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Bolivia and the International Tin Cartel, 1931–1941

Published online by Cambridge University Press:  05 February 2009

John Hillman
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Extract

The Depression in tin began in 1929 as the price fell towards £200 per ton. By the beginning of 1931 a cartel was organised which was able to reduce production to the point where by 1934 real prices and incomes had been restored to levels comparable with those enjoyed during the boom of the mid-1920s. The tin cartel has received extensive attention, which has tended to be rather critical and has focused on the impact on the largest producer, Malaya.1 Although Bolivia was the major beneficiary of cartelisation, there has been comparatively little analysis of her relationship with the cartel.2

Type
Research Article
Information
Journal of Latin American Studies , Volume 20 , Issue 1 , May 1988 , pp. 83 - 110
Copyright
Copyright © Cambridge University Press 1988

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References

1 Knorr, K., Tin Under Control (Stanford, 1945)Google Scholar, remains the most comprehensive published study. Ungphakorn, Puey, ‘The Economics of Tin Control’, Ph.D. thesis, University of London, 1949Google Scholar, has the best grasp of the economic issues. A more sympathetic account is by Fox, W., Tin: The Working of a Commodity Agreement (London, 1974).Google Scholar Yip Yat Hoong provides an extensive discussion of the position of Malaya in The Development of the Tin Mining Industry of Malaya (Kuala Lumpur, 1969).Google Scholar His position is briefly endorsed in a recent work, Baldwin, W., The World Tin Market (Durham, N.C., 1983).Google Scholar In Hillman, J. ‘Malaya and the International Tin Cartel, 1931–1941’, Modern Asian Studies (1988)Google Scholar, I have provided an alternative account of the problem of Malaya.

2 The most important studies of the domestic impact of the cartel are by Hallowell, Burton, ‘Administration of Tin Control in Bolivia, 1931–1939’, Inter-American Economic Affairs, vol. 3 (1949)Google Scholar; ‘Tin Control and Bolivia's Foreign Exchange Position, 1930–1939’, Inter-American Economic Affairs, vol. iv (1950)Google Scholar; ‘Tin Control and Exchange Depreciation in Bolivia, 1931–1939’, Inter-American Economic Affairs, vol. v (1951).Google Scholar

3 Yip, , The Development of the Tin Mining Industry of Malaya, p. 270Google Scholar; Baldwin, , The World Tin Market, pp. 73–74.Google Scholar These authors would qualify their criticism by noting that a purely market solution would have been very damaging for everyone during the depths of the Depression; the cartel simply outlived its usefulness.

4 Calvo, Robert Querejazu, Llallagua, historia de una montaña (La Paz, 1977)Google Scholar, Molins, W. Jaime, El estãno, fundamento vital de Bolivia (Buenos Aires, 1937)Google Scholar, and McBride, J., Like Moonlight on Snow (New York, 1947)Google Scholar, all exaggerate the role of Patiño. Klein, H., ‘The Creation of the Patiño Tin Empire’, Inter-American Economic Affairs, vol. 19, no. 2 (1965)Google Scholar, and Geddes, C., Patiño: The Tin King (London, 1972)Google Scholar, are somewhat more guarded in their estimation.

5 This should be qualified in the case of the FMS where the government was concerned about the social implications of widespread unemployment among the Chinese as a result of severe levels of restriction. No such divergence existed between the Bolivian government and Patiño. Here it is assumed that both parties had an overriding interest in maintaining high prices.

6 This point has rarely been given the attention it warrants. The role of devaluation is thoroughly discussed by Hallowell, ‘Tin Control and Exchange Depreciation’, and is noted by Eastham, R., ‘Rationalisation in the Tin Industry’, Review of Economic Studies, vol. 4 (1956).Google Scholar Eastham suggested that there was no lower limit to the international price of tin which would make production in Bolivia unprofitable (p. 17). Lower limits would, in fact, be set, inter alia, by the value of foreign inputs. The implication of this point is that above such limits, the conception of Bolivia as a ‘high-cost’ producer is misleading. High costs do not increase vulnerability to market forces; they simply reduce import capacity.

