Business Groups and Transnational Capitalism in Central America

Central America as a region has made world headlines mainly due to civil wars, insurgencies, and, more recently, drug-trafficking and youth gang violence. Central American enterprises are only rarely studied; even less so are the Central American conglomerates and business groups that, albeit small by Latin American and global standards, play a significant role in the region’s economies. If they are studied at all, it is mainly as supporters of repressive dictatorships or corrupt regimes, or as the incarnation of colonizers and landholders, dominating the system that is considered to be the root cause of most of Central America’s problems.

As argued in Chapter 1, in Central America the debate about what economic development model to pursue and what role big business and MNCs have in that tends to be polarized between those who argue for focusing on integration in a global economy and reducing barriers to investment, and those who argue for a more significant role for the state, and development from below. The former tend also to see the diversified business groups as paragons of development, while the latter tend to view them as parasites.

In this chapter we present an analysis of the 67 principal diversified business groups in Central America. The aim is to advance towards the hypotheses that were discussed in Chapter 2 in relation to the strategies that DBGs in the region are adopting in order to face the increasing competition from foreign multinationals: (a) that in an internationally integrated economy, DBGs from developing countries will be subordinated to the MNCs and incorporated within their circuits of accumulation; (b) that they will rather attempt to differentiate themselves from the MNCs by shifting sector focus (or alternatively move towards further specialization); and (c) that they will expand internationally themselves. As noted in Chapter 2, these are not mutually exclusive hypotheses, and some are indeed complementary: This chapter will investigate how different groups present varied combinations of these strategies, and how this combination differs across the countries in the region.

In this chapter, we will give a face to the individual groups in our study, each of which presents a different pattern of internationalization and diversification. They are also among the strongest and most emblematic in the different national contexts. We follow the evolution of the groups from the establishment of the first companies to the creation of the current large, diversified conglomerates. This evolution is related to shifts in the global political economy, but also to the home countries’ political and economic history. It is striking that the majority of the groups did not grow out of the 19th and early 20th century agro-export elites, but rather originated from European immigrants arriving in the early 20th century and setting up small businesses in commerce, services, or industry. Another striking feature is that most of the groups have had leaders that in one way or another have been involved in politics — whether as members of government, as advisors, or by setting up their own political parties, think tanks or other kinds of organization.

In Chapters 3 and 4 we were concerned with describing the principal strategies of the Central American business groups in terms of sector shifts, alliance formation, and international expansion. In this and the following chapter we will approach the question of the development impact of those strategies on the respective country’s economy. In the present chapter, we will focus on one specific and important strategy of internationalization: the export activities of DBG-affiliated firms, which represents one aspect of the development impact of the groups’ strategies.

It is increasingly recognized that if we are to understand how DBGs react to liberalization and a more open economy, we also have to understand how the groups co-evolve with their institutional settings and national policies. In this chapter we will analyze how business groups in Central America reacted to the liberalization of the banking sector and why they presented diverse responses to the entry of foreign financial conglomerates into the region during the second half of the 2000s. During the years immediately following liberalization, several business groups entered the banking sector across the region. However, by the end of the 2000s, the composition of the banking sector in Central America demonstrated considerable variation. In Costa Rica and El Salvador, most business groups had left the sector. Meanwhile, banks were still key institutions for business groups in Guatemala and Honduras. The puzzle here is to understand why the region’s business groups responded to the liberalization of the banking sector in such divergent ways. Therefore, we examine the impact of government policies on Central American business groups’ strategies in the banking sector from the early 1990s to 2010.

As we have seen so far, Central American DBGs have been relatively successful in adapting their business strategies to a more liberalized and globally integrated economy. However, to look only at market strategies is to neglect important non-market strategies that have been intensively employed as part of their process of adaptation to economic openness (Baron, 1995). Many owners of DBGs not only have been able to modernize the management and organizational structures of their companies, but also have relied on their close connections with governments in order to manage liberalization and benefit from the market-oriented reforms widely implemented in the region.¹ Like their counterparts in South America (Rettberg, 2001; Schneider, 2010), DBGs in Central America have been able to obtain favorable terms on which to enter new sectors (e.g. privileged treatment in privatization processes) and to secure tax exemptions, public credit lines, and public contracts. In addition, DBGs have used market-oriented reforms as a strategy to maximize gains for their owners, as the opening of markets and the signing of free trade agreements were taken in consideration for plans of divestment through the sale of assets owned by DBGs to foreign buyers. In such a context, DBGs would rarely oppose liberalization and in fact would rather pressure for it (Sánchez-Ancochea, 2008).

Central America is currently undergoing a profound transformation. The old ‘dessert economies’ based on the export of coffee, sugar, and bananas are increasingly overtaken by the services, commerce, and construction sectors. Where formerly the owners of the country’s wealth were easily definable as a handful of families, international integration has brought a number of MNCs to the region while the old families increasingly reside in and operate from Miami or Bogotá. However, deep-rooted inequalities persist, as do sluggish productivity and economic growth in most of the Central American countries.