Alhaji Kromah Page
Capital Inflow & Sovereignty
Performance of Firestone in Liberia 1926-1977
By Alhaji G. V. Kromah
(BA, LL.B., LL.M., MA,, MAIR, SJD-cand.}
Posted July 4 2008
Foreign Direct Investment (FDI) in practice poses a tantalizing question of whether it benefits or exploits developing countries. Aptly capturing this phenomenon under circumstances of financial crisis, Lounging and Razin testify that "although there is substantial evidence that (FDI) benefits host countries, these states should assess its potential impact carefully and realistically." And this is the proposition Liberia faced when it decided to lease 1 million acres of its territory for 99 years to the Firestone Corporation of the United States to establish a rubber plantation. While developing countries like India have reason to prohibit agriculture as a foreign direct investment sector, the leaders of Africa’s oldest independent Republic were taking this mammoth decision ostensibly to forestall colonial territorial ambitions of Britain and Foreign and probably improve its finances. Firestone on the other hand, with encouragement of the US government, entered into the 1926 agreement happy to have such a huge plantation for its rubber industry outside of British and French colonial territories. But the loaded agreement became the basis for more direct American involvement in Liberian politics through a transnational company. The economic, diplomatic and political derivatives took their tolls on both sides of the Atlantic.
Firestone enjoyed privileged treatment but began facing gradual difficulties, culminating with the aggressively ambitious regime of President William Tolbert four decades later. The Liberian leader’s brother and Finance Minister, Multimillionaire Businessman Steve Tolbert, decided it was time to undertake fundamental revisions of the concession agreement with the American company to secure more benefits for the country.
This paper examines whether the terms of the Firestone concession agreement were mutually equitable and the impacts on Liberia’s ability to achieve financial recovery, expand its capital economy, promote labor welfare and launch a program of sustained national development. What were the political, economic, cultural, and humanity costs and benefits to the government, the politicians, the working force and traditional Liberians? Accordingly, the paper scrutinizes the influence of Firestone in Liberia’s national economic and political affairs, and the lessons the existence and activities of the company provided in the evolution of standards and the structure of investment incentives for future foreign business investment. Though today Liberia’s 14 years of war makes it virtually impossible to evaluate sectoral economic performance, the issue of Firestone remains vital for the future of foreign investment, labor standards, national revenues and general Liberian economic growth.
The Firestone agreement consisted of a controversial loan the company was offering to the Liberian government, some of whose officials raised vehement objections. Thirty years later, President William V.S. Tubman, who played the conflicting role of Senator introducing the Firestone Bill and a retained lawyer for the company during the negotiation of the agreement, rationalized that the loan terms were accepted "for political reasons." In a letter to a New York publisher, Tubman claimed that shortly after the loan, border incidents and boundary disputes stopped. The British were in control of the colony of Sierra Leone in the West while the French were evidently not satisfied with their holdings of Guinea in the north, and Ivory Coat in the East. Several months before the Firestone agreement was completed, France had raided the boundary with Liberia and annexed several villages.
Harvey S. Firestone having extracted the right to control virtually a fifth of Liberia’s land territory, exclaimed his accomplishment as the "the greatest concession of its kind ever made.." The American rubber and tire tycoon had indeed fulfilled ten-fold the formal definition of Foreign Direct Investment (FDI), which occurs "when an investor based in one country acquires an asset in another country with the intent to manage that asset over a long period of time.
A. Deciding on Liberia
Besides the vast privileges the Firestone Plantation Company had gotten out of the Liberian government discussed infra, a crucial international business objective desperately designed at corporate headquarters in Akron, Ohio had been achieved. Britain was breathing heavily not only down the political neck of Liberia, but also on the economic tempers of the US rubber product industry. The UK, together with France and the Netherlands, led Europe as the world’s dominant rubber producer during World War I, catering to the massive use of tires particularly in the United States. British colonies were producing 75 percent of the world’s natural rubber while the United States alone was consuming 70 percent. When rubber prices slummed after the War, the UK, through the James Stevenson Act, decided to drastically cut its rubber production from its colonies of Ceylon and Malaya where it was spewing out a high yielding variety. Duped the ‘Stevenson Scheme,’ the British restrictive policy soon pumped prices up to the apparent chagrin of the Americans. For every penny increase in the price of rubber per pound, the US industry was losing $8 million. So the US Congress enacted a bill in 1922 providing up to $.5m for an assessment of possibilities for the US to obtain natural rubber resources independent of European ties. Known for the slogan, "American must grow its own rubber," Harvey Firestone had carried on some lobbying at the White House and the US Department of Commerce prior to the congressional action.
The Ohio-based tire tycoon had from the onset of his business struck a deal with Ford Motors to produce the giant vehicle manufacturer's tires, and a clamp on the flow of raw materials was economically painful. This was a vital US industry operating virtually depending on European colonial powers. With the clear signal from the US Congress, industry leaders launched their expeditions for the cultivation of natural rubber. The Ford Motor Company decided not to leave the challenge to its tire manufacturer, Firestone, and began exploring some home possibilities in Florida. Nothing yielded, sending the company to Brazil, where bad relations invited mass failure as well. Good Year, another American tire giant, went on to Costa Rica. Harvey S. Firestone sent teams to next door Mexico and then to the Philippines. Political instability in Mexico and anti-American sentiments in the Philippines aborted the missions. The report from his expert dispatched to Liberia satisfied Firestone, and decided to move on, declaring: "we are trapped by a maneuver for British imperial advantage…we can minimize the immediate cost to America…by meeting an invading nationalism with a defending nationalism…"
Firestone’s statement turned out to be a calculated one, going beyond normal business concerns. He was about to undertake a multimillion-dollar long-term investment in a country that was traditionally an American ally, and yet economically and diplomatically involved with Britain and other European countries. The linkage was there despite the Europeans often-demonstrated colonial ambitions toward the lonely African Republic. It was the only other independent country on the continent besides Ethiopia. The United States Government had withheld recognition of Liberia’s 1847 Declaration of Independence until 1862, unlike Britain, which immediately recognized the Republic and invited its first President Joseph Jenkins Roberts, a Virginia-born mulatto, to visit London.
The European connection had also taken the form of wild rubber trading between Liberia and Britain in the 1880’s, consummated with the establishment of the London-owned Liberian Rubber Corporation. The company obtained a concession and established a plantation in Mount Barclay near the Liberian capital of Monrovia during the Administration of President Arthur Barclay in the early 1900’s. Liberian rubber was probably among the consignments supplied by the British worldwide, including exports to the United States before the war. The Mount Barclay project had stopped before the arrival of the Firestone team.
Anglo-Liberian diplomatic and economic ties were from the beginning a point of passionate interest for Harvey Firestone, who had openly expressed indignation over what he described as British ‘nationalistic imperialism.’ A key element of the relations between London and Monrovia was the loans Liberian government periodically obtained from the Kingdom and soon ran into trouble with either repayments or reforms demanded by the British in the administration of the loan. The loan of 1871 had prompted a political crisis that resulted into the mysterious death of President E. J. Roye, and that triggered a reluctant mood until 1906, when Monrovia concluded another borrowing from London. Though this time around the President did not lose his life, a British gunboat became an uninvited guest on the shores of Monrovia to ostensibly back its demands for reform as part of the loan agreement. The shivers were sufficiently severe for Monrovia to put out its own demand once again that it was about time the United States assumed greater interest in the security and economic wellbeing of Liberia.
