During the colonial era, colonial powers granted concessions to private companies across Africa, Asia, and Latin America. These concessions varied in the scope of their coercive powers, the type of natural resource being extracted, and the various investments (or lack there of) that were made in the local economy and people.
A growing literature is piecing together how the various characteristics of these concession companies continues to shape the economies of countries today.
The Mita in Peru
An influential paper in this literature is work by Melissa Dell on the effects of the mining mitain Peru (Dell, 2010). While not technically a concession to a private company, the paper explores how a system of forced labor instituted by the Spanish government over the course of several centuries affects present day development in Peru. During the mita era, individuals inside the boundaries of a particular region were required to send one-seventh of their adult male population to work in silver and mercury mines. Despite that the mitawas abolished in 1812, Dell finds that areas that were subjected to forced labor experience worse development outcomes today. Households have lower consumption and children have greater levels of childhood stunting.
To understand why the effects of the mitapersist, the author focuses on the development of haciendas – estates primarily devoted to agriculture with an attached labor force. These estates tended to develop outside of the mitaarea to avoid having their work force subjected to the forced labor requirements. The haciendasalso tended to provide public goods, such as investment in the road network. Thus, areas inside the mitacatchment area did not benefit from this provision of public goods. This work both highlighted how historical economic arrangements can shape present day development, and it suggested a particular channel – subsequent investments by other economic agents – for why negative effects persist.
The Dutch Cultivation System in Java
In a closely related paper, Dell and Olken (2020) examine how the coercive cultivation system set up by the Dutch in Java continues to affect economic production today. Between the 1830s to the 1870s, the Dutch forced peasants to cultivate sugar, which was then processed in nearby sugar plants. Prior to the cultivation system, local production was primarily focused on rice. Thus, to implement the cultivation system required a reorganization of the local economy. Ninety-four sugar factories were built, and villages in nearby catchment areas were forced to grow sugar cane (see figure at the top of the post). The authors find that households near former factories are much more likely to be engaged in manufacturing relative to agriculture, have higher per-capita consumption, and are more connected to related industries. Relatedly, areas close to the sugar factories are also more integrated into the road network. The paper suggests that exposure to this forced cultivation system had a deep impact on how the economy was organized, and that the investments made by the Dutch shaped economic production long after the end of the cultivation system.
The Congo Free State
In much of sub-Saharan Africa, colonizing powers granted concessions to private companies that were characterized by extraction of natural resources (e.g. rubber), the use of violence, and the co-option of local leaders. Within Africa, concessions existed in French, British, Belgian, German, and Portuguese colonies (e.g. Angola, Botswana, Central African Republic, Cameroon, Chad, DRC, Gabon, Malawi, Mozambique, Namibia, Nigeria, Republic of Congo, Tanzania, Zambia, Zimbabwe). One of the most extreme examples of the concession system was in the Congo Free State, where King Leopold II of Belgium granted concessions to private companies to extract rubber. Lowes and Montero (2020) examine the legacy of two of these concessions – Abir and Anversoise, which existed from 1982 to 1906. They find that areas that were part of the former concessions experience worse development outcomes today: they have lower levels of education, wealth and health than equivalent areas just outside of the former concessions.
To understand why these short lived concessions continue to negatively affect present day development, the authors collected survey and experimental data from individuals who come from inside and outside of the former concession boundaries. First, they examine the effects on local institutions. During the concession era, chiefs were required to cooperate with the concession companies and enforce rubber quotas, or they would be replaced and possibly killed by the concession company agents. Consistent with co-option of local chiefs undermining the quality of local institutions, the authors find that chiefs inside the former concessions provide fewer public goods and are less likely to be elected. Second, they examine how the exposure to the violent concession system shaped pro-social preferences. Perhaps surprisingly, the authors find evidence that greater exposure to the concessions is associated with more pro-social norms. Individuals from inside the former concession are more trusting and more supportive of sharing and redistribution. This is possibly due to the fact that local institutions were undermined, forcing individuals to rely on each other for survival. The study suggests that this coercive form of economic production that was highly prevalent across sub-Saharan Africa both continues to affect present day development and that it has had a long run negative effect on the efficacy of local institutions.
The United Fruit Company in Costa Rica
Recent work by Mendez-Chacon and van Patten (2020) explores the legacy of the United Fruit Company in Costa Rica. The United Fruit Company (UFC) was one of the largest multinationals of the 20th century. The firm was given concessions across Central America, including in Costa Rica, for the production of bananas. In contrast with Lowes and Montero (2020) and Dell (2010), the authors find that individuals living inside the UFC boundary are better off on a wide variety of development outcomes, including housing, sanitation, education and consumption. The authors are able to trace this effect to two related channels. First, the UFC invested in amenities for workers in the area, including the provision of schools and hospitals. The authors hypothesize that this incentive for investment was closely tied to the mobility of local workers: in order to keep the work force on the banana plantation, the workers required particular amenities or they would leave. Thus, greater worker mobility induced greater investment on the part of the UFC.
Concessions to Private Companies
Taken as a whole, these studies provide evidence on how concessions to private firms may shape subsequent development outcomes. In cases where firms had incentive to invest in either capital or human capital, the negative effects are attenuated (e.g. in Java or Costa Rica). In cases where extreme violence and coercion could be used – such as in the Congo Free State – the negative effects of these concessions continue to be felt. The studies highlight how the various features of the concession companies – e.g. type of product being extracted or produced, the constraints put on the company, the investments made in the local economy, and the mobility of workers – affect the long run legacy of these concessions.
Dell, Melissa, “The Persistent Effects of Peru’s Mining Mita,” Econometrica, 2010, 78 (6), 1863– 1903.
Dell, Melissa and Benjamin A. Olken, “The Development Effects of the Extractive Colonial Economy: The Dutch Cultivation System in Java,” The Review of Economic Studies, 2020, 87 (1), 164–203.
Lowes, Sara and Eduardo Montero, “Concessions, Violence, and Indirect Rule: Evidence from the Congo Free State,” December 2020.
Méndez-Chacón, Esteban and Diana Van Patten, “Multinationals, Monopsony, and Local Development,” July 2020.