7 There is a third dimension, that of class. While present, class conflict was not a dominant feature of the industry during this period and is not relevant to the following analysis.

8 CO717/72410. Purchases began in 1928 and continued through 1930.

9 Consolidated Tin Smelters amalgamated Williams, Harvey (Patiño), Penpoll (Anglo-Oriental), Cornish Tin Smelting and Eastern Smelting (Budd). Patiño held 55% of the shares of the new company. Patiño's smelting interests also included Zinnwerke Willhelmsberg (with National Lead) and Arnhem (with Billiton).

10 Freund, Bill, Capital and Labour in the Nigerian Tin Mines (London, 1981).Google Scholar Chapter 4 provides a fine study of the growth of Anglo-Oriental.

11 ‘The Many Lives of Mauricio Hochschild’, Fortune, vol. xxxvi (07 1947)Google Scholar, is the most comprehensive account.

12 Hochschild, M., ‘The Bolivian Mining Industry and the Present Crisis’, Mining Journal (22 11 1930).Google Scholar

13 de Mines en Bolivie, Cie Aramayo, Report of Annual Meeting, Financial Times, 26 07 1933.Google Scholar The Guggenheims also operated a dredge at Aroyfilla and this was taken over by R. Cooksey, as the Bolivian Tin Corporation.

14 FO126/57, Report on Tin Mining Industry, 3 June 1930. In addition to Caracoles this report notes the closure of Chojñacota, Oruro, Colquiri, Morocacala, and Negro Pabellón. Together they had produced around 13% of Bolivia's 1929 output. A British mine, Ocuri, suspended operations in February 1930, and in 1934 another British company, Berenguela, folded.

15 Godoy, Ricardo, ‘Technical and Economic Efficiency of Peasant Mines in Bolivia’, Economic Development and Cultural Change, vol. 33 (1985)Google Scholar, provides an analysis of the peasant basis of Bolivian mining. Patiño Mines allowed tributers to work its dumps, and in 1933 they produced nearly a third of its output; Aramayo's entire 1931 production came from tributers.

16 Whitehead, L., ‘El impacto de la gran depresión en Bolivia’, Desarrollo Económico, vol. 12, no. 45 (1972).CrossRefGoogle Scholar

17 Whitehead, , ‘El impacto…,’ pp. 75–6Google Scholar, suggests that the industry was divided on this question, and that the large miners drowned the pleas of the small for devaluation throughout 1930.

18 Patiño Mines & Enterprises, Annual Report, 1930. Riots broke out in September 1930 in response to short-time working arrangements; subsequently full-time working was resumed with a labour force only two-thirds that of 1929. The measures resulted in a reduction of unit costs by 10%.

19 Loftstrom, W., ‘Attitudes of an Industrial Pressure Group in Latin America: The Asociación de Induslriales Mineros de Bolivia, 1925–1935’, M.A. Thesis, Cornell University, 1968, pp. 92–3.Google Scholar

20 The best guide to the complicated problem of taxation is d'Angelo, Walter Gomez, ‘Mining in the Economic Development of Bolivia’, Ph.D. thesis, Vanderbilt University, 1973Google Scholar Unfortunately his estimates for 1935–8 are marred by the use of unrealistically low exchange rates. The rates were not low enough to prevent the accumulation of idle balances in bolivianos, and Patiño eventually used his to acquire shares in the Banco Minero, formed in 1936 to serve the small miners.

21 CO323/1197/91240/4, Philips to Foreign Office, 20 July 1932. The company had started dealing in Bolivia in 1928, advancing large sums to Bolivian miners which it naturally wanted to see returned. The position of the third ore dealer, Duncan Fox, is unknown. Eventually Hochschild became a strong supporter of the ITC. FO371/ 25228.

22 Hallowell, , ‘Administration of Tin Control’, pp. 4–9.Google Scholar For such a high level to be justified solely on the grounds of expansion in productive capacity, this would have had to have increased by over 50% between 1929 and 1931. It seems excessive in view of the actual underexports from the Hochschild group in 1931. In any case such a concession would effectively be rewarding Hochschild for having contributed to the very problem the cartel was designed to solve.