The US government, back in 1816, gave active support for the founding of the American Colonization Society (ACS), a non-governmental group that canvassed and organized the emigration of free-born and former black slaves to Africa. The group began moving the black American "settlers" by 1820 in the area that came to be declared as Liberia. Conflicting schools of thought indicate that the effort involved, for the first part, philanthropists and clergymen who wanted to see black Americans repatriated to the land of their nativity where they would have the opportunity to fully exercise their inalienable rights, given the continued racial discrimination in America. The other sponsors are said to have been motivated by fear and hate that the black population was on the rise and could eventually threaten the racial status quo. It was therefore in their interest to find an outlet for the departure of the African Americans. Statistics support this impression. In States like Maryland and Virginia and the big southern plantations in he States of North Carolina and South Carolina, the free black population had begun to surpass the whites. By 1765, just eleven years before the declaration of American independence, the numbers had risen to 90,000 for blacks in the states mentioned, as compared to 40,000 for the whites. And then there was more alarm with the 1804 revolt in Haiti and the installation of a government of black people in control of an independent nation on the doorsteps of the United States.
The ACS agents, who sometimes simultaneously served as representatives of the United States Government in the de facto colony of Liberia, finally relinquished power to the settlers in a commonwealth of settlements along the coast. Joseph Jenkins Roberts and his fellow mulattos declared the country’s independence after official ACS withdrawal. Though Britain was the first to recognize the country’s sovereignty, it was the main culprit in earlier challenging the claims of rights of the commonwealth to exact customs duties and regulate coastal commerce. The Liberian flag was patterned after that of the United States, but with one white star. The Constitution too was nearly a facsimile, providing for a republican form of government with three co-equal branches and an election system based on universal suffrage.
A fundamental problem was that the perimeters of the settlers’ universe for the exercise of suffrage did not include the tribal majority, indigenous to the area. The ‘Americo-Liberians,’ as the settlers came to be known, monopolized the government and enacted laws that entrenched their control until overthrown in the military coup of 1980. The Americo-Liberians ironically adopted slave owners’ mentality and mimicked the plantation owners in America’s South. Their clothing, housing and lifestyle were the same.
The arrivals of the settlers in the early 1820’s met several clusters of African leaderships among the African tribes both on the coast and the interior. The various tribes, now categorized in the three major groups of Mende, Kwa and Mel, migrated from other parts of Africa between the 13th and 17th centuries. The African leaders established trade relations with Portuguese, Spanish, Danish, German and British traders along the coast for more than a century before the arrival of the white and black Americans. ACS agents made the case for cooperation and gave tobacco, smoked fish, salt, and other items and thought these were in exchange for tracts of tribal land on the Monrovia coast. Armed conflict ensued a Dei and Mamba tribes in the Monrovia made it clear that selling land was not part of their custom, and they thought the items were gifts.
The conflict intensified, prompting the intervention of the powerful King of the Condo Confederacy, which covered points from the seacoast into northwestern pre-Liberia. King Sao Boso (usually called Boatswain) of the Mandingo tribe warned his fellow indigenes against making war against the settlers, for they were all brothers and sisters. Suspicion and antagonism up to the declaration of independence marred relations between the settlers and the indigenous by the settlers and onto the 1980 coup of the indigenes.
British ships were often not too far during the early conflicts, offering to intercede militarily on the side of the colonists. But the mediation gesture many times had other motives. At one point, their offer to hoist the Union Jack in exchange for military assistance was rejected by a prominent settler Elijah Johnson, remembered for his statement that it would have cost more removing the British flag than defeating the "natives." That did not deter the British. For upon the visit of Liberia’s first President Robert to England, Queen Victoria majestically received him with grandeur and presented him a warship called Lark for the protection of the new Republic. The UK’s recognition of the independence paved the way for other European nations to do the same.
B. The 1906 UK Loan Entrapment
The social and cultural connections with America continued to be overshadowed by race relations, making it unacceptable for black a person to have been sent to Washington as ambassador. The young republic was apparently left with little alternative but to turn to the UK, though the relationship was bitter sweet with incidents of territorial violations but also opportunities for financial assistance. Liberia even adopted the British pound sterling as its official currency, and invited the British Bank of West Africa, which became the only one in the country.
The crucial economic and political control London wielded as part of the 1906 loan arrangements with Monrovia would provide Firestone with the insight into how to be a powerful FDI in a vulnerable country like Liberia. The exploits of the English-owned Liberian Development Company (LDC) were certainly an ideal pointer. Its rubber plantation concession in Mount Barclay near Monrovia, later abandoned, would give Firestone the opportunity to begin with an existing plantation.
Sir Harry Johnston, the British owner of the LDC, was instrumental in the acquisition of the 1906 Loan for the government of President Arthur Barclay. The President was the first immigrant from the British-colonized West Indies to become Liberia’s head of state. It is not clear whether his background was relevant, but Barclay gave a concession to Johnson’s LDC that virtually covered the entire country.
The LDC, in addition to the Mount Barclay rubber plantation, had concession rights over the prospecting of gold and diamond in two of the country’s five counties, and got a government contract to build a transport and communication network throughout the country. The monopolistic authority extended to the rights to set up of a national bank, the importation of all machinery used for the construction industry and the exploitation of natural resources, and even to the leasing of land in Liberia. As if enough power had not been acceded to the English-owned company, it obtained actual power of national security when it was given the authority to establish a police force to protect its potential activities, whose jurisdiction technically spanned the entire country.
All of these privileges, much of which never materialized anyway, were offered by Barclay ostensibly as an incentive to attract foreign investment, though it was hard to see what was left for another investor. Perhaps the more significant reason for the Barclay generosity was to utilize Harry Johnston in getting the £100,000 ($500,000) loan.
The sad thing about the money was that it was concluded under conditions that left the country worst off. The London consortium that provided it demanded Monrovia to pay $30,000 annually, irrespective of the interest rate, until the entire amount was liquidated. More appalling was that on top of all of the privileges and power that were given Johnston’s company, the Barclay Administration actually transferred $200,000 to the company for road construction and additionally gave it a $35,000 loan. In the end, the government announced a balance of only $160,000, which it said was used to purchase two vehicles and built a few miles of near Monrovia.
The British government sent in customs administrators as part of the loan arrangement and compelled the Barclay government to establish a national army called Liberian Frontier Force (LFF). A Briton, Major Cardel, was appointed as Commander. The LFF was supposed to help in protecting Liberia’s border, but the irony is that a year later, Liberia officially lost about 2000 square miles of its territory to France, which added the land to its Ivory Coast colony east of Liberia. Just two years earlier to the loan, the UK had offered to transform Liberia into a protectorate. Barclay rejected the proposal, despite its unrestrained cooperation on other matters.
Political observers viewed the British grip with jaundiced eyes, especially when the Kingdom having insisted on the creation of a national army headed not by a Liberian but by an English officer. With the British in charge of the Liberian financial management, it was interesting to see LFF’s budget in excess of the national allocations for education and health.
