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Business Government Relations: The Case of the International Coffee Agreement

Published online by Cambridge University Press:  22 May 2009

Stephen D. Krasner
Stephen D. Krasner
Affiliation:
Stephen D. Krasner is an assistant professor of government at Harvard University..
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Extract

Relations between official agencies and private business concerning international coffee policy suggest that the power of the state dominates the international economic arena. The International Coffee Agreement did not benefit the United States coffee industry. Despite this, some large coffee roasting companies supported the Agreement. Without their support it would not have received Congressional approval. The action of the roasters can be explained by the behavioral theory of the firm, which emphasizes managerial discretion and risk avoidance. Large oligopolistic companies, potentially the most powerful of business enterprises, are also the ones least likely to oppose the state. However, the ability of one company to determine American policy toward the import of soluble coffee from Brazil shows that when the economic interests of an oligopolistic firm are unambiguously threatened, it can severely constrain official actors.

Type
Articles
Information
International Organization , Volume 27 , Issue 4 , Autumn 1973 , pp. 495 - 516
Copyright
Copyright © The IO Foundation 1973

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References

1 The best explication of this development is Keohane, Robert O. and Nye, Josepth S.,World Politics and the International Economic System, Xerox, Center for international Affairs, Harvard University, 1973, pp. 9–12,Google Scholar which emphasizes the relative, if not necessarily absolute, increase in the importance of ecomnomic issues.

2 This paper does not address issues raised by bureaucratic analysts concerning the assumption that the state is a unified actor. The Department of State was the principal official agency involved with the International Coffee Agreement. There is no indication that its behavior deviated from policy set by central decision makers or was affected by inter-bureaucratic bargaining.

3 Olson, Mancur, The Logic of Collective Action (Cambridge: Harvard University Press, 1965).Google Scholar

4 Simon, Herbert, Models of Man (New York: John Wiley and Sons, 1957), pp. 245–50.Google Scholar

5 Cyert, Richard M. and March, James G., A Behavioral Theory of the Firm (Englewood Cliffs, N.J: Prentice Hall, 1964), p. 53.Google Scholar

6 Williamson, Oliver E., The Economics of Discretionary Behavior: Managerial Objectives in a Theory of the Firm (Englewood Cliffs, N.J: Prentice Hall, 1964).Google Scholar

7 Monson, R. Joseph Jr., and Downs, Anthony, “A Theory of Large Managerial Firms,” in Russett, Bruce (ed.), Economic Theories of International Relations (Chicago: Markham Publishing Co., 1968), p. 349.Google Scholar

8 Gordon, Robert A., Business Leadership in the Large Corporation (Berkeley: University of California Press, 1961), p. 305.Google Scholar

9 Barnard, Chester I., The Functions of the Executive (Cambridge: Harvard University Press, 1950), p. 145.Google Scholar

10 . The most important empirical evidence for the possibility of business neutrality toward important official economic policy is given in Bauer, Raymond A., Pool, Ithiel de Sola, and Dexter, Lewis Anthony, American Business and Public Policy: The Politics of Foreign Trade (New York: Atherton Press, 1963).Google Scholar The authors found that the correlation between attitude and interest with respect to tariffs was less strong for large firms than for smaller ones.

11 During the 1950s, producing states made several attempts to regulate the market on their own. All were unsuccessful because there was no way they could be enforced. A number of producers lacked either the resources or will to withhold stocks from the market.

12 Levels of world production are given in Pan–American Coffee Bureau, Annual Coffee Statistics, 1966, pp. A–10 and A–ll.Google Scholar Figures on coffee stocks can be found in Rourke, Blair Eugene, Causes and Predictability of Annual Changes in Supplies and Price of Coffee, unpub. Ph.D. diss., Stanford University, 1968, p. 31.Google Scholar

13 Quoted in Coffee Trade News, 09 1966 (Vol. 17, No. 9), p. 25.Google Scholar

14 Packenham, Robert A., “Political Development Doctrines in the American Foreign Aid Program,” World Politics, Fall 1969 (Vol. 18, No. 1).Google Scholar

15 Quoted in Wagner, R. Harrison, United States Policy Toward Latin America (Stanford: Stanford University Press, 1970), p. 65.Google Scholar

16 Derived from annual statistics compiled by the Green Coffee Association of New York.

17 Fortune, 05 1972 (Vol. 85, No. 5), and 08 1972 (Vol. 86, No. 2).Google Scholar

18 United States Federal Trade Commission, Economic Report of the Investigation of Coffee Prices, Summary and Conclusions (Washington: Government Printing Office, 1954), pp. 3 and 17.Google Scholar

19 Figures for value of shipments, payroll, and cost of material are given in United States Census of Manufactures, Vol. II, Industry Statistics, 1963 and 1967, and Annual Survey of Manufactures, 1968, 1970 and 1971. Average prices for US green coffee imports are given in Pan–American Coffee Bureau, Annual Coffee Statistics, various years. The coefficient for the difference between the value of shipments and costs regressed upon green coffee prices was —8.93, significant at the .05 level. The coefficient of determination, r2, was .37.