23 FO371/18642, Annual Report on Bolivia for 1934. Quotas were sold for £100/ton free of any royalties or exchange obligations; this was around half the value of the tin.

24 Remarks of George Easley before the McReynolds Committee, Investigation on U.S. Dependence on Foreign Tin (Washington, 1935), p. 756.Google Scholar

25 Hallowell, , ‘Administration of Tin Control’, pp. 7–15.Google Scholar

26 The small miners were exempt from the draft which preserved their productive capacity.

27 Attempts were made to import workers from Peru and Chile, but they rioted on realising the conditions under which they were expected to live. FO371/18642, Annual Report on Bolivia for 1934.

28 Loftstrom, , ‘Attitudes of an Industrial Pressure Group…,’ p. 68.Google Scholar

29 E. V. Pearce of Williams, Harvey was often present as a technical adviser to the Bolivian delegation. Alberto Romero Ovando was a representative until his death in 1937.

30 In Bolivia the only groups that cooperated with the TPA were Patiño and Aramayo. For a moment it appeared as though a voluntary solution might work since the market responded to Patiño's participation by increasing the price by £4/ton.

31 May, E., ‘The International Tin Cartel’, in Elliot, W. Y., International Control in the Non-Ferrous Metals (New York, 1937)Google Scholar, provides the most forceful statement of this argument, pp. 273, 316, 344.

32 The issue is explored more fully in Hillman, ‘Malaya and the International Tin Cartel.’

33 The central role played by Colonial Office and its Senior Economic Adviser, Sir John Campbell, in the formation and administration of the cartel has resulted in the preservation of a comprehensive set of files relating to the work of the cartel at the Public Record Office.

34 The tin deposits of the Dutch East Indies were exploited as an effective Government monopoly, with a more rational depletion policy than that possible under the competitive conditions prevailing elsewhere. This meant that depletion would take place over a longer time period and that during periods of high prices the lower grade ores were worked (Puey, , ‘Economics…’, p. 231Google Scholar). Billiton with around a third of the DEI output did in fact restrict by 20% during the second half of 1930.

35 CO323/1108/71462/II, Cunfliffe-Lister to Colonial Office, 27 November 1930. Cunliffe-Lister had been President of the Board of Trade in the previous Conservative Government and would become Colonial Secretary in the subsequent one.

36 Yip, , The Development of the Tin Mining Industry of Malaya, pp. 200–1Google Scholar, provides a detailed assessment of the growth in productive capacity. However, precise estimates of capacity remain speculative.

37 Geddes, , Patiño…, p. 232.Google Scholar

38 In addition to the FMS, tin was also produced in some Unfederated Malay States and in the Straits Settlements. This concession meant that restriction would bear more heavily on Malaya than any one else, and generated bitter opposition by Malayan producers.

39 This became clearer in 1933 when the Malayans supported Bolivia's attempt to recover the tonnage conceded. CO323/1242/11730/;, Campbell to Cunliffe-Lister, 15 September 1933.

40 There was considerable nervousness, especially in Malaya and the DEI, about the political implications of the severe cuts that were economically necessary. As a result it took over a year before the ITC was able to cut production to match consumption.

41 CAB23/66, Cabinet Meeting, 25 March 1931.

42 CO323/1156/81298/7/I, Groothoof to Campbell, 16 April 1931.

43 Ibid., Howeson to Campbell, 23 June 1931. The Dutch were concerned about the opposition in Malaya to the formation of a pool, and had earlier sought reassurances from the British Cabinet.

44 Ibid., Campbell minute, 1 July 1931. Aramayo in fact participated in this pool, presumably as a member of the British syndicate. Report of General Meeting, 19 July 1933.

45 Ibid., Campbell to Martin, 9 July 1931; Howeson to Campbell, 8 July 1931.

46 CO323/1155/81298/VII, Campbell to Calder, 9 September 1931.

47 Calvo, R. Querejazu, Llallagua, Historia de una Montaña, pp. 170–1.Google Scholar The size of the pool was £1,500,000, of which £900,000 was in the form of a credit with Lloyds Bank, £400,000 was held by Patiño, and £200,000 was held by Consolidated Gold Fields. It would have had over 13,000 tons of metal.

