In the field of world policy I would dedicate this nation to the policy of the good neighbor—the neighbor who resolutely respects himself and, because he does so, respects the rights of others—the neighbor who respects his obligations and respects the sanctity of his agreements in and with a world of neighbors.
Franklin D. Roosevelt's inaugural address, 193346
to the warm relationship established between Morrow and Calles, no serious problems clouded U. S.—Mexican relations when FDR took office in March 1933. Relations with the oil companies were so amicable that when the Mexican government was strapped for cash during the Depression, oil companies voluntarily paid taxes in advance. Americans continued to demand settlement of debt claims and payment for property taken for land reform. However, neither of these issues was critical. Throughout Latin America, relations with the United States were improving as FDR avoided military intervention and adopted a more conciliatory approach known as the Good Neighbor Policy.47
After FDR took office, U. S. policy in Latin America shifted from the defense of U. S. investment in extractive industries to promoting trade. Also, as the Second World War approached, hemispheric defense became an increasingly important concern. At this time, the United States switched from defending its interests in Latin America with armed force to using its economic power, such as withholding loans from the Export-Import Bank.48
In 1933, to implement his Good Neighbor policy, Roosevelt appointed Josephus Daniels as ambassador to Mexico. Daniels, a North Carolina newspaper editor, had served as secretary of navy under President Wilson. The then relatively unknown FDR served under Daniels as assistant secretary. As ambassador, Daniels attempted to implement Roosevelt’s Good Neighbor Policy, which often produced conflict with the more traditional State Department. Daniels felt U. S. interests in Mexico could be reconciled with Mexican interests. He was not anti-business but saw reforms as a way to provide Mexicans with greater purchasing power, which would make them more stable neighbors and greater consumers of U. S.-made goods.49
Conflict soon arose between New Dealer Daniels and State Department officials. In 1935, the State Department instructed Daniels to inquire about increases in Mexican oil taxes. Daniels responded that taxes were “purely a domestic question” and that the United States had no more right to inquire about Mexican taxes than Mexico had to inquire about U. S. taxes.50
Daniels’s position on the land issue more closely resembled Mexico’s position than that of the State Department. He noted that the Mexican government did not have enough cash to pay for all the land needed for land reform. To pay Americans and not Mexicans would be to treat Mexicans worse than U. S. citizens in their own country. Furthermore, he felt land reform was crucial to the survival of Cardenas’s government. Daniels claimed that no government in Mexico “could long endure if it did not give the lands to the people who have long tilled them.”51
The stage was set for more severe conflict between Mexico and the United States in early 1936 when the national oil workers union demanded a 30-million peso ($8.3 million) wage increase and increased control over the workplace similar to the control that textile workers were already exercising.
Negotiations between the oil workers and oil companies began in July 1936. The companies claimed that since they were paying among the highest wages in Mexico, further wage increases were unwarranted. Oil companies also claimed that wage increases would make them noncompetitive internationally and thus would ruin the industry. Labor claimed that their high profits justified the workers’ demand for increased wages and benefits.
Negotiations dragged on until May 1937. The oil companies offered only a 14-million peso increase, so oil workers throughout the industry went out on strike. Given the impact of the strike on the Mexican economy, the Federal Board of Conciliation and Arbitration declared a national emergency and ordered the strikers back to work. At the same time, it ordered oil companies to submit their books to the Board so it could determine if they were financially able to meet the workers’ demands.53
Before weighing in on the wage increase, the Board appointed a panel of Mexican experts to review oil industry operations. In August 1937, the experts issued a 2,700-page report that recommended that oil workers be granted a wage-and-benefit package worth 26 million pesos. The panel of experts based the 26-million-peso figure on its finding that annual oil company profits amounted to 79 million pesos. The experts noted that Mexican workers received a third or a quarter of what U. S. oil workers received but produced twelve times as much oil per worker.54
Once again Ambassador Daniels assumed a position closer to the Mexican one than to that of the State Department. In September 1937, he noted:
Having made big money on absurdly low wages from the time the oil gushers made Doheny and Pearson rich, all oil producers oppose any change in taxes and wages, and resent it if their Governments do not take their point of view. Mexico can never prosper on low wages and we must be in sympathy with every just demand. . .55
To increase the pressure on the Mexican government for a favorable ruling, in November 1937, the oil companies declared that if the government ordered the 26-million-peso increase, they would suspend oil production. Company spokesman Lawrence Anderson declared, “We cannot and will not pay.”56
On December 18, 1937, the Arbitration Board followed the recommendation of the experts and awarded oil workers a 26-million-peso wage-and-benefit package. The oil companies immediately appealed the ruling to the Mexican Supreme Court, hoping the Court would provide the government with a face-saving way to yield to the oil companies, as it had under Calles.
