Friday, April 07, 2006

From 14 families to 8 business groups

Students of Salvadoran history will recognize the reference to the "14 Families," the oligarchy which controlled most of the land and wealth in El Salvador during the 19th and 20th centuries. A recent article by Juan Jose Dalton in Raices describes the evolution of economic power in El Salvador in the past two decades. Citing a study by economist Alfonso Goitia, Dalton makes the case that wealth today is not controlled by 14 families, but by 8 financial conglomerates. Here is my translation of the introduction to the article:

In the last 35 years, the men of economic power in El Salvador have transformed themselves: landowning agricultural exporters converted into powerful financiers.

The riches of El Salvador have been reconcentrated in a few hands, an event without precedent in the history of this country or the Central American region. From the 14 oligarchic families of the past century, now capital is distributed among 8 powerful business groups.

Before the commencement of the civil war in 1980, the Salvadoran economy revolved around three agricultural products: coffee (which was pre-eminent), sugar cane, and cotton. These defined the life of this small country that had a population of no more than 3 million inhabitants.

In the present reality, agriculture is practically lost, and banks and grand shopping centers arise where previously coffee plantations flourished. The population of El Salvador is now 6.7 million, but 2.5 million reside in the United States and from there they send such immense quantities of money that the dollar has taken the place of the national currency, the Colón. In fact, remittances have become the most important source -- and permanently growing -- of foreign exchange income.

The article goes on to explain that 8 business conglomerates now dominate economic life in El Salvador and they are largely owned by the descendents of original 14 families of the coffee oligarchy. Those 8 business groups are:

  • Grupo Cuscatlán
  • Banagrícola
  • Banco Salvadoreño
  • Banco de Comercio
  • Grupo Agrisal
  • Grupo Poma
  • Grupo de Sola
  • Grupo Hill.

The article describes how these 8 business conglomerates have a variety of interlocking ties and investments, and worries that such an aggregation of wealth threatens increased social inequality and places the government of the country at the service of a very few.


El-Visitador said...

"In the present reality, agriculture is practically lost"

What? How can this be? We underwent agrarian reform in the 80's! That freed up the land from the opression of the oligarchy, so that the peasantry turned it into the productive engine of the country! Right! Right? Right?

- * -

The U.S. is the ultimate world food producer. Imagine if tomorrow the government were to expropriate ConAgra and Archer Daniel Midland, and split these into thousands of "cooperatives." This is what we did in ES. Look at the consequences: "agriculture is practically lost." Indeed.

* - *

I love it when the same type of do-gooder foreign economists who recommended agrarian reform 30 years ago complain about "agriculture is practically lost".

I love it when they talk about Banco Salvadoreño as "dominant of economic life in ES". The bank was sold to the Panamenians months ago! Are we to be afraid of our new big bad 1/8th Pana masters?

Something else: Whereas families such as Dueñas are ancienne in ES, it is unfair (and ignorant of history) to tar the De Solas, Hills, Mezas, Simans, Pomas, and others, as "oligarchs". These families came to El Salvador either penniless or nearly so as professionals and tradesmen either late in the XIX or early in the XX century. They started out without property and were seen as arrivistes for a very long time, especially when of Arab or Sephardic origin.

It is precious to complain about "aggregation of wealth that threatens increased social inequality," when we already had agrarian reform and look where that left us.

What do they want now? "Finance reform" so we end up as poor as Nicaragua?

Tim said...

El Visitador:

I was pretty sure this post would get a response from you.

If you leave aside the value-laden words like "oligarchy," it is still important to take into account the impact of such corporate structures. You will agree that such organizations will act in their own self interest to maximize profits, and that by virtue of their size they have considerable power -- both economic and political -- in a tiny economy like El Salvador's.

That aggregation of power makes it difficult to implement reforms which might benefit broad segments of Salvadoran society if those reforms impose a cost, or threaten the profits of these 8 groups.

You and I will differ repeatedly on what reforms are important for the country, but I don't think we should disagree about who currently wields the power in the country.

Maarten said...

The article leaves out some very important information. The agrarian reforms coincided with a significant fall in the price of agricultural products on the international market: coffee in particular. It is, therefore, not surprising that those with significant interests in coffee, for example, diversified into other sectors to manage risk. This is intelligent business practice. Those that decided to maintain core interests to coffee are currently struggling to support their businesses and those they employ.