48 Patiño to Salamanca, 27 July, 1932, cited in Geddes, , Patiño…, pp. 233–234.Google Scholar

49 CO323/1156/82198/7/I, Final Agreement, 30 July 1931.

50 Hallowell, , ‘Administration of Tin Control’, p. 20Google Scholar; CO323/1197/92140/4, Minutes of the 16th ITC meeting, 20 July 1932. The system of control meant that excess ore could be openly shipped and smelted, with the appropriate royalties and duties paid. Such shipments were not therefore contraband.

51 CO323/1242/11730/5, reported by Campbell to Calder, 14 September 1933. The failure to include the name of Hochschild, who was three times the size of Aramayo, suggests that he was supporting the small miners.

52 CO323/1197/91240/4–5, minutes of the 19th ITC Meeting, 20 October 1932.

53 Salamanca to Patiño, 31 May 1933, cited in Geddes, , Patiño,… p. 234.Google Scholar

54 CO323/1242/11730, Minutes of Singapore Conference, 26–27 April 1933.

55 Ibid., Campbell to Calder, 14 September 1933.

56 Ibid.

57 Ibid., Cunliffe-Lister, 19 September 1933; FO371/17327/W10896/2993/50. memo by J. Nicholls.

58 Ibid., Campbell to Calder, 14 September 1933. Campbell noticed the mistake after both parties had left.

59 Ibid., minutes of the 29th ITC meeting, 20 September 1933.

60 CO323/1301/31825/4D/2, cables from Campbell to Antenor Patiño 9, 14, 16, 24 April 1934.

61 Ibid., Campbell to Calder, 26 April 1934.

62 CO852/4/6/15020/B/8, Campbell to Shenton Thomas, 17 May 1935.

63 CO852/4/1/15020/BI, minutes of the 42nd ITC meeting, 12 June 1935.

64 Ibid., minutes of the 46th ITC meeting, 10 October 1935. It should be noted that all quota discussions were settled by consensus.

65 This can be established from the monthly production data in Patiño Mines and Enterprises, Annual Report, 1935.

66 CO852/33/7/15020/B8/II, Crosby to Foreign Office, 19 November 1936.

67 FO371/21226/816, Crosby to Foreign Office, 3 January 1937.

68 CO852/33/7/15020/B8/II, Campbell minute, 17 October 1936.

69 Ibid.

70 The issues were somewhat more complex since the Dutch insisted on other provisions which would place Siam on the same basis as the other members.

71 CO852/33/7/15020/B8/II, Campbell minute, 30 October 1936.

72 Ibid., Campbell minute, later 30 October 1936.

73 CO852/72/14/15020/BI, minutes of the 63rd ITC meeting, 10 December 1937. A clear account of the agreed transfers is in Tin, February 1938.

74 CO852/72/13/15020/BI, minutes of the 58th ITC meeting, 3 March; 59th ITC meeting, 18 March 1937. At the 60th meeting, 11 June 1937, Bolivia argued, unsuccessfully, for a reduction to 100% for the 3rd quarter.

75 CO852/72/14/15020/BII, minutes of the 62nd ITC meeting, 25 October 1937. This entailed the creation of a buffer-stock, and was resisted by Malaya who felt that the experience of 1937 clearly demonstrated the need to make permanent changes in the standard tonnages before any such modifications were introduced.

76 CO852/72/14/15020/BI, minutes of the 63rd ITC meeting, 10 December 1937.

77 CO852/139/4/15020/BI, minutes of the 64th ITC meeting, 2 February 1938.

78 CO852/198/8/15020/BI, minutes of the 69th ITC meeting, 22 March 1939.

79 Prior to the outbreak of war, the ITC held 44 meetings at which quotas were discussed. There was division between the initial positions of the members on 16 occasions, and on 5 of these Bolivia was alone in proposing the lowest quota. They refer to four separate issues, three of which have been discussed here. The fourth arose while Bolivia was underproducing her 1937 quota.

80 Hallowell, , ‘Administration of Tin Control’, p. 13.Google Scholar The contracts were signed in early 1937, and allowed the companies to claim the new capacity as the basis of internal quotas when restriction was reinstated.