However, on March 1, 1938, the Supreme Court ruled that the decision of the Board was binding on the oil companies. On March 15, oilmen announced: “The companies are unable to put the award into effect. It would ruin their businesses.”57
Rather than accepting the rule of Mexican law, the oil companies considered themselves above it. They thought their power would permit open defiance of the nascent revolutionary state. Their ability to apply economic pressure and their belief that Mexicans could not operate the oil industry also emboldened them. Finally, since their operations had largely shifted to Venezuela, oil companies were prepared to risk their reduced holdings in Mexico to preserve traditional employer prerogatives.58
On the night of March 18, 1938, in a nationwide radio address, Cardenas announced the nationalization of the oil industry:
This is a clear-cut case which forces the government to apply the existing Expropriation Act, not only to force the oil companies to obey and submit, but due to the labor authorities’ having declared void the contracts between the companies and the workers. An immediate paralysis of the oil industry is imminent. This would cause incalculable damage to the industry and to the rest of the economy.59
Cardenas felt he was in a good position to act due to his widespread domestic support and the U. S. awareness that a strong response might push Mexico into the embrace of the Axis powers. His action was unquestionably the most popular of his government and probably of any government since the Mexican Revolution.60
The popularity of the move resulted not from abstract nationalism but from the sordid reputation of the oil companies in Mexico. During Carranza’s presidency, oil companies had avoided government control by supporting Manuel Pelaez. A long litany of abuses followed. In the 1920s, when Cardenas was stationed in the oil-producing area, he observed that oil companies acted as if they were operating in “conquered territory.” Oilmen formed company unions, dismissed union organizers, and hired goons to harass and assassinate independent labor leaders. The 1920s decline in oil production was considered oil company skullduggery.61
Cardenas justified the nationalization of the oil companies on the basis that they had violated the labor provisions of Article 123. He promised compensation for nationalized property, but not payment for oil in the ground. By the Mexican interpretation of Article 27, such oil had always belonged to the Mexican government.62
Massive demonstrations in support of the nationalization sent a clear message to the United States—an attack on Cardenas would be an attack on the nation as a whole. Historian Frank Tannenbaum commented on the psychological effect of the nationalization, “If one is to mark a date in Mexico when the nation felt itself in possession of its own house at last, it was the day of the expropriation of the oil wells.”63
Throughout the oil crisis, U. S. policy was never unified. Some officials thought in terms of the Good Neighbor Policy, others in terms of the Big Stick. The former group considered trade ties and good hemispheric relations paramount. In the summer of 1938, the U. S. National Foreign Trade Council called for an “early settlement of the present controversy between the two governments because of the unsettling effects present differences have upon trade. . ..” More bellicose observers saw the nationalization as a threat to American investments around the world and to U. S. access to raw materials.64
The State Department demanded the return of oil properties or immediate payment for improvements and oil in the ground. It attempted to force Mexico to rescind the nationalization by pressuring other Latin American governments not to buy Mexican oil. Most of Mexico’s customers continued purchasing Mexican oil, since Mexico cut its prices to keep its markets. However, some loyal U. S. allies such as Anastasio Somoza of Nicaragua agreed not to buy Mexican oil.65
Conflict within the U. S. government became evident when the State Department began pressuring the Treasury Department to suspend silver purchases from Mexico. Treasury Secretary Henry Morgenthau, Jr., responded that silver purchases were a monetary, not a political matter. The Treasury Department suspended purchases only when formally requested to do so by the State Department. This, however, dealt a potentially fatal blow to U. S. mining companies in Mexico, which produced 90 percent of Mexico’s silver. They bitterly complained to Washington that they