British ships often showed up on Liberia’s shore and were said to be quietly inciting tribal revolt against Monrovia, despite the positive gesture Monrovia had continued to demonstrate. Edward Wilmot Blyden, a veteran government official and internationally renowned for his ideals on black dignity, was big supporter of London. He reportedly told the Greboes and the Krus coastal tribes to solicit a British takeover of Liberia. Blyden was even linked to coup plot allegedly organized by the British commander of the Liberian Frontier Force, something the Americans would be accused of after they took over the LFF and Firestone was getting wary with another President Barclay in the 1930’s.
C. Euro-American Twine
The 1906 loan was soon exhausted without any tangible benefit to Liberia, owing mainly to President Arthur Barclay administration’s generosity to Johnston’s British company plus the up-front interest payment the London bankers were demanding. The London accused the Liberian government of not carrying on financial and interior administration reforms as promised. What was left out of the quarrel was how the loan terms and unofficial demands in British interest could not reconcile with an efficient management of the money. A British warship arrived in Monrovia to make the point, and the Liberian government asked the United States for immediate intervention.
Washington responded, but with some constraints. Britain was its Western partner that had been consulted in earlier years on events in Liberia. The loan was an official transaction, and it had to be paid
The United States arranged and joined British, German and French private finance institutions in 1912 to provide a loan of $1.7 million. Washington seemed to have been aware that the British and the other European lenders in Monrovia would not have been comfortable with an exclusive American financial rescue plan. The US agreed to place Liberia into a financial receivership for the administration of the loan, asking for the same reforms as Britain had done. The President of the United States recommended an American, who was appointed by the President of Liberia as General Receiver and Financial Advisor to the Liberian government. Britain, France and Germany provided subordinate receivers.
The American State Department had initially rejected recommendation by its own fact-finding team calling for an exclusive American plan. The team recommended involvement of the US government in the strengthening of the Liberian army, the LFF, and setting up a navy station in Liberia. The State Department later considered the proposal for the Liberian military, and seconded an American officer to replace the British as commander of the LFF. The American-European finance was used to retire the 1906 British loan and Liberian customs was actually booming until World War I began in 1914.
The global depression after the war brought about a dramatic reduction in Liberian international trade. Customs revenue dropped and the Liberian government could hardly meet its salaries, let alone make the loan payments. The US Financial Advisor complained of being excluded in the financial management in violation of the terms of the agreement. President Daniel Howard's government had even gone ahead to grant new concession agreements in violation of the multinational loan terms. And in the brutal quashing of another Kru rebellion by the Liberian Frontier Force, the government is said to have hanged several Kru chiefs, angering the US further.
US Secretary of State Lansing, evidently angered over the conduct of the Liberian government, dispatched a strongly worded message to Monrovia warning that his government "could no longer be subjected to criticism from other foreign powers as regards the operation of the loan agreement." He said the US could no longer countenance the failure of the Liberian government to carry out administrative reforms. The Secretary then gave an ultimatum that unless the Liberian government immediately increased the power of the US General Receiver, Liberia should not count on US cooperation. These new powers included the monitoring of arms and ammunition traffic, and proposing changes in interior administration and the financial system.
President Howard convinced his officials, and some steps were taken in compliance with the US restrictions. Howard subsequently led efforts to get another loan from the United States to liquidate the previous one. The Americans this time rejected the request, but began to ask Britain, France and Germany to disengage the Liberian government. Britain was the most reluctant, even suggesting a spoiled end game that the United States should in effect establish rule over Liberia.
II. The Concession
Sir Harry Johnston, the big beneficiary of the Arthur Barclay economic 1906 loan, confessed that British involvement with Liberia over the loan affair was a colonial machination. Johnston described the transaction as illegitimate, explaining that it was used to "trap Liberia into the claws of the British Empire." He said the British government was afraid that France, a colonial rival, would have eventually carved Liberia into its region of colonies in West Africa. Johnston said this notion existed because there was the impression that the United States at that time "professed indifference" on the fate of Liberia.
The Kenya-born Howard University Scholar, Malaika Mutere was not impressed with the Europeans either, stating that "armed with guns, fortified by ships, driven by the industry of capitalist economies in search of cheap raw materials,…aggressive European colonial interests followed their earlier merchant and missionary inroads into Africa." She claimed that in their scramble for territory on the African continent, the Europeans cut across old established boundaries, homelands and even encouraged interethnic conflict.
American government favorable disposition toward the coming of Firestone to Liberia had its foundation in the vital area of securing natural rubber outside of British sphere, but was also essentially part of a general foreign policy trend that was countering Britain and Europe around the world. The US "Dollar Policy" of bailing out countries vulnerable to European penetration was being vigorously carried out in Latin America and the Far East. Under the doctrine enunciated and pursued by President William Taft up to 1905, Washington encouraged New York’s Wall Street Financiers to raise funds for the liquidation of Honduras’s debt to Britain. The initial attempt was unsuccessful, but the scheme went through with the underwriting of Nicaragua’s debt to European bankers as well as the refinancing of Haiti’s national debt. The policy was extended to China, then under the nationalist government. The US felt its market potential in China would be undermined if the Europeans financed the Jukuang Railroad project. JP Morgan financial managers were asked to arrange a consortium of US lenders for the railroad project. American money was also packaged to ward off Russian and Japanese funding for the Manchuria railroad program.
Leading to he United States was under pressure of wealth at the turn of the 19th century from population increase, labor unrest and widespread industrial production. This created panic for the search of external resources to feed the wheels of industry. Expand or explode, Americans seemed to have feared.
Washington had adopted a quasi-colonial posture for few years up to 1903 that aimed at establishing jurisdiction over heavily populated Islands that were far from mainland United States. The intent was to consider these islands as colonies that would produce labor and serve as markets, but not be integral states of the US Federation. Acquisitions from the Spanish war accordingly yielded Puerto Rico, Guam and the Philippines. Hawaii was an exception to the colony notion, as key Americans always considered the island to be part of the US Pacific Ocean. Entry into the Panama Zone was part of the military expedition for economic gains as was taking over the tariff system of the Dominican Republic, which in essence transformed the country into a US protectorate; a status Britain and France wanted to put Liberia under. Firestone was therefore coming to Liberia with a backdrop of active US foreign policy that had a mix undertone of business and geo-politics. The test of resolve was to reflect in the Concession agreements with the Liberian government.
A. Three Agreements
Young Senator William V.S. Tubman, who was to become President of Liberia in 1944, introduced the Firestone concession bill in the Liberian Senate. It didn’t seem to matter that Tubman was engaged in a conflict of interest by being Senator of Maryland County and at the same time serving as a retained lawyer for the company. He and a few of his colleagues backed by President Charles D.B. King sought to convince the legislature that they were not "selling the country" to the Americans. King, Tubman and the rest also cited the territorially greedy posture of France across the north and eastern boundaries of Liberia.
The Liberians saw United States intervention as haphazard, and was not meeting the expectation of the "Americo-Liberians." Washington had just refused to provide an additional loan of $5million, and now here was a high profile US Corporation asking to establish in effect absolute control over 1 million acres of Liberian territory for 99 years.