Furthermore, as was posted in an earlier comment, many of these families did come to El Salvador penniless. The de Sola's for example, to the best of my knowledge, were Dutch Sephardic Jews that came to El Salvador from the Netherlands via Curacao without any financial backing. I believe German and Swiss nationals arrived a century or two later. I can think of at least one example of a penniless teenager arriving in El Salvador not more than one hundred years ago; that penniless teenager largely built the Salvadoran insurance industry.

El Salvador was a significant indigo producer until the markets collapsed in the 1850s and the country shifted to coffee production. The shift was painful. Now that coffee markets have collapsed, partly because of a general fall in coffee prices and increased competition from Brazilian and Asian producers. The country is now shifting more and more to a service economy; a shift that too is painful and a shift that is complicated by a host of issues. Not just ones related economic and social development.

The issues at hand are far more complex than Juan Jose Dalton and Alfonso Goitia realize. The article cites Goitia as an outstanding (destacado) academic economist. As a trained political scientist and economist specializing in international economic policy, I'll be the first to point out that comparing the gross domestic product of El Salvador to the assets of the conglomerates is not appropriate. It's an akin comparing apples to oranges in academic circles and is considered a rant-and-rave rather than proper analysis.

One point of understanding how complex and intertwined these issues are is that the recent rise of the financial services sector in El Salvador mirrors the increase of remittances from abroad. "The men of economic power in El Salvador have [NOT] transformed themselves." Rather, one can hypothesize that a myriad of circumstances that have ultimately driven Salvadorans abroad and funnel portions of their income to relatives back home have largely contributed to the rise of the financial services sector. High levels of cronyism (historical vestiges that are common means of reducing risk when the cost of doing business is relatively high because of poorly functioning institutions) have certainly intertwined these various conglomerates, but to single out these conglomerates is an easy explanation for large and a complicated phenomenon.

The ever-increasing shift El Salvador is currently experiencing to a service economy is similar to the shift experienced by many European nations. Around the same time El Salvador shifted from indigo production to coffee production, many European countries began to develop their own service economies. The birth of capitalism in Calvinist Netherlands and the establishment of central banks to fund wars to defend commercial interests and, following the advent of steam locomotion, to develop expensive national railway networks has certainly produced its fair share of intertwined conglomerates. I am not saying the Salvadoran economy is not a modern economy, but rather changes to economic systems tend to follow a certain patterns.

The article is an oversimplification, and quotes poor-quality research or, at best, may have taken quotations out of context. I have not read the cited research Dalton does not provide a link or title to Goitia's research. I apologize for the lengthy post, some of which I have to admit is not directly relevant. I just have a growing passion for El Salvador and felt the need to express myself.

El-Visitador said...

Outstanding comments from Maarten, who faces interesting choices, and whom I remind, first, that audaces fortuna juvat, and second, that sometimes the audaces don't live to tell the tale.

Tim, I share your concern that the local powerful have motives to influence the government in damaging ways for the common good. This is why CAFTA is such a great thing: it takes away the ability of our powerful to influence the State to arbitrarily block competition from abroad.

Either our powerful get it together thru great service and efficiency... or they are about to get wiped out. What's there not to like?

Tim said...


Thanks for your analysis. I think you are correct in pointing to the collapse of the coffee market and the surge in remittances as two of the key dynamics for changes in El Salvador's economy. Your comments (and El Visitador's comments) about those families who arrived from the middle east and created their own fortunes are also important and taught me something.

El Visitador -- I agree with you that one of the beneficial impacts of trade agreements is forcing local elites to be efficient by having them face global competition. In general, more trade is better, not worse. My primary concerns with CAFTA related to (a) US unwillingness to play fair by not eliminating crop subsidies and sugar tariffs, (b) too much intellectual property protection given in the pharmaceutical arena, and (c) that the international arbitration tribunals for foreign investor protection are subject to abuse by powerful corporations which can out-litigate and out-spend the government of El Salvador at the risk of multi-million dollar judgments.

JaimeCCC said...

After reading the comments I also agree that the situation is influenced by different factors. I disagreed with the statement that may imply that the Siman family is/was included in the 14 Families. My understanding is that Palestinians or people of Palestinian descent were never considered to be part of the 14 Families (also it was surely never really 14 families in number). Yes, many of them became wealthy, but they were not part of the oligarchy. So I believe that several things need to be further studied for us to get a clearer picture. Please read my article where I make reference to Palestinians in El Salvador in the following link:
(about the "Saca" surname)

JaimeCCC said...

There is an error in my previous post, the link should be the following instead:

The link in my first post actually has my article about one of my ancestors: Dr. Manuel Gallardo, of Suchitoto, El Salvador.

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