Were “suffering for the sins of the oilmen.” After a three-day hiatus, the Treasury Department resumed silver purchases at a slightly lower price.66
FDR assumed a more moderate position than did the State Department. He encouraged oil companies not to try to recover their property but to negotiate terms for compensation. He felt that American companies were only entitled to payment for total investment less depreciation. Such a figure would not include prospective profits from oil in the ground.67
Ambassador Daniels was even more moderate, and in the eyes of many, actually pro-Mexican. He later commented:
President Cardenas was acting under clear and well-understood Mexican law. The Constitution
Of Mexico, for many years prior to the expropriation, had required. . . the full submission by
Foreigners to the laws of Mexico without recourse to their own governments.
Daniels in effect created his own foreign policy. Rather than seeking to regain control over the oil fields, he sought to prevent a break in relations between Mexico and the United States.68
State Department officials knew that Daniels was formulating his own policy. Secretary of State Cordell Hull complained, “Daniels is down there taking sides with the Mexican government [giving] the impression that they can go right ahead and flaunt everything in our face.” Like Morrow before him, Daniels’s close ties to the president gave him unusual diplomatic latitude.69
A number of factors restricted U. S. government action. A week before the nationalization, Hitler had invaded Austria, so war in Europe shaped the U. S. response. FDR, when forced to choose between maintaining the Good Neighbor Policy throughout Latin America and taking a hard line on Mexico, chose the former. Since most of the expropriated oil belonged to Holland and Britain, the U. S. response was more moderate. The United States realized that if too much pressure was placed on Cardenas, his government might fall. If Cardenas had fallen, he would likely have been replaced by a pro-fascist regime.70
The U. S. business community was divided on the oil question, just as the U. S. government was. Big oil companies tried to block Mexican oil exports, while small U. S. companies with no property in Mexico bought Mexican oil and shipped it to Europe. U. S. hotel owners in Mexico complained that oil company disinformation was scaring tourists away. Bondholders favored the oil nationalization, since that would provide the Mexican government with increased revenue to service its bonds.
The British assumed a more obdurate position than the United States. Mexican oil was much more important to Britain than to the United States. The entire British empire produced only 5 percent of the world’s oil, while U. S. domestic production accounted for 61 percent. British investment in Mexico was concentrated in oil, so oilmen shaped the British response. U. S. investors represented a wider range of interests, so oilmen could not call the shots alone.71
While various U. S. interests vied to have their preferred policy implemented, Mexican policy makers masterfully averted a confrontation with Washington by emphasizing that they would provide compensation for land taken for the agrarian reform as well as oil company assets as soon as possible. They effectively stalled for three years, all the while telling the Roosevelt administration what it wanted to hear concerning land reform, bilateral trade, and the fight against international fascism.72
While pressure was being exerted from abroad, Mexico faced the problem of managing the oil industry. Foreign technicians had been withdrawn. Mexico could not replace aging oil field equipment and lacked workers trained in technical roles. Nevertheless, to the oil companies’ astonishment and dismay, Mexicans were able to resume production. Within three months, production reached 65 percent of the pre-nationalization level.73
The Mexican oil industry had changed since the 1920s. By 1938, domestic use accounted for 57 percent of hydrocarbon production, so the government did not need to find markets for as much oil as it would have if nationalization had occurred in the 1920s. In any case, the loss of exports still hurt. Petroleum exports, which were worth 112 million pesos in 1937, declined to 52 million pesos in 1938.74
The oil companies were unable to prevent increased trade between Mexico and the United States. In 1938, 67 percent of Mexico’s foreign trade was with the United States. The following year, as war closed European markets, the figure was 74 percent. As trade increased, the pressure to normalize relations rose.75