The "K" Clause Loan
Firestone, to the surprise of the already apprehensive Liberian officials, inserted in what has come to be known as the "K" Clause. The entrepreneur insisted on the Firestone Plantation Company providing a private loan of $5 million to the Liberian government. This transaction would serve as the second agreement of the package, the first being the number of years and acreage concede to the company. Firestone did not hide his intention of getting rid of the Europeans and following their powerful footsteps in securing political and economic influence in the West African country. In simple terms, the US would send in their citizens to supervise the financial affairs of Liberia. An experience of mixed Americans and Europeans carrying on a similar function had left bad taste in Monrovia’s mouth.
A number of top officials in the King administration, including Secretary of State Edwin Barclay, openly opposed Firestone’s offer of a private loan from the same company that was about to obtain a concession of 1 million acres of Liberian territory. They felt that was too much power that could translate into the usurpation of the sovereign authority of the Republic. Considered one of the most educated statesmen in West Africa at the time, Barclay dispatched a letter to the chief American diplomat in Monrovia, with the following passage outlining what was supposed to be the concerns of the Liberian Government:
The Liberian official proposed that his government could borrow the money from a source that was not a private corporation in Liberia. The Finance Corporation of America was the solution Firestone came up with, though it was basically superficial. Firestone Akron owned both the plantations company being set up in Liberia and the finance corporation. In more than a gentle encouragement to accept Mr. Firestone’s offer, Washington told Monrovia in a May 1, 1925 letter from Secretary of State Kellog, "It would seem…most unfortunate should a disagreement as to the exact terms of a loan prevent or delay the conclusion of a contract which will in all probability be of immense advantage of Liberia," Kellog said his government believed that the establishment of the rubber company would promote the "welfare" of Liberia.
Liberian politicians were aware that besides the French threat, several unfavorable possibilities existed if they angered the Americans. Washington could abandon them leaving Liberia more vulnerable to the Europeans whose colonial thirst seemed insatiable despite the partitioning of Africa among themselves at the Berlin conference of 1884-85. On the other hand, the US marines were very visible holding onto state security in Haiti, the only other republic of black people at the time, having declared its independence in 1804.
The Liberian legislature passed the bill in the end, though that did not stop the fury. Firestone threw in what appeared to have been a sweetener in the concession agreement by promising that his company would construct the country’s first harbor. The caveat was that the cost of port project had to remain under $300,000 or Firestone would rescind. It was difficult not to see this third component of the agreement as a farce, given the technical knowledge available to a huge corporation like Firestone not to have known in advance how much the construction would cost. It soon afterwards became clear that the Freeport of Monrovia would actually cost about $22 million to undertake the Freeport of Monrovia project. Firestone expunged the port project from the package, and the Liberian government agreed. Firestone was later asked to build the first and only international airport named after the republic’s first President, J.J. Roberts.
The Loan agreement imposed a number of pervasive conditions on the Liberian government and gave a lot of authority to the American Financial Advisor nominated by the President of the United States, along with a number of American auditors. The Liberian government was required to carry out reforms in its financial management, and the American team was supposed to ensure that it happened. The Firestone-created the Finance Corporation of America, backed by the US government, provided Rules for Liberian government revenue disbursement under the agreement. The Americans were to certify that the Liberian government was allocating a portion of its revenue to the servicing of the loan, which was operating at an annual rate of 7 percent, up by two percentage points over the 1912 loan. The Firestone loan was supposed to do what the 1921 aborted US government loan package was designed to achieve. An American team would supervise the entire Liberian financial system to "ensure that the Liberian government would live within its means and to stop, if possible, the drain upon the national treasury of the traditional Liberian spoils system."
What happened in the end was a disaster for Liberia. Interest rate of the Firestone loan was put at 7 percent, two points higher than the multinational 1912 loan. Service charges and advisors’ salaries amounted to a fixed charge of about $270,000 per annum. This constituted 20 percent of the total government revenues in 1928 and about 50 percent in 1931. More than 90 percent of the $2.5 million advanced by the Finance Corporation of America, a wholly Firestone owned subsidiary, went to pay off debts. A small amount of the advance went toward sanitation and public works. Besides all of this, $36,000 was taken away to offset United States expenses of the Liberian delegation to the Paris Peace Conference and other items presented by the US Treasury.
The Firestone money was so much of a source of irritation that Liberian politicians almost forgot about their past nightmare with the British. The following inscription on a statute of President William Tubman who finally paid off the loan in 1952, captured the pains and strains the financial package produced:
The Planting Agreement
The first of the concession agreement package was a literal manifestation that indeed the United States had effectively replaced Britain as the economic and probably political authority in Liberia. The Mount Barclay rubber plantation, abandoned by the English company Liberia Rubber Corporation, became property of the Firestone Plantation Company, which itself was a wholly owned subsidiary of the Firestone Rubber & Tire company of the united States. The lease agreement was for 99 years with a rental of $2000 per annum for the first year, and $6000 per annum afterwards.
The second agreement, known as the Plant Agreement, provided in effect that Firestone could cultivate up to 1 million acres of land within the 99-year life of the concession, meaning it did not have to cultivate 1 million acres. The concession would be revised later to adjust the number of acres.
The Plant agreement stipulated that Firestone was to pay an annual rental fee of six cents per acre. After five years, the company would be obliged to pay for a minimum of 20,000 acres, payable in advance every year. It was also agreed that once production began, the government would receive one- percent tax of the gross value of all rubber and other possible products, computed on the closing price in the New York Rubber Market on the day a shipment was effected. This provision was later replaced in 1950 with a 25% income tax, based interestingly on a legislation that Firestone helped to draft. The company was exempted from paying any internal revenue or any other imaginable chare on the products of the plantation.
The Plant Agreement specifically empowered Firestone to plant, process and export rubber and other agricultural products; build and use roads, bridges, airfields, pipelines, telephone lines radio stations, hydroelectric facilities and power transmission lines on and between its leased lands. It was also given the right to use public highways, public transportation, and harbor facilities, and import equipment and supplies without duty as long as they were being brought in for company work. A critical provision was that Firestone had rights to explore and exploit gold, diamond and any other minerals found in the subsoil of the potentially 1 million acres of Liberian territory. This provision was to become a subject of revision in future Liberian government demand discussed infra.
The company was also given the right to engage in logging within the scope of the land leased, and in the case of exporting the logs, it would pay to the Liberian government a royalty of 2 cents per cubic foot.
Local and international observers saw the entry of Firestone into Liberia as a quasi colonizing of the country that had been struggling to retain its pitiful sovereignty or a US government authoritative presence with all of its ramifications.
As a guaranty of maintaining their control over the land, the settlers restricted land ownership to Liberian citizens; and citizenship only to black people. The Firestone Plantations Company was not only an American corporate person registered in the State of Delaware, but was also wholly owned by the Firestone Rubber & Tire Corporation of Akron, Ohio. Its entitlement to obtain Liberian territory for such long period was at the center of the contention. It was argued that a 99-year lease was way of getting around the constitutional prohibition.
This argument was strange to neither common law nor American jurisprudence. When the British Lord Leverhulme wanted to undertake a palm oil plantation in West Africa on a lease for 99 years, under Common Law, that number of years was considered void because the lease was for an unreasonable period. In England, an act forbade an alien from acquiring a leasehold interest by deed from the lessor. The principle is further reinforced in certain states of the US federation, where constitutional provisions prohibit land ownership. In Morrison, the court held that a lease for 99 years is such an unreasonable long period that it falls within the constitutional prohibition of alien land ownership.
