plebiscite, but Torrijos refused to grant any additional time for public debate. As Marlise Simons reported in the Washington Post of October l3, "Officials say that Panamanians know enough about the treaties and only troublemakers want more time."
Mounting criticism of the treaty has come from conservative as well as leftist critics of the Torrijos regime. The conservative Movement of Independent Lawyers of Panama has denounced the treaty for approving the "first American intervention in our country of the twenty-first century." The MILP went on to assert that "the ordinary Panamanian will easily understand that … there will be a new version – perhaps slightly less grotesque than before – of the hated American perpetuity on the canal issue." Both the Christian Democratic and Social Democratic parties also came out against the treaties, "pointing out that in 1926 and again in 1947, Panama had rejected drafts attempting to legalize the U.S. military bases [there]."[10] And Panama’s Trotskyist Revolutionary Socialist League made the significant statement that the present would be a particularly auspicious time to confront American imperialism: "Today we have the eyes of the world on us, today we have international support, today imperialism has been weakened by Watergate and Vietnam."[11]
On September 6, the Panamanian Left made known its displeasure with the treaty; 1,500 students demonstrated in Panama City against the "dirty treaty" and its provisions for maintaining American military bases and perpetual rights of American intervention. The protest was stamped out by Torrijos’s National Guard, which injured dozens of demonstrators and arrested over 30 students.
If the Panama treaties merely provide a sophisticated fig leaf for continued American domination of the canal, why then did the Torrijos regime sign the accord in the face of the domestic troubles that would predictably ensue? One answer to this question might be that venerable motive, money – a vital aspect of the treaty is US agreement to sugarcoat the pill by multiplying manyfold the annual revenues going into the coffers of the Panamanian treasury. Currently, the US government pays $2.3 million a year to Panama for use of the canal. The treaty proposes to increase this amount by giving Panama $0.30 per ton out of the current canal toll of $1.29 per ton. With corrections for inflation, this share is expected to amount to a revenue of $40 to $50 million per year. In addition, operational revenues will be paid for such services as ship repair and dockage; this is expected to amount to $20 million per year.
But this is far from all. The United States also pledges to undertake a five-year program of supplying financial goodies to Panama: $200 million of Export-Import Bank credits; $75 million in Agency International Development housing credits; and $20 million in loan guarantees from the Overseas Private Investment Corporation. This amounts to a five-year boodle of nearly $300 million, which, added to $70 million per annum, makes a handsome subsidy package, and is perhaps worth the risk of a few student demonstrations.
Apparently, the Carter administration feels that it can sell this package to the American public with the argument that none of this money will come directly out of taxes. The annual sum will initially come out of the toll revenues of the US government-owned Panama Canal Company, and later out of the budget of the new, frankly governmental American agency that is scheduled to replace the Panama Canal Company in running the canal. The five-year plan, too, consists of loans and loan guarantees. While all this is ultimately guaranteed by the US taxpayer, the subsidy package, being long-run and indirect, might be slipped by the American taxpayer without causing an outcry.
Focusing on the money enables us to ponder the seemingly curious phenomenon that American big business, unlike our conservative ideologues, is overwhelmingly in favor of the Panama treaty. The advocates include such influential business leaders as Irving S. Shapiro of DuPont, head of the Business Roundtable and such groups as the National Association of Manufacturers. One general reason for this support is that these sophisticated business groups understand and welcome the treaty as a more subtle and acceptable form of American imperialism. A more specific reason is the effect the treaty will have for those firms with trade and investment in Latin America. Rejection of the treaty might mean anti-American unrest throughout the region and might have a "destabilizing" effect on American investments there. Private US investment in Latin America is estimated at $24 billion, while total two-way US trade there amounted to $34 billion in 1976. As John M. Goshko reported in the August 22 Washington Post:
These economic factors could produce some startling surprises about where different interest groups line up in the battle.
There is the strong likelihood that the normally conservative, Republican-leaning business establishment will be solidly on the side of a Democratic president. …
Where the business community is concerned, Carter administration strategists contend, the case for supporting the treaties seems ironclad. In fact, the administration privately is counting on big business to provide some potentially crucial help in getting the treaties past the hurdle of Senate ratification.
