World Views
9:38 am
Fri August 22, 2014

At 100, Reflections On The Panama Canal’s Past And Future

On August 15, 1914, the Panama Canal officially opened to commercial traffic. This feat of American engineering revolutionized international trade and quickly became a point of national pride for the United States.

America wasn’t the first country to propose the idea of a Panamanian canal, though, says Noel Maurer, Associate Professor of Business Administration at the Harvard Business School and author of The Big Ditch: How America Took, Built, Ran, and Ultimately Gave Away the Panama Canal.

“There were ideas to build canals all the way back to the 17th century,” Maurer says. “Of course, back then this was sort of on the same scale as wanting to build an elevator to orbit today - a little bit ahead of the engineering capacity of the time.”

The United States became interested in building a canal after the Spanish-American War in 1898. However, the French already had the rights to build a canal in Panama.

“Essentially that's where you get the kind of sleazy deal to cleave Panama off from Colombia,” Maurer says. “There's a meeting in the Waldorf Astoria between a Panamanian revolutionary, a fellow named [Manuel] Amador [Guerrero], a lawyer from the French company, and representatives of the U.S. government. A check for $100,000 is cut, the date when Panama will declare its independence is announced, American warships are fortuitously in the area, Panama becomes independent, the Canal Zone treaty is signed, and the United States begins construction of the canal.”

The construction effort was enormous says Julie Greene, professor of history at the University of Maryland and author of The Canal Builders: Making America's Empire at the Panama Canal.

“The human dimension of it was incredible. As many as 45,000 workers on the canal at a given time,” Greene says. “The overall estimate of migration to the isthmus of Panama is over 100,000 people over the ten-year period it took to build the canal. So to provide for life there, to make people feel calm and keep them there, and to manage the labor of all these workers who came from about 100 different countries around the world, the U.S. officials, from [civil engineer George Washington] Goethals on down, had to really struggle to create policies, to create the infrastructure of what they considered civilized life.”

The Panama Canal was fundamental to the economic success of the United States in the first half of the 20th century. But by the 1970s things changed.

“Its economic utility has gone away, it’s losing money, the U.S. is running it terribly, accident rates are skyrocketing, it’s a drain on the treasury,” Maurer says. “There would be no damage to the U.S. if Panamanians jacked up rates. There's no reason to keep it except for national pride.”

In 1977 President Jimmy Carter signed the Torrijos–Carter Treaties agreeing to hand over control of the Panama Canal to the Panamanians in 1999.

“It's been great, to the surprise of many, many people,” Maurer says. “The canal has only continued to improve in pretty much every measure of efficiency, profitability, I mean, it's now spinning off billions of dollars to the Panamanian treasury every year.”

Today, the primary challenge facing the Panama Canal is modernization. The century-old waterway is currently undergoing major renovation and expansion. Even though this project is vital for the future of the canal, it poses several risks.

The expansion project will widen the Panama Canal as well as add an extra lane. It’s expected to be completed in 2015. Raisa Banfield is the Vice Mayor of Panama’s capital city and formerly served as director of the Environmental Advocacy Center. She says this new project must be executed carefully or it could jeopardize Panama’s environment and population.

“Panama is one of the 26 hotspots of biodiversity in the world with the tropical rainforest,” Banfield says. “So when you cut the land and devastate the forest, a lot of excavation, consequently, we lose biodiversity.”

She also says that the expansion project could cause the salinization of Lake Gatún.

“The Lago Gatún is not just for the transit of these ships, but to consume,” Banfield says. “So we have a problem in a city with 1.5 million people that need that water.”

INTERVIEW HIGHLIGHTS

On the first attempt to build the Panama Canal

The first one is by the French in the 1880s. And it is, to put it mildly, a complete and total disaster. They're attempting to build at first a sea-level lock canal, which involves excavating way too much dirt, essentially, than was feasible at the time or would even be feasible today. They eventually redesign it to be a lock canal, but it never occurs to the engineers on the French canal that they can use the Panama railroad to truck out the dirt. Instead what they do is they just kind of plunk it down on the sides of the excavations, where during the rainy season, you get rain, and then you get muddy pools where they've excavated all of this dirt which means you then get mosquitoes, which means you get malaria, which means your workforce does not do very well. So this was a total disaster, and eventually they stopped construction.