20 Between 1960 and 1971, the contribution of coffee to the five leading Latin American producers fell from an average of 62 percent to 32 percent. The importance of coffee to the leading African producers remained about the same. Under the Coffee Agreement, a Coffee Diversification Fund was established to give loans for projects that would transfer factors away from coffee production. The Fund was strongly supported by the United States.

A comparison of relative acceptance indicators for coffee between producing states and hegemonial or ex–colonial trading partners shows that trade in coffee generally became more dispersed under the Agreement:

Source: Derived from figures in Pan–American Coffee Bureau, Annual Coffee Statistics, various years.

21 As Huntington, Samuel P. has pointed out in Political Order in Changing Societies (New Haven: Yale University Press, 1968),Google Scholar economic growth rather than stagnation is more likely to precipitate political disorder.

22 United States Congress, Senate Committee on Finance, 88th Congress, 2nd Session, Report No. 941, Report on the International Coffee Agreement Act of 1963, p. 56.

23 National Coffee Association, Newsletter, No. 592, June 11, 1958.

24 McKiernan opposed any regulation of the coffee market in a speech before representatives of producing countries in Mexico in 1956. In 1958, he made several speeches supporting regulation. See International Coffee Organization, Chronology, unpublished manuscript, pp. 4, 9.

25 National Coffee Association, Newsletter, No. 589, May 23, 1958.

26 International Coffee Organization, Chronology, p. 21.

27 United States Congress, Senate Committee on Finance, 89th Congress, 1st Session, Report No. 53, Report on S. 701, p. 38.

28 United States Congress, Senate Committee on Foreign Relations, 90th Congress, 2nd Session, International Coffee Agreement 1968, p. 28.

29 Membership on the Foreign Affairs Committee is given in National Coffee Association, Newsletters, Nos. 678, 752, 783, 834, 887, 940, 1045, Supplement to 1098, 1149, 1200, and 1234.

30 See, for instance, issues 587, 649, 650, 660, 758, 664, and 763.

31 McKiernan, John F., “World Economic Role of U.S. Coffee Trade,” Tea and Coffee Trade Journal, 03 1961, p. 56.Google Scholar

32 National Coffee Association, Newsletter, No. 757, July 31, 1961.

33 International Coffee Organization, Chronology, p. 31.

34 The large roasters were represented through the Grocery Manufacturers of America. Proctor and Gamble retained Bryce Harlow, one of President Nixon's former aides. The Pan–American Coffee Bureau also retained a permanent lobbyist in Washington. Lists of registered lobbyists in 1968 can be found in United States Congress, Congressional Record, Vol. 114, Part 12, pp. 15409–1532 and Vol. 115, Part 4, pp. 4760–4787.Google Scholar

35 Both Huntington, Samuel P., in Political Order in Changing Societies, chapter 2, and Lowi, Theodore J., in The End of Liberalism (New York: Norton, 1969),Google Scholar have emphasized the lack of centralized authority in the American polity.

36 Cordell, Arthur J., “The Brazilian Soluble Coffee Problem: A Review,” Quarterly Review of Economics and Business, Spring 1969 (Vol. 9, No. 1), p. 37, n. 26.Google Scholar

37 Harvard Business School, Maxwell House Division of General Foods: The International Coffee Agreement (Boston: Harvard Business School, 1971), pp. 14–15.Google Scholar The text of the notes exchanged between Brazil and the United States are reprinted on p. 36.

38 The centrality of compromise and consensus building to Mills's style of leadership is explicated in Manley, John F., “Wilbur Mills: A Study in Congressional Influence,” American Political Science Review, 06 1969 (Vol. 63, No. 2), pp. 442–464.CrossRefGoogle Scholar

39 Harvard Business School, Maxwell House Division of General Foods, p. 16.

40 Quoted in the New York Times, October 24, 1970, p. 47, c. 4.