Liberian opponents to the Firestone Plant agreement also questioned the mode of arbitration between the company the Liberian government. Liberia’s Attorney General and erudite jurist, Louis Arthur Grimes, openly challenged the constitutionality of removing the company from the jurisdiction of the Liberian courts, adding that the tax exemptions limited the power of the national legislature to levy taxes. Under the agreement, three arbitrators appointed by the company, the Liberian Supreme Court and the Liberian government, if cannot be settled amicably, would decide dispute between the two parties. And what seemed to have pinched Grimes and the others is that if this tripartite arbitration forum did not resolve the dispute, the agreement says the Liberian government may arrange a higher arbitration process with the US state Department. In effect, the Liberian government, including its executive and judicial branches would submit to a foreign state jurisdiction to face a non-state institution that belongs to that foreign state.
Reactions on the international front were equally apprehensive. Followers of Marcus Garvey, the New York-based Jamaican pan-African activist, said the Americo-Liberians had prevented him from securing land to use as a base for the propagation of pan-Africanism. Now Firestone was getting a million acres. Garvey founded the 1916 United Negro Improvement Association (UNIA) that canvassed for massive migration of blacks back to Africa as the beginning of the process of liberating the continent from colonial hold. The campaign did not go down well with France and Britain, leading to their complaint to the United States and Liberian governments. Garvey chose Monrovia, capital of the continent’s only republic in 1920 as the ideal place for the UNIA headquarters. He was preparing to carry at least 25,000 members of his organization, mostly black Americans. This was happening when Firestone and other American tire manufacturers were in a global search for territories to plant rubber. Garvey told the Liberian government he would raise up to $2 million to liquidate the country’s troubling debt to the West, in exchange for the establishment of the UNIA base. While Firestone was negotiating the Plant Agreement four years later, the Government of President Charles D.B. King banned Garvey from going to Liberia, accusing the UNIA of preaching racial hatred. The activist countered, accusing the Americo-Liberian leadership of treating the majority indigenous population as slaves on their own soil.
There is no proven evidence that Firestone was involved in Garvey’s rejection. It is reasonable to conclude however that the emigration to Liberia of more than 30,000 blacks from America and the rest of the Diaspora might have at least been a source of concern for Firestone in need of labor among the rural population.
Labor and Land Rights
Rubber plantation is labor intensive, and if the cost of the workforce is cheap, that’s a core motive for the choice of the investor who goes to a developing country. With the right and privilege to cultivate up to one million acres "anywhere" in a country, the concessionaire had to have worries about the problems of finding and recruiting labor and then deal with the rights of the inhabitants of the land that is to be cultivated; that is if there is a legal system based on the rule of law and adheres to international law.
The business objective of Firestone as a rubber plantation placed both the company and the government within the official domain of the International Labor Organization (ILO). The world labor body, founded 1919, defines plantation as any agricultural undertaking regularly employing hired workers and which is situated in the tropical or subtropical regions and which is mainly concerned with the cultivation of production for commercial purposes of rubber, coffee, palm oil … The ILO constitution preamble fundamentally observed that global peace and harmony from workers unrest can undermine peace and harmony where labor is subjected to injustice, hardship and deprivation. The ILO Constitution equally underscores the right of the worker against sickness, disease and injury and the principle of equal pay for equal work.
The plant agreement was already the subject of international and internal criticism, and the contracting parties, especially Firestone as an American company had to satisfy the difficult demand of thousands of unskilled labor and at the same time comply with international labor standards. The company and fought for and got the agreement to require the Liberian government to "encourage, support and assist the company to secure and maintain an adequate labor supply."
The Liberian government appeared confident in executing this phase of the contract, knowing that it was a matter of priority satisfying the existence of an American institution such as Firestone. After all, doing everything to retain American long-term interest in the country was more important than ILO adhering to ILO standards that is if the matter were ever considered. The indigenous population, always in mass excess of the small ruling class of Americo-Liberians, would serve as the labor reservoir the government was depending on to fulfill its concession pledge to help meet the workforce requirement of the gigantic company. The Liberian Frontier Force (national army) was unsparingly used to not only quell ethnic uprising under a British Commander, but was also used to exact taxes out of the rural population. The British replacement with an American Commander could not have been more ideal for Firestone. The American commander had proven he could mimic his British predecessor in wielding excessive power in Liberia, but with absolute loyalty to America. Besides military power, the previous administration of President Arthur Barclay already had recruitment system in place.
Barclay, despite the armed conflicts between the government and external criticism of the policy toward indigenes had initiated an elaborate interior administration in an attempt to regulate the indigenes. That was 1912, about a decade before the advent of Firestone and before the founding of the ILO. At the top of Barclay’s interior structure was the district commissioner who was officially responsible to maintain law and order and protect the chiefs against exploitation by the foreign traders.
The commissioners, interestingly too, were supposed to "encourage" farming, though there was no incentive given for production. Perhaps the catch in reality was that the chiefs were obligated to provide labor for a variety of activities, besides the monthly sacks of rice and tins of palm oil they had to give the commissioner. Villagers and townsmen without pay were instructed to be available for the construction of homes, barracks, and the homes of the district commissioners. They also worked on government farms, which in effect were farms of the commissioners.
Few indigenous Liberians lived outside of their community setting. Besides the coastal tribes, some of whose members had become career seafarers, the bulk of the people remained dependent on subsistent farming and rural life, loyal to their families and the chieftaincy. Barclay used this chieftaincy network in his attempt to establish and maintain some control.
Firestone began, with government guidance and active cooperation, dealing with the powerful chiefs, who were reluctant to permanently relinquish their able-bodied men. Except for the coastal seafarers, the more interior tribes generally remained in their localities even if they had fulfilled their ‘obligations’ to the district commissioners. Firestone set up a compensation scheme for the chiefs, giving each of them 15 cents per month for every worker recruited during the rice-growing season from January to June, and ten cents from July to December. That summed up to $1.50 per man per year. In 1955, the chiefs received about $90,000.
The plantation company, with the full backing of the government, gave quotas to the chiefs to produce workers. With the chiefs being paid per head, they had to produce the required number of workers. A Firestone agent would be sent out to the villages to enforce the quota. This process bordered on force labor under the ILO convention signed by the United States and Liberia in 1931.
Unskilled employees received thirty cents per day, and each tapper earns three cents extra per day if he has not stayed away from work during the month. Headmen were given 50cents to $1.50 per day and overseers were given 75cents and $2.50 per day depending on length of service.
In less than a decade of the 1926 signing, Firestone had become the nation’s highest employer with about 10,000 employees. That number increased to 25,000 from an estimated national population of 2.5 million inhabitants of the country in 1946. The numbered remained steady hovering around 20,000 in the ‘50’s, due to the presence of Iron Ore Mining companies and other rubber concessions in the country.
The net effect of forced and voluntary labor transfer to Firestone was that the Liberian hinterland no longer had the manpower, even if subsistent, to produce the staple food of rice in quantities that would prevent importation. The problem became grave as more indigenous moved into the wage sector comprising of other rubber concessions and the American-European concessions that mined the nations iron ore. Firestone was importing rice and supplying it to its employees at subsidized price, further attracting labor. By 1947-55, Liberia had become absolutely ceased to be self-sufficient in rice.
