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The history of Panama Canal began during the 16th century when Charles V decided to cut a piece of land in Panama. The treasures and riches of Ecuador, Asia and Peru were discovered including the gold. Before the construction of the canal, it took some time for the gold to reach the ports of Spain. The gold shipment will take only a short time if a canal was built. A working plan for the canal was made (Bennett 1915). The plan was placed on hold because of the wars in Europe and the struggle for the control of kingdoms. Eventually, the government of Spain lost interest in the canal project.
In the early years of the 19th century, Alexander von Humboldt, a German scientist knew of the canal project and decided to take this up with the government. The government of Spain formalized the plans for the construction of the canal in 1819. The California gold rush in 1848 and the anticipated rush of several miners provoked the interest of America to dig the canal (Bennett 1915). The Panama Canal was one of the greatest investments of that period. When the Panama Canal began operating in its first ten years, the United States began to benefit from its social returns. These social returns were because of the transport of petroleum that originated from California to the East Coast. Only a few of these social returns were enjoyed by the people of the Panama and their government. The policy of the United States worked so that the effects of the canal to the economy of Panama are minimized at a certain level. The policy had some exceptions, one of which is the anti-malaria campaign that helped improved the health conditions of the people living in the port cities (Braisted 1977).
Most observers of the United States policy will agree that the Panama Canal became a major factor for the growth of the Panamanian economy between 1915 and 1930. Many of them also expected that the operations of the Panama Canal will benefit the economy. The Panama Canal indeed brought substantial benefits to transportation and commercial trade during its initial operation in the first quarter-century. The social rate of return to the people of Panama were estimated from the government bonds of the United States. However, the biggest share of the social returns went to the United States alone. The major contributor to these benefits were from the transport of fuel products from California to East Coast destinations. The direct benefits of the Panama Canal were relatively small. The United States was able to use its military leverage that force the government of Panama to accept payment for the use of their territorial waters. The amount was smaller compared to what has been agreed between the Panama Canal Company and Colombia (Bennett 1915).
The policy of America worked to intentionally minimize the spillover effects from the Panama Canal. The Canal Zone did not employ Panamanians. The United States forbid companies in Panama from lending their services to ships that were traveling in the Canal Zone. The only spillover that became beneficial to the people was the American campaign against malaria. The direct benefits of the Panama Canal to commercial trade depend on the interaction of three variables (Huebner 1915). The first variable is the construction and operational cost of the Panama Canal. The second variable is the decrease in the cost of transportation because of the canal's opening. The third variable is the shippers' immediate response to the transportation cost. The government of the United States have always wanted to construct a Canal across the isthmus of Central America because of the great benefits to commercial trade. In 1880, President Rutherford Hayes made a declaration that a canal will only be possible if it will be under the control of the Americans. The commercial interest of America is greater than any other foreign commercial interest.
The United States wanted to build an Isthmian canal and this dimmed somewhat when a Frenchman by the name of Ferdinand de Lesseps began building the sea-level canal in Panama which was proposed earlier (McCullough 1977). The Suez Canal was built by de Lesseps. In 1889, the French corporation in which he was the head, failed to push through with the proposal because they were experiencing problems with engineering, mismanagement and disease control. This opened an opportunity for the United States to build their own proposed project. In 1902, President Theodore Roosevelt sought the approval of the Sooner Act that would authorize the president in the acquisition of the property of the French Canal. The construction rights will also be secured. Negotiations with Colombia were started to determine area control in which the waterway will pass through.
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Panama have longed to become an independent state but it was only possible with the help of the United States. In return, the Isthmian Canal Convention was exacted from Panama. The Isthmian Canal Convention authorized the United States to construct, operate and defend the Panama Canal when necessary. Panama gave permission for the administration of their territory just adjacent from the waterway (Bennett 1915). This is a perpetual right given to the United States as if the country has sovereignty in the area. The government of Panama also authorized the United States to reestablish order in the city of Colon and Panama for which both are located at the opposite sides of the Panama Canal. The terms stipulated in the Isthmian Canal Convention were accepted by the government of Panama in light of the impending threat of Colombian invasion. Panama accepted on December 2, 1903. If Panama were to consider the rejection of the treaty, it will risk alienating the United States particularly the Roosevelt administration. The United States was willing to protect Panama from Colombia (Major 1993). The treaty laid the legal framework that would allow the United States to begin constructing the canal. The United States Army was involved with the sanitation of the transit zone. They are concentrated on eliminating the mosquitoes to prevent epidemics like the yellow fever and malaria.
The politicians of the United States who were behind the development of the Panama Canal did not back the plan for the benefit of commercial trade. They really cared about the Canal's benefits to the American people and trade. In the years 1921 to 1929, revenues from toll charges amounted to an average of $44 per person (Mitchell 2003). Only 7 percent of the active population of Panama were employed in the canal. Every year, there are 4,671 ships that pass through the Canal and most of them were in need of repairs and maintenance (Mitchell 2003). This would imply that the Panama Canal had little effect on the people and economy of Panama. American policy had a hand in the insulation of benefits from the Canal to the economy of Panama. Only a minimum of direct transfer payments were made. The West Indians were preferred to work as laborer than the Panamanians. They were not even allowed to sell their goods and services to passing ships.
The labor force that built the Panama Canal came from the British West Indies. There was a shortage in the labor force of Panama. Labor was also too expensive. The United States decision to limit the Gold Roll laborers to only the white Americans became an obstacle for the Panamanians or the Indian immigrant workers to move up the skills ladder and learn from training (Lebergott 1980). Those who worked in the canal have access to a store run by the government known to them as the Commissary. These chain of stores sold goods that were imported from America. The Commissary was set up to address the needs of the sudden influx of workers who needed food and other retail goods. In 1913, housing was built for the workers as an extension of the commissary extension. When the Canal formally opened to the passage of commercial ships, the Commissary again expanded its operations by stocking supplies, coal, labor and other materials. They were sold at reasonable prices to ships that would pass the Canal. This policy was justified by Governor Goethels. He said the ships will be spared from the possible extortion of local suppliers. If