On the initial economic importance of the Panama Canal

It goes over budget in construction by a factor of two, and opens seven years late. There's this weird myth that, you know, somehow back then we could do things faster and better and cheaper, and that's not true. The canal does finally open, though, and it turns out that it's phenomenally important to the California oil industry. Most of the cargo moving through the canal through its first 20 years is oil moving from the West Coast of California to the East Coast of the United States. And this produces massive economic benefits for the United States. Again, relative to the size of the economy, that's about the equivalent of $250 billion dollars today in essentially cost savings.

On racial inequality during the building of the Panama Canal

One of the keys to how they did it was a system of racial segregation, similar to Jim Crow in the U.S. south. The so-called "silver and gold" payroll system whereby white workers were on the "gold" payroll, made much higher wages than they would have in the United States. Whereas the "silver" roll, predominantly people of African descent from the Caribbean, lived on much lower wages, lived in much more shabby housing without screens on the windows, etc. And yet the catch, the interesting thing is that although it was kind of a bi-racial Jim Crow segregation system, the demographics in the Canal Zone were so complex that a two-toned system didn't work very well. You had Spaniards coming in who were considered semi-white, and the officials couldn't figure out where they should be within the segregation system. So a lot of the history of the actual construction was about workers kind of coping with these conditions, resisting or challenging them, and officials finding that they had to revise and tweak their policies over and over again.

On the Panama Canal in the second half of the 20th century

Nobody's shipping oil from California to the East Coast by the 1970s. By the 1970s, the Panama Canal is handling two kinds of cargo: one is wheat coming from the Midwestern United States. And by then Midwestern farmers are entirely indifferent between shipping it out to Seattle and then taking it across the Pacific or shipping it down to the coast. This is because you have the dieselization of railroads which greatly dropped railroad costs inside the United States after World War II. The other thing is that you've got Japanese cargoes coming in from Japan to the East Coast of the United States. Well, if a hypothetical independent Panama Canal authority decided to jack up rates, that's only going to hurt Japanese producers, and they don't have a terribly big constituency in the United States. Similarly, the canal has no strategic purpose. During World War II, seven warships moved through the canal in the first year of the war. Only one, The Wasp, was in any battles at all where a 19 day delay would have affected anything, and that was the battle of Guadalcanal, where the U.S. had the initiative and could choose when to start the attack. So strategically it had proved worthless in World War II. Certainly by the time you've got the Cold War going on, no one really cares about the Panama Canal.

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FULL TRANSCRIPT

SUZETTE GRILLOT, HOST: Raisa Banfield, Julie Greene, and Noel Maurer, welcome to World Views.

MAURER: Thank you.

GREENE: Thank you.

BANFIELD: Thanks.

GRILLOT: We're celebrating, I suppose, over 100 years of the Panama Canal. And it's just a fascinating project. Obviously, everybody knows what this is all about, but they don't really know the details. And so maybe, Noel, you could start by giving us a little bit of history about the canal. When did people start paying attention? This goes back much further than, of course, the United States completing the canal in the early 1900s.