The planting process had covered 200,000 acres in 1939, and that meant also a massive displacement of tribal communities away from their land. The planting agreement referred to only reserved tribal land that should be spared, otherwise, it must be assumed that the tribal inhabitants were driven away. There is also no evidence of any unrest arising out of the interaction.
Land was acquired within tribal tradition by a) conquest, b) voluntary submission to a superior lord, c) donation, d) abandonment or negligence, or e) by purchase, which was a comparatively new custom. No record is available that any of these methods of acquisition transpired between Firestone and the tribal people or between the government and the chiefs. The planting agreement mentioned only the Liberian government as recipient of income based on the concession agreement. Firestone gave money to chiefs, presumably outside of the plantation area, for their "cooperation" in recruiting manpower for the planting and tapping work. The tribal inhabitants did not benefit from any form of compensation for their land and displacement though they were subjected to paying hut taxes, providing labor for the chiefs and Monrovia-sent District Commissioners, and making themselves available for military service.
The tract of land around the town or village, under traditional customary law, belonged to the residents, and they could use it individually or collectively for agricultural purposes. They could obtain a deed from the President of Liberia to establish communal title, and could get individual titles through the same method. It was evident that chiefs in the area acquired for the rubber plantation were not only losing their people (manpower), but also their authority and farmland and jurisdictional authority. In short, whole communities with rich reservoirs of tradition had disappeared by the stroke of a pen between the American Company and the Liberian government. The King Administration did not and could not lawfully exercise the doctrine of eminent domain, for the property was not being acquired by the government for public use, in which case the government would have been ordinarily required to provide compensation. But neither did the government include some form of relief in the contract.
It is tempting to conclude that Firestone, in lieu of secondary arrangements for land and other tribal rights, it expected to pacify the chief and inhabitants through the range of new facilities and fringe benefits the recruits received at the plantation. The Duside Medial Hospital at Harbel, along with clinics at the plantation, provided treatment to all Firestone employees free of charge, and catered to Liberians outside of the company. The company also made available elementary education along with adult literacy programs. By 1955, vocational training in the mechanical, electrical, and construction trades were provided free through an on the job program and through a scholarship scheme at higher institutions in Liberia and the United States for Liberians. Meats and dairy products were regularly imported and sold at near-cost prices to the employees.
III. Economic Politics
Labor and land are two crucial economic factors of production. If they are in abundance, then the analysis for the potential of a successful FDI moves on to market, infrastructure, and secured environment, among other factors and fundamentals of economics. Harvey S. Firestone is said to have exclaimed the ‘abundance’ labor in Liberia, and with his company’s initiation in the methods and craft of obtaining manpower in Liberia, the search for land should have been next. Getting up to a million acres was certainly proof that land too was in abundance, never mind the method of acquisition too. Whether the arrangements for these factors are a guaranty for long term, appreciable investment goes beyond economic fundamentals to the objective of the investment.
Firestone in Liberia is supposed to have been in a friendly territory on account of emigration history. But where the host country is itself preoccupied with survival in an environment of colonial preying, the FDI must be a conscious and calculating decision. The company then faces chameleon choices of either playing primarily an economic role, or also performing as a quasi-political outfit, informally representing the interest of a world power. Firestone’s presence and securing a deal was a result of a transatlantic governmental contacts and assurances for the protection of mutual interest. Hence from the very start, Firestone was destined to play a crucial political role in Liberia. The United States had constantly shied away from full and overt involvement with Liberia despite the geo-ethnic relationship. It seemed all the more possible that Firestone would inherently play a surrogate role for the United States Government.
The acquiescence of President C.D.B. King and a few key officials of the Liberian government was decisive for the final legal embodiment of Firestone’s presence. As politics was the occupational mainstay of the ruling elite, some of them still harbored fundamental reservations about the advantage of Firestone having all of the privileges that the government was allowing. There was bound to be political landmines for all. So when Liberia was exposed to the world for engaging in labor practices that bordered on slavery, and that this may have been benefiting Firestone, it had a devastating political and economic boomeranging effect in Monrovia, Washington and London.
IV. Firestone, the League and Barclay
The United States government instigated the setting up of a League of Nations Commission of Inquiry and sent a stinging letter to the Liberian government in pointing to Monrovia’s unacceptable labor practices. It appeared contradictory to its interest for the United States to publicly indict the Liberian government. But Washington was in effect taking a preemptive step to protect its image in the face of a fearfully evolving criticism that because of Firestone, the US government was conniving with the Liberian government to enslave the indigenous people.
The State Department’s action led to five years of antagonistic diplomatic and political combat that revealed the strengths and vulnerabilities of a group of unequal parties. The stakeholders included the United States, United Kingdom, the League of Nations, the Liberian government headed by President Edwin Barclay and the Firestone Plantation Company owned by Harvey S. Firestone Sr. and son. At the end, rumored plans and plots over the affair ranged from financial strangulation to military invasions to a coup d’etat in Monrovia. It exposed the nature of the multiple interconnectedness between an FDI company and the home and host countries, on account of, in this case, an abominable system of labor.
It is true that Firestone’s enthusiasm over the abundance of labor was justified by the Liberian government’s guarantee that it would be directly involved in securing workers. What the government officials did not tell their business guests was that there was already in place a lucrative labor trade where top politicians with the backing of President King were exporting Liberian indigenes to Spanish cocoa plantations at Fernando Po, off the central African coast. Despite the financial incentive package Firestone had arranged for indigenous chiefs to disengage their able bodied men, the tribal communities were also the pool that had to feed the Fernando Po trade.
There was active official coordination between the Liberian government and Firestone in establishing quotas of labor supply that the chiefs had to maintain for small financial returns. The reality was that the chiefs now had to cater to three categories of labor demand: the government in its Fernando Po operations; Firestone, and the local needs for road construction and farm activities for the chiefs and district commissioner. In all of these activities, the average recruit was not making a voluntary decision to leave. The inequities obtaining were passionately described by an English visitor, when she said the Liberian government had "without giving any notice, pounced upon the tribal chiefs for hut and other axes; they having had no time to prepare payment for these claims in kind, the officials sent up, under escort of a detachment of the Liberian Frontier Force, not only confiscated their cattle, grain…but brought down as hostages numbers of their boys who were relegated to work, for no payment, on the coffee estates for some time, then shipped to Fernando Po, for which the Liberian government received five British pound sterling per head from the Spanish government. And this became the concern of a Harvard University professor in the United States, leading to worries at the State Department.
Professor Raymond Leslie Buell, two years after the signing of the Firestone concession, began publications in which he criticized the Firestone labor arrangement. He said Firestone was getting recruits and creating a financially profitable activity for the Liberian government by establishing a labor procurement system that was similar to the compulsory labor practices observed in European colonies at the time. The Harvard Professor claimed that the experience elsewhere in Africa demonstrated that the presence of large-scale European industry eventually outgrew labor supply, which in turn would lead to the foreign company asking for government assistance in the recruitment process. He said this has produced, over time, forms of compulsion, disorganizing rural communities, brining about high death rates and decimating the labor population. Buell said Harvey Firestone was bound to run into demographic impossibilities from his statement that labor was ‘inexhaustible’ in Liberia and that it would take 350,000 men to satisfy his plantation requirements. Buell estimated that there were between three hundred to four hundred thousand able bodied male in Liberia, and it was difficult to believe that Firestone would have been capable of placing Liberia entire adult male population under its control.