81 CO822/139/4/15020/BI, Campbell minute, 20 April 1938.

82 Ibid., minutes of the 65th ITC meeting, 2 June 1938.

83 Ibid., Vargas to Campbell, 11 June 1938.

84 CO852/275/8/15020/B, minutes of the 73rd ITC Meeting, 2 February 1940. This set the quota for the second quarter at 80%. The policy of the British Government in permitting the ITC to protect the long-term interests of producers at the expense of its own wartime supply needs is severely criticised by Fishman, Leo, ‘Wartime Controls of Tin in Great Britain’, Journal of Political Economy, vol. 54 (1946).Google Scholar The Nazi invasion of the Netherlands in May 1940 did not affect the position of the Dutch in the ITC.

85 FO371/25226/W8047. Lowinger to Colonial Office, 29 June, 1940. Fox, , Tin, The Working of a Commodity Agreement, pp. 185–6.Google Scholar

86 CO852/275/8/15020/B, minutes of the 76th ITC meeting, 16 December 1940. Had restriction been reimposed, these contracts would have exempted all producers apart from Patiño, and it is most unlikely that he would have been willing to bear the entire burden for Bolivia! The MRC contracts have normally been seen as a classic case of entreguismo in which Bolivia was simply the victim. For example, Céspedes, A., El Presidente Colgado (La Paz, 1966), p. 35.Google Scholar

87 FO371/25228/W10992/321, Notes on Treasury Meeting, 4 October 1940.

88 CO852/455/7/18005/C, Campbell minute, 12 May 1941.

89 Unrestricted production during 1940–1 permitted an increase in the US stockpile to the equivalent of 18 months demand. When the Japanese cut off supplies from South-East Asia in 1942, the Allies could draw only on Nigeria, the Congo and Bolivia. But, by cutting demand by 25% this would be sufficient to survive for a further four years. (Tin, February 1942.) While the Pacific war accentuated demand for Bolivian tin, it did not therefore create a new problem for the ITC to consider.

90 CO852/275/8/15020/B, Campbell minute, 11 November 1940.

91 CO852/434/9/18005/B, Calder to Woolley, 29 May 1941.

92 Ibid., Antenor Patiño to Campbell, 16 November 1940.

93 Ibid., minutes of the 76th ITC meeting, 16 December 1940.

94 CO852/434/4/18005/B, minutes of the 79th ITC meeting, 16 September 1941. The result of this curious process was a total standard tonnage nearly 8% higher than unrestricted production under the most favourable circumstances. The Dutch again showed their moderation by accepting not their actual production as their base but their notional current quota.

95 CO852/275/8/15020/B, Van den Broek at the 76th ITC meeting. 16 December 1940.

96 CO852/434/9/18005/B, minutes of the 79th ITC meeting, 16 September 1941.

97 CO852/434/11/18005/B, minutes of the 82nd ITC meeting, 15 June 1942. The actual signing was delayed until 9 September 1942.

98 CO852/455/7/18005/C, Campbell minute, 12 May 1941.

99 Tracing the changing incidence of taxation in the 1930s is complicated by the use of multiple exchange rates as the main fiscal instrument. However, the fact that a major shift occurred is evident from a comparison between 1928 and 1940, when a conservative government was again in power. Patiño Mines earned less per ton in 1940 than it had in 1928, even though its costs were lower, and prices much higher. In 1928 the state took 25 % of the net surplus in taxes and royalties, by 1940 its take was 56%. Patiño Mines & Enterprises, Annual Reports, 1928, 1940.

100 During the negotiations for the renewal of the second agreement, Patiño misrepresented the Dutch position to Salamanca in suggesting that they were ‘causing difficulties’. Geddes, , Patiño, … p. 235.Google Scholar

101 At the Cabinet meeting on 7 June 1939, which imposed conversion of 100% of foreign exchange earnings, the Vice-President, Dr Baldivieso, expressed his fear that if Patiño were provoked too much domestically, he would retaliate internationally by destroying the cartel. US National Archives, RG84/191. Dispatch no. 574 from US Legation, La Paz.