MAURER: So, well, there are attempts to cross Panama, and important economic routes crossing Panama, all the way back to the 17th century. And there were ideas to build canals also all the way back to the 17th century. Of course, back then this was sort of on the same scale as wanting to build an elevator to orbit today -- a little bit ahead of the engineering capacity of the time. The Panama railroad opens up in the mid-nineteenth century. And that's certainly a big deal for Panama, although it would be an exaggeration to say it was really that important for the United States economically or politically. I suppose in terms of literature, there are a lot of really good stories that apparently get written by people going on the Panama railroad or on their way to and from the Panama railroad. The canal itself, the big construction effort, the first one is by the French in the 1880s. And it is, to put it mildly, a complete and total disaster. They're attempting to build at first a sea-level lock canal, which involves excavating way too much dirt, essentially, than was feasible at the time or would even be feasible today. They eventually redesign it to be a lock canal, but it never occurs to the engineers on the French canal that they can use the Panama railroad to truck out the dirt. Instead what they do is they just kind of plunk it down on the sides of the excavations, where during the rainy season, you get rain, and then you get muddy pools where they've excavated all of this dirt which means you then get mosquitoes, which means you get malaria, which means your workforce does not do very well. So this was a total disaster, and eventually they stopped construction. So they had a 20 year concession, and the clock was running out on their concession towards the early 20th century. It was slated to expire in 1904. And you've got the shareholders in this French company who are sitting on $40 million of investments there. The United States gets interested in building a canal after the Spanish-American War. You've now got Hawaii and the Philippines, there's sort of a strategic interest in a canal, there's always been economic interest, but this sort of catalyzes the politicians to get involved. And I don't want to get too much into it, although I will if there's a follow-up on it, but essentially that's where you get the kind of sleazy deal to cleave Panama off from Colombia. And a lot of that deal has to do with the fact that the Colombians know that if they wait until 1904 that $40 million worth of assets sitting on the ground will revert to them, and that's $40 million the United States is going to pay to them. Just to give you some idea, today, relative to the economy, it's about $5 billion. So this is not monopoly money. So the Colombians are just procrastinating and waiting and engaging in these negotiation strategies that are slowly but surely driving President Teddy Roosevelt, who's not the most patient of men anyway, up the wall. Now, they're waiting for a reason. But Roosevelt's patience runs out in 1903. There's a meeting in the Waldorf Astoria between a Panamanian revolutionary, a fellow named Amador, a lawyer from the French company, and representatives of the U.S. government. A check for $100,000 is cut, the date when Panama will declare its independence is announced, American warships are fortuitously in the area, Panama becomes independent, the Canal Zone treaty is signed, and the United States begins construction of the canal. And the canal turns out to be monumentally, phenomenally economically important to the United States, but for reasons which nobody expected. So the first thing I want to say here is that it goes over budget in construction by a factor of two, and opens seven years late. There's this weird myth that, you know, somehow back then we could do things faster and better and cheaper, and that's not true. The canal does finally open, though, and it turns out that it's phenomenally important to the California oil industry. Most of the cargo moving through the canal through its first 20 years is oil moving from the West Coast of California to the East Coast of the United States. And this produces massive economic benefits for the United States. Again, relative to the size of the economy, that's about the equivalent of $250 billion dollars today in essentially cost savings. There're also big drops in oil prices on the East Coast of the United States. This is hugely important, but after World War II -- I don't know if I should keep going -- its importance to this U.S. starts to drop precipitously. But before World War II it's a huge deal.

GRILLOT: So, clearly, the economic impact is tremendous as you've said. But I want to pick up on something you said and actually turn to Raisa now and talk about the environmental impact. I mean, you're talking about all the dirt and you read about the amount of earth that was moved in order to create this canal. So the engineering part of it: incredible. Absolutely incredible. But the environmental impact is also incredible. Can you tell us a little bit about that?

BANFIELD: Yeah. Even with my bad English -- sorry for that -- I'll try to explain myself. But one of the things of the environmental impact of the Panama Canal route is on the forests. Panama is one of the 26 hotspots of biodiversity in the world with the tropical rainforest. It has a lot of biodiversity, species that are only there and not in other parts of the world. So when you cut the land and devastate the forest, a lot of excavation, consequently, we lose biodiversity, habitat, and so on. But the model of locks with different levels -- so the other part of the problem is that we have two oceans -- Atlantic and Pacific -- at different levels, but with the locks we save the crossing of the seas. And they are different in the Pacific and the Atlantic. For that reason, the system of locks, to maintain the separation of these waters. But so far until this moment, the Panama canal used sweet water to pass the ships. And all this sweet water goes to the sea. And that's okay. But the new canal, I mean the expansion, would reuse the water to put the sweet water back to the Lago Gatún, Gatún Lake. This system, it's not good because recycled water has a risk of salinization of the Lago Gatún. And this is a problem because the Lago Gatún is not just for the transit of these ships, but to consume for the water of the population. So we have a problem in a city with 1.5 million people that need that water. And even we need more water because we will have more ships and bigger ships.

GRILLOT: That's really fascinating to think it's really only really 50 miles long, is this right? The canal itself. And yet the very different biodiversity on either end on the Pacific and on the Atlantic end. It's fascinating.

BANFIELD: Oh, yeah, it's like one-hour to travel, but you have five types of rain forest in the middle.

GRILLOT: So obviously the environmental impact is significant. Well, Julie, I'd like to turn to you because not only do we know about the engineering capacity here, the incredible accomplishments, the economic impact, the politics, history, I want to get back to this whole notion of the political impact, the environmental impact, but the human impact was also significant. What I don't think we think about is there were tens of thousands of people that were involved in building this canal, and the impact on their lives. I mean, Noel mentioned illness, for example, the conditions in which they lived. This is what you've been working on. What can you tell us about that?