The validity of Buell’s questioning the company’s capability to satisfy its plantation labor needs became evident in quiet Firestone complaints that Liberian government officials had begun to undermine its recruitment activities. Never mind that Firestone had a standing arrangement with the Liberian government Bureau of Labor. The Fernando Po affair was posed effective competition to the rubber company.
The US State Department rightfully expressed concern that Buell’s campaign would open the US government to criticism that it was supporting forced labor to help an American investment at the expense of the indigenous victims of an inhumane system of governance in Liberia. The State Department communication to the King government on the labor mal-practices was therefore intended to also demonstrate to the world that the United States was not a party and could not condone such conduct.
The Americans also had to make get out of defensive mode over the labor crisis when President King’s defeated opponent in the 1927 elections published in a Baltimore newspaper that the King government was involved in slavery and forced labor. Thomas Faulkner reported that top officials of the government were particularly shipping Liberians against their will to Fernando Po. With this local revelation, Washington intensified efforts for an international investigation. The result was that League of Nations set up a Commission of Inquiry interestingly headed by a British, Cuthbert Christy, and included President Arthur Barclay for the Liberian government, and a Black American Charles Johnson for the United States.
The 1930 commission reported that slavery did not exist in Liberia as defined by the Anti-Slavery Convention, but the compulsory method of recruiting people for dispatch to the Fernando Po plantations was associated with slavery. The commission said President King, his Vice President Allen Yancy and other officials were receiving $45 for each of the indigenous "boys’ exported to Fernando Po, and the soldiers of the LFF were used to "catch" these boys. The Christy report concluded further that Liberian government officials abused their office in using the Liberian army, the LFF, to recruit workers and that the government was using forced labor practices to recruit workers for the Firestone Plantation Company.
The Christy commission recommended that the Liberian government immediately eradicate the system of pawning human beings and domestic slavery and stop the export of labor to Fernando Po or any other place. A controversial issue, bordering on sovereignty, was the proposal that Americans be sent to Liberia to serve as District Commissioners and other administrative officers in the hinterland. That plus the proposal on encouraging Black Americans to Liberia raised concerns among the Americo-Liberians.
The Liberian Frontier Force heavy-handed involvement was also investigated. The LFF, under British or American commanders, had not only been used to brutally put down tribal uprisings, but also intimidate and coerce the rural people into a permanent structure of unquestionable loyalty. The Christy report requested that the administration should impose a code of stringent discipline among the officers and soldiers. The LFF conduct under the Americo-Liberian government in exacting free labor and money out of rural inhabitants had long been a matter of international public knowledge. (See I.K. Sundiata, p24)
The global market decline in the late 1920’s fueled the simmering conflict between Firestone and the government of President Edwin Barclay, who assumed office following the December 1930 resignation of President King. The Liberian labor scandal coincided with trouble for Firestone on the world market where the price of rubber had dropped from 48 cents per pound to about 5 cents. The post World War I depression was now taking its toll on Liberian government revenue, leaving employees unpaid for six to eight months. Yet the Finance Corporation of America (FCA) was pressing for payments on the 1926 loan. President Edwin Barclay approved a legislative bill placing a moratorium on the loan payments. The US financial advisers assigned to supervise Liberia’s finances dispatched a letter to Washington alleging that the government had violated the terms of the Firestone loan on nine counts, including floating local debts. The FCA withheld money that was due the government, and Barclay fired all of the foreign advisors and officers.
Harvey Firestone began shuttling to the State Department in Washington, urging drastic action against the Edwin Barclay Administration. The United States instead preferred a League of Nations action for reform in Liberia. A special League committee set up for that proposed that the best way to eliminate the bad labor policy of the Liberian government and institute reforms was to appoint foreign nationals, probably Americans or Europeans, to serve as three district commissioners in charge of the whole country. The commissioners would report to the league instead of the Liberian government.
The Barclay Administration rejected the proposal outright, stating that would be tantamount to abrogating the sovereignty of Liberia. For several months, there was a tussle over the matter among Monrovia, Geneva (League headquarters), London and Washington, with Firestone continuously urging outgoing President Hoover to allow the United States in effect take over Liberia. The President had lost the election to Franklin Roosevelt and the Democrats, and it did not appear he was prepared to take such a lame-duck risk. Under Secretary of State William Castle suggested internally that American dominance should be exercised through the Firestone façade, illustrating that the US government was not only protecting Firestone from the scandal, but also considered the company as a viable surrogate of the United States government. The British had used the East African and South African companies to pursue their colonial interest in the relevant regions of Africa.
It is interesting however that even within the League, individuals, including the inquiry commission chairman Cuthbert Christy, did not believe that Firestone was free of from the problem, though the report indicated that the company was not directly guilty of the government forced labor practice. But a member of the Commission revealed that Christy thought that Liberia’s problem was Firestone. The British appeared to have been cooperating with Washington, but a Dutch Financial expert attending one of the League meetings described the Firestone Concession agreement as unfortunate, and that the Firestone workforce was a "dead loss" to Liberia in view of the low population density of the country. He said it was in Liberia’s interest for Firestone to leave the country, something the Concession agreement would not have supported.
Harvey Firestone, Sr., at the other end, continued to lobby the State Department for a show of American military force, which he said would give "sufficient aid and comfort to Barclay’s enemies." The company had hired former President King as one of its lawyers, and was pushing speculations that Barclay’s opponents may be capable of overthrowing him, though he did not name King. Several months later, Firestone returned to the State Department and reportedly told officials there that Barclay’s enemies were not ready to strike, meaning a military coup, and that the plotters needed encouragement from the United States. Firestone’s efforts met continued failure. He wanted a reinstatement of all the American financial advisors dismissed by Barclay to be reinstated as a security for the huge investment in Liberia.
Edwin Barclay and his team remained cleverly defiant, until his own version of the reform plan was modified by the League, enacted by the Liberian legislature, and setting the basis for a fundamental amendment to the 1926 Firestone Concession and loan terms. With the international rubber market rapidly recovering, Firestone itself adopted a more flexible attitude toward the Barclay three-year development.
The government and Firestone signed the amendments in March 1935, taking into account most of the League of Nations’ reform proposals. Though the benefits and cost superficially appeared balanced for the two sides, some serious compromises appeared favoring the rubber company, despite the resistance Barclay had put since his assumption of the Presidency in 1930. For up to 2025 when the 99-year lease is supposed to end, Firestone was granted exemptions from "any and all taxes, duties, excise, license, or other fees, wharfage and harbor dues…" Foreigners employed by Firestone were also exempted from paying personal taxes. Firestone was this time given exclusive rights to mine from their plantation’s subsoil, and also got privilege of not paying royalty not to be in excess of ten percent of the value of the mineral. The original agreement had set the royalty at 15 percent.
The government, for its part, technically got a prepayment of $400,000 from Firestone in the form of bonds issued by the government, in addition to another bond valued at $250,000. No cash was received as the amount was actually deposited with the National City Bank of New York, Firestone’s fiscal agent. The amount retroactively took care of interest and other loan payments the government should have made to the Finance Corporation of America during the Barclay suspension of the loan arrangement.