As a result of the Second World War, the U. S. government intervened to resolve the oil dispute and thus eliminate a potential source of conflict with its southern neighbor. In November 1941, the U. S. and Mexican governments, acting without the oil companies’ consent, appointed experts to evaluate the expropriated properties. The experts placed the value of the oil holdings, which the oilmen claimed to be worth more than $260 million, at just over $29 million. This value took into consideration the obsolescence of the twenty-five-year-old equipment. The two nations accepted this value on April 17, 1942, four months after Pearl Harbor.76
The agreement stipulated that Mexico was to pay $9 million immediately, with the rest to be paid in installments. The oil companies were not actually forced to accept the settlement. However, they had little choice. The United States announced that it would no longer support oil company claims. Their only other recourse was to seek redress in the Mexican court system.77
Mexican writer Carlos Fuentes commented on FDR’s role in the settlement: “Instead of menacing, sanctioning or invading, Roosevelt negotiated. He did not try to beat history. He joined it. . .”78
Given wartime imperatives, the U. S. government also pushed through a settlement on debt claims. In 1941, debt claims totaling as much as $1.07 billion, depending who was doing the counting, were settled for $116.9 million. Of this amount, $22 million compensated U. S. landowners, who lost holdings ranging in size from six to 412,000 acres. Bondholders suffered the heaviest losses. A 1942 agreement signed by U. S. financier Lamont and Mexican Finance Minister Eduardo Suarez obliged bondholders to accept cancellation of roughly 90 percent of the nominal value of their bonds. FDR instructed Lamont to inform bondholders to take the deal or get nothing. Historian E. David Cronon commented, “The agreements showed that Washington was now willing to pay a considerable price for a rapprochement with Mexico, for it was plain that the United States would be underwriting the Mexican payments.”79
Ironically, the oil nationalization resulted in Mexico becoming more conservative. The economic crisis produced by the nationalization left the government unable to meets its payrolls, much less carry out reforms. Government projects such as road building and land reform were curtailed. The interests of government and labor diverged. Previously, the government had supported workers demanding higher wages from foreign corporations. After March 1938, the government sought higher production levels, but wanted wages to remain low to husband scarce cash reserves. Oil workers received neither the increased wages nor the administrative prerogatives they had demanded from foreign oil companies. Miners, who greatly outnumbered oil workers, were told to moderate their wage demands so as not to interrupt vital mineral exports. As the government withdrew its support and began to emphasize production, the labor movement lost momentum.80
Cardenas became more conciliatory toward conservatives in Mexico. He feared that otherwise oil interests might split Mexico along class lines. National unity, not class conflict, became the dominant theme. In March 1939, in response to the conservative shift in Mexico, the U. S. embassy informed Washington that regardless of who won the 1940 presidential elections, the radical stage of the revolution had ended.81
Even before the oil settlement, U. S.—Mexican relations were improving. In 1940, American policy makers favored Avila Camacho over Almazan, who would have moved Mexico sharply to the right. They felt such a change would likely produce instability. To thwart Almazan’s postelection maneuvers, the FBI, U. S. military intelligence, and Mexican agents systematically monitored and disrupted activities of Almazan’s agents in the United States, along the border, and inside Mexico.82
The announcement that U. S. Vice-President Henry Wallace would attend Avila Camacho’s inauguration provided a clear sign of improved relations. It also ended Almazan’s hopes, since he had no chance of attaining the presidency without U. S. backing. This was not unnoticed by Almazan partisans, who staged a violent demonstration at the U. S. embassy when Wallace arrived. Wallace and Daniels received a standing ovation at the inauguration.83
World History