GREENE: Yeah, I think that part of it is fascinating. You know, the canal is known for the medical achievements and the engineering and the technological, but I take my lead from the chief engineer, George Washington Goethals who, really, more than any other single person was on the ground achieving this incredible thing. He once said that even though people talk about the medical miracles and the engineering, really none of that was new in the Canal Zone. We were applying known principles that had been used elsewhere in Cuba or India or Egypt. He said, "My greatest achievement, and what made the construction possible, was figuring out how to rule over and preserve order in the Canal Zone and in the Republic of Panama." The human dimension of it was incredible. As many as 45,000 workers on the canal at a given time. The overall estimates of migration to the isthmus of Panama is over 100,000 people over the ten-year period it took to build the canal. So to provide for life there, to make people feel calm and keep them there and to manage the labor of all these workers who came from about 100 different countries around the world, the U.S. officials, from Goethals on down, had to really struggle to create policies, to create the infrastructure of what they considered civilized life. And one of the keys to how they did it was a system of racial segregation, similar to Jim Crow in the U.S. south. The so-called "silver and gold" payroll system whereby white workers were on the "gold" payroll, made much higher wages than they would have in the United States. Whereas the "silver" roll, predominantly people of African descent from the Caribbean, lived on much lower wages, lived in much more shabby housing without screens on the windows, etc. And yet the catch, the interesting thing is that although it was kind of a bi-racial Jim Crow segregation system, the demographics in the Canal Zone were so complex that a two-toned system didn't work very well. You had Spaniards coming in who were considered semi-white, and the officials couldn't figure out where they should be within the segregation system. So a lot of the history of the actual construction was about workers kind of coping with these conditions, resisting or challenging them, and officials finding that they had to revise and tweak their policies over and over again.

GRILLOT: Well, it's really a fascinating story. Your book tells us about the segregation, as you mentioned, the discrimination, the exploitation. Really, really interesting. Well, in the last couple minutes that we have, Noel, I just want to come back to kind of the present day. So bring us up to the canal being turned over to Panama in 1999 and kind of where we are today with the canal.

MAURER: That's actually an easy question to answer. It's been great, to the surprise of many, many people. The canal is finally handed over to the Panamanians in 1999. Since then, the canal has only continued to improve in pretty much every measure of efficiency, profitability, I mean, it's now spinning off billions of dollars to the Panamanian treasury every year.

GRILLOT: I mean, why did we turn it over? This became a bit of a political issue, right, with the presidential election, Regan vs. Carter. I mean, Carter handed it back to the Panamanians. Just very quickly, why did we even do that?

MAURER: Because it had become entirely worthless to the United States by then. Basically, two things. One is nobody's shipping oil from California to the East Coast by the 1970s. By the 1970s, the Panama Canal is handling two kinds of cargo: one is wheat coming from the Midwestern United States. And by then Midwestern farmers are entirely indifferent between shipping it out to Seattle and then taking it across the Pacific or shipping it down to the coast. This is because you have the dieselization of railroads which greatly dropped railroad costs inside the United States after World War II. The other thing is that you've got Japanese cargoes coming in from Japan to the East Coast of the United States. Well, if a hypothetical independent Panama Canal authority decided to jack up rates, that's only going to hurt Japanese producers, and they don't have a terribly big constituency in the United States. Similarly, the canal has no strategic purpose. During World War II, seven warships moved through the canal in the first year of the war. Only one, The Wasp, was in any battles at all where a 19 day delay would have affected anything, and that was the battle of Guadalcanal, where the U.S. had the initiative and could choose when to start the attack. So strategically it had proved worthless in World War II. Certainly by the time you've got the Cold War going on, no one really cares about the Panama Canal. So its economic utility has gone away, it's losing money, the U.S. is running it terribly, accident rates are skyrocketing, it's a drain on the treasury, there would be no damage to the U.S. if Panamanians jacked up rates, there's no reason to keep it except for national pride. And it became a political football for purposes of national pride.

GRILLOT: Well, it certainly is interesting to think about turning over something so significant to us, but at the same time today, and Raisa you alluded to this, the Panama canal being expanded, clearly not big enough for all of the cargo ships that are coming through now, it's definitely interesting to see how the Panamanians have handled it, and turned it into a very profitable enterprise for them. So, thank you for your work and for being with us today on World Views.

BANFIELD: Thank you for your interest.

GREENE: Thanks so much.

MAURER: Thank you.

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