Already, Henry R. Geyelin, president of the Council of the Americas, a nonprofit business association comprising every major US firm doing business in Latin America, has testified on behalf of such a treaty before the House Panama Canal Subcommittee.
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But explanations in terms of groups or classes are never as rewarding as the concrete unveiling of specific monetary interests. Thus, there needs to be further investigation of which US business or financial groups might be benefiting specifically from the hundreds of millions of dollars that the US government will be pouring into Panama. One clear group of beneficiaries is the American exporters who will receive orders from the $300 million package. US foreign aid is a clever mechanism by which American taxpayers and the US government subsidize American export firms: the dollars are extracted from the taxpayer and are then funneled by the US government to the foreign recipients, who in turn spend the dollars on American exporters. In this case the process is clear: the Panama treaty explicitly applies "Buy American" provisions to the aid, making sure that the American exporters receive the dollars as rapidly as possible.
But there is another use that the Panamanian government will have for the US aid, one that may prove to be a more intimate lead to the underlying reason for concluding this treaty. Panama is heavily in debt to US banks, and the influx of hundreds of millions of dollars will certainly ease its burden in paying the interest and principal on the debt; it may even save Panama from bankruptcy – and the American banks from severe embarrassment. We must therefore contemplate the possibility that the nub of the Panama treaty is a covert bailout operation by which the American taxpayer is being gulled into subsidizing, and even salvaging, a handful of US banks.
This suggestion does not seem very outrageous if we consider the history of how the United States got involved with the Panama Canal in the first place. It’s not just, as Senator Hayakawa (R-CA) said, that "we stole it [the canal] fair and square." Or that President Theodore Roosevelt engineered a phony "revolution" in 1903, by which employees of the American-owned railroad declared the Panama section of Colombia independent and American ships prevented Colombia from putting down the rebellion. The similarity with the present theme comes from the hidden motive behind Teddy Roosevelt’s flamboyant actions.
In order to build the canal, the United States felt that it had to purchase the right to do so from the bankrupt French-owned company that had failed in its attempt to dig the canal. Teddy Roosevelt explained that he acted out of indignation at the Colombian government’s insisting on a $10-million "holdup" of American taxpayers for the right to build a canal in Panama. Actually, the US government was perfectly willing to pay $40 million to the French Panama Canal Company. The $10 million to Colombia would have come, not from the taxpayers, but out of the $40 million cut going to the French company.
Why, then, did Teddy Roosevelt swing the big stick and foment a phony revolution in Colombia, in order to save $10 million for the coffers of a bankrupt French-owned company? The answer, which came out years later, is that the "French" company was French no longer; its shares had been secretly bought up shortly before by a syndicate of Wall Street bankers, headed by J.P. Morgan and Company. The syndicate hired the eminent Wall Street lawyer, William Nelson Cromwell, to get the American money, and it was Cromwell, sitting in the White House itself, who wrote TR’s dispatches and orders and engineered the entire operation. After the syndicate got the $40 million, they were able to sell their shares to the US government for twice what they had paid.
Moreover, one of the syndicate members was none other than Teddy Roosevelt’s brother-in-law, Douglas E. Robinson. Not only did Robinson benefit as a syndicate member, but most of the $40 million from the US taxpayers was funneled by Cromwell into the New York real estate firm of the same Douglas Robinson.
And so we should not be surprised to discover that US government action in Panama today is for the purpose of subsidizing the Wall Street bankers. Judging from the facts available to us, the current treaty may well be a rerun of the original bailout.
Commercial banks refuse to make public the details of specific loans like those to Panama, and the Panamanian government is not exactly generous with such information either. However, some broad information is available. When General Torrijos seized power in the 1968 coup, Panama’s national debt abroad was $167 million; its estimated total current debt is more than $3.5 billion. More pertinently, the total debt of the Panama government to US banks is reported by the Library of Congress at $1.7 billion. In a memorandum to the president of Panama, the Department of Planning stated that no less than 39 percent of Panama’s budget is being used to service its foreign debt, which amounts to $42 million per year and includes $25 million in interest and $17 million in amortizing principal.
Leading the parade of American banks involved in Panama are the First National City Bank and the Chase Manhattan Bank, the flagship bank for the far-flung Rockefeller financial interests. Both of these banks serve as fiscal agents for the government of Panama. In one advertisement for a $115 million loan to Panama, for example, the First National City Bank is listed as the agent for the loan. Other participating banks included the Bank of America, Bankers Trust, Chase Manhattan, the First National Bank of Boston, the First National Bank of Chicago, the Republic National Bank of Dallas, and the Marine Midland Bank.