The Amendments reduced the 7 percent interest rate on the 1926 loan to five percent, and unless government annual revenue exceeded $450,000, it would not be required to pay interest that year. American financial advisors were brought back, but the Barclay administration succeeded in having their salaries reduced dramatically from amounts in excess of $50,000 to $9,000. The icing of the deal came when President Franklin Roosevelt officially recognized the Barclay government. So did the British. The diplomatic representatives of the two governments had refused to present their letters of credence to Barclay since the President assumed office in December 1930.
The Firestone concession agreement was subsequently amended during each of the four decades that follow, invariably leaving the government at a disadvantage in revenue loss based on the tax exemptions and accounting system in determining the company’s revenue. With the advent of the professional-loaded administration of President William R. Tolbert in 1971 amidst the existence of increased transnational corporations, his tough Finance Minister and brother, Steven Tolbert sought to critically review all concession agreements. Firestone was a crucial object.
The Finance Minister two years in the administration announced it would pursued a revision of the Firestone Planting Agreement with the following objectives:
The Firestone management defiantly, and perhaps arrogantly, responded through an eight-point communication, stating among other tings, that the Liberian government should first pay to Firestone all amounts owed on prior price support loans to local growers, and the government should take over the full cost of providing the buildings and other facilities for all persons on the plantation performing governmental services, including soldiers, customs officials, post office employees and others.
A subsequent meeting between the two sides witnessed a full view of Steve Tolbert’s power and anger, resulting into an apology by the Firestone corporate management abroad. The concession amendment, which was signed in 1976 following the death of Steve Tolbert in a plane Crash, made some crucial changes. The 1 million acres provided for in the original agreement were reduced to 289,000 acres. The government also reserved the rights to carrying on mining in the subsoil of the plantation. And importantly, the amendment subjected the company and all of its employees to all taxes and import and export duties.
V. Economic Impact
Firestone Plantation Company’s entry into Liberia, as a huge American FDI at a time Liberia was struggling to fend off constant colonial encroachment in the neighborhood, has pervasively impacted the economy. Its sheer labor size of 20-25,000 and the implications for wage, housing, medical services did set standards for the rest of the economy. The company’s financial and political capability allowed it to set up subsidiaries that performed a vital role in the commercial sector of the country.
The Bank of Monrovia appeared as a Firestone subsidiary in the mid 1930’s to replace the British Bank of West Africa and operated as the only commercial bank and government depository for more than two decades. The Bank eventually ran into troubles with Liberians who felt the Bank had an inflexible lending policy. Firestone divested itself and sold the bank to First National City Bank of New York. UP until the Liberian war of 1989, the Bank of Monrovia continued operating as one of the most dependable commercial banks in the country.
The United States Trading Company (USTC), another Firestone subsidiary, grew beyond a supplier of company goods to one of the biggest wholesalers and importers in Liberia. It became a distributor of American vehicles, soft drinks, and even rice, the Liberian staple food. When local production of rice virtually seized in the 1950’s, USTC took on the Herculean task of supplying the nation at subsidized prices.
The plantation company’s huge labor requirement brought in an unprecedented number of Liberians in the wage economy. By 1947, the company’s labor force had climbed from 10,000 to 25,000, and in 1955 it was the largest single employer with 36 percent of the national workforce. The company’s employees were about fifty percent of the agriculture at the close of 1950 decade. Unskilled workers were paid 45cents a day, while independent rubber grower paid 37 cents per day. This accounted for why Firestone was in effect determining the wage trend not only in the agro sector but the entire country. And additional level of standards was the provision of medical services, housing, schools and other amenities.
Perhaps the most important impact of Firestone was the trend set in the exemption from crucial taxes and fees as an investment incentive. Van der Kraaij reveals that these privileges given to Firestone cost the Liberian government between $.6 to $.7 million just in ten years starting 1965. The Dutch economist cites a British auditing company as having revealed that the Liberian government also lost about $930,000 at the close of the 1960’s.
Liberia’s vulnerability to the irking of France and Britain to round off their adjacent colonized territories out of Liberia hardly put the government in an ideal position in 1926 to have effectively fearlessly negotiated a better concession and loan agreement with Firestone. The imposed loan had the effect of entrenching external control on the toddling government. Washington’s more-stick-than carrot advice to Monrovia with the backdrop of the French seizure of Liberian land only hastened the conclusion of the skewed agreements.
The challenges ignited by League of Nations’ indictment of the Liberian government for forced labor exposed the dexterity Liberian rulers had developed in the art of survivability. Most of the ruling minority Americo-Liberians were lawyers and astute politicians, a situation that worked to their advantage in the international system, but to their disadvantage domestically. The efforts of Harvey S. Firestone for US military invention to force President Edwin Barclay to undertake reforms, which would have benefited Firestone immensely, went largely unheeded. The placement of Former President C.D.B. King and future-President William V. S. Tubman on the Firestone payroll as lawyers, illustrated the level of political penetration home-sponsored FDI can go in the host terrain. Reports that Firestone had actually indicated to the State Department Washington that a coup was in the works, and it would been in the US interest to provide support for anti-Barclay operators exposed the conviction of FDI that they have a stake equal to their host government.
Firestone was virtually an enclave enterprise whose commercial activities soon extended into the national commercial sector. It pulled the labor force away from the farming rural areas, and when the country became insufficient in the production of rice, its staple, the company imported rice on a countrywide basis with a subsidized price. This, combined with the labor depletion in the interior, worked to set the basis for such incidents as the 1979-rice riot over a proposed withdrawal of subsidy for prices.
With a network of subsidiaries, ranging from the construction company that built the country’s only international airport, the USTC wholesale and distributing company, to the Monrovia City Bank which was the only one in the country at that time, the country was virtually in the hands of a monopoly. Though President King said, in respect of the presence of Firestone, that Liberia now had an open door policy, the inflexibility created in the commercial sector through some economic activities of Firestone subsidiary contradicted the statement. It wasn’t until the 50’s when President William Tubman invited American and later European companies to mine iron ore. A Swedish steel company joined American counterparts to begin production of iron ore at the LAMCO Joint Venture Company. Tubman earlier gave the Liberian Mining Company to an American financier. These new concessions plus the emergence of other rubber concessions helped to reduce the controlling effect of Firestone.
Despite its negative effects, Firestone in some measure help expose the greed of Liberian politicians in a round about way when it began complaining about the reneging of the government on its negotiated responsibility to help supply labor. The Fernando Po scandal had alerted the Liberian elite that their exploitations of indigenous population could not go unnoticed continuously. Liberia ratified the Forced Labor Convention in 1931 due to the international focus that Liberia was involved in forced labor and slavery.
The advent and performance of Firestone in Liberia, in short, did not only pull an unwilling US government in Liberian affairs when it was most needed, but also fulfilled a vital economic foreign policy interest in finding a permanent source of natural rubber for US manufacturers. At the same time, it had permanently entangling itself with Liberia, at least for 99 years, in its effort to achieve that that vital interest. Firestone bruised and got bruised, in Liberia and America. And even today, it is difficult to dismiss the importance of Firestone, despite the Liberian war and the assumption of a different ownership through the acquisition of Firestone by Bridgestone of Japan.