We might well ask, why did the New York banks pour all these loans into Torrijos’s Panama? It seems clear that the money was a quid pro quo for Torrijos’s decision – on the advice of leading New York banks – to reorganize Panama’s banking laws in July 1970. This reorganization provided a favorable haven, free of taxes and onerous regulations, for foreign banks in Panama, much as Panama has long provided a flag of convenience for world shipping. Since the 1970 legal change, total banking assets in Panama have expanded enormously from a few banks with a few million dollars to 73 banks with total assets of $8.6 billion conducting transactions throughout the world. Prominent among the US banks expanding rapidly in Panama since the 1970 legislation are the First National City Bank, the Bank of America, Chase Manhattan, and the Marine Midland Bank.
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It was a deal that benefited the US banks and the Torrijos regime, which could thereby expand its wealth as well as its political power in Panama. But now the US taxpayer is being subtly asked to pick up the tab.
If a handful of large US banks will be the major beneficiaries of the Panama Canal treaty, have they also had any role in lobbying for or negotiating the treaty itself? Or will their gains be merely a lucky windfall from decisions made by the US government for very different reasons? Let us see. While the treaty was being negotiated, then-Senator Gale McGee (D-WY), one of the leading protreaty people in Congress, held a meeting at the State Department at the end of October 1975 to organize a protreaty lobby. In attendance were lobbyists for the Chase Manhattan Bank, the Bank of America, such large corporations as Gulf Oil and Rockwell International, as well as representatives of the Council of the Americas. A campaign kitty was raised at that meeting, estimates of the size ranging from $100,000 to $500,000. Subsequent meetings brought in lobbyists for other large banks and corporations, including Pan American World Airways. Plans were made at these meetings to pressure the US Chamber of Commerce into supporting the future treaty.[12]
The influence of the bankers and the corporations, however, has been even more direct. When Carter took office he appointed the dynamic and highly influential Sol Linowitz, former ambassador to the Organization of American States and long an advocate of a new treaty, to join the octogenarian Ellsworth Bunker on the Panama Canal negotiating team. Bunker himself is a former director of Bankers Trust, and his brother, Arthur Hugh Bunker, is a longtime director of Lehman Brothers.
Linowitz’s connections are more numerous and impressive. He is a member of the powerful Council on Foreign Relations, which is dominated as well as chaired by David Rockefeller, who is also chairman of the Chase Manhattan Bank. Moreover, Linowitz is a member of the exclusive and now-famous Trilateral Commission, which was founded and is dominated by David Rockefeller and which includes so many foreign-policy and economic-affairs leaders of the Carter administration – from Carter himself to Vice President Mondale, Secretary of State Cyrus Vance, and National Security Adviser Brzezinski. In addition, Linowitz is a trustee and former chairman of the policy committee of the Center for Inter-American Relations, an organization founded and chaired by David Rockefeller, whose directors interlock heavily with the Council for Foreign Relations. Linowitz was also a member of Nelson Rockefeller’s personal vehicle for his abortive presidential run, the National Committee on Critical Choices for Americans. As a member of the board of directors of Time, Inc., Linowitz also wields a degree of influence on the media.
Even more pertinently, upon his appointment as negotiator of the canal treaties, Sol Linowitz was a member of the board and the executive committee of Marine Midland Bank and of Pan Am. He was also a large stockholder in Marine Midland. The Marine Midland connection is clear and direct; for, as Congressman George Hansen (R-ID) has disclosed, the government of Panama owes Marine Midland Bank nearly $8 million. Furthermore, it was only after Hansen and Senator James McClure (R-ID) filed suit on April 20 for a temporary restraining order against Linowitz as canal negotiator that Linowitz finally resigned his positions with Marine Midland.
The suit sought the restraining order on the ground of conflict of interest on the part of Linowitz, at least until this presidential appointment should be confirmed by the Senate. Linowitz, however, insisted on keeping his high positions at Pan Am while negotiating and arguing on behalf of the canal treaty. Pan Am’s connection, while intriguing, does not seem as direct as Marine Midland’s. Pan Am has for decades been within the Rockefeller financial ambit, as is indicated by James S. Rockefeller’s presence on the airline’s board of directors. Other directors are Frank Stanton of CBS and Donald Kendall of Pepsico, both of whom are directors at Atlantic Richfield Company, whose president Robert O. Anderson is a member of the board of Rockefeller’s Chase Manhattan Bank. Until he became secretary of state, Cyrus Vance was also a director of Pan Am. While too much should not be made of a list of corporate interconnections, the above establishes a clear pattern of Linowitz-Rockefeller commonality of interest and action.
We have already seen that Pan Am participated in the McGee-organized corporate lobbying in favor of a Panama treaty. What does Pan Am have to gain from Torrijos? One obvious benefit is the protection of the company’s landing rights in Panama. It just might be important that Panama serves as Pan Am’s headquarters for Latin America.
One of the most important influences in the drive toward a treaty was the new Washington-based Commission on US-Latin American Relations. The commission was organized in 1974 by the Center for Inter-American Relations and was largely financed by Ford Foundation and Rockefeller funds. Its chairman until recently was Sol Linowitz, with Dr. Robert A. Pastor serving as the staff director. Other members of the Linowitz Commission included such influential Trilateral Commission members as W. Michael Blumenthal, who is now secretary of the treasury; Samuel P. Huntington, now an aide to the National Security Council; Peter Peterson, chairman of Lehman Brothers; and Elliot Richardson.
In December 1976, Pastor wrote a report for the Linowitz Commission, urging a new treaty and substantial funds for Panama; the Council on Foreign Relations promptly held a special colloquium on the subject and endorsed the Linowitz Report. The next month, Brzezinski, national security adviser to Carter, appointed a special assistant on the Panama question, who turned out to be none other than Dr. Robert Pastor.
Without delay, Pastor drew up a National Security Council memorandum recommending a new Panama Canal treaty. The paper was approved by Brzezinski, and then, after being checked out with longtime Nelson Rockefeller foreign-policy aide Henry Kissinger, endorsed by Carter. As the culmination of the Linowitz-Rockefeller drive, Linowitz then got himself appointed negotiator for the new Panama treaty.
There are several ironies that emerge from a careful look at the Panama Canal treaty fight – especially the picture of this country’s liberals and progressives battling to pour money into the coffers of a handful of Wall Street banks in the name of a treaty they mistakenly believe represents a withdrawal of US power abroad. It doesn’t, and those who automatically oppose anything the right wing favors need to do some hard rethinking of their reflexive support for the new Panama Canal treaties.
Notes
[1] New York Times, August 18, 1977.
[2] New York Times, August 13, 1977.
[3] Los Angeles Times, October 23, 1977.
[4] For a confirming view, see the report on the broadcast by Sol Linowitz over the Voice of America, in Harry B. Ellis, "Carter Still Presses for Canal Treaty," Christian Science Monitor, August 31, 1977.
[5] Actually, it is unclear that even our existing status in Panama is one of sovereignty and ownership over the Canal Zone. The 1903 treaty with Panama merely grants to the United States "in perpetuity the use, occupation and control of a zone. " The Supreme Court of the Canal Zone on May 6, 1907, in the case of Canal Zone v. Coulson, ruled, quite in the spirit of the treaty, that "the United States is not owner in fee of the Canal Zone; it has only the use and occupation as long as it complies with the terms of the treaty." It is true, however, that the US Supreme Court chose to disregard such limits in the same year, asserting that "the title of the United States to the Canal Zone is not imperfect.’" (Wilson v. Shaw)
[6] "The Proposed Treaty: Preliminary Thoughts," National Review, September 2, 1977.
[7] Don Irwin, "Rusk Sees Chance of War in Panama," Los Angeles Times, August 31, 1977.
[8] The other major charge by the Right is that Torrijos is a "dictator." This is true enough, but the charge comes with peculiar ill grace from a movement that has expressed its devoted admiration for every dictatorial and fascist regime in the world, from South Africa to Chile, South Korea, and the Philippines.
[9] New York Times, August 11.
[10] Washington Post, October 13.
[11] New York Times, August 11.
[12] See Russell W. Howe and Sarah H. Trott, The Power Peddlers, Doubleday, p.123.
Reprinted from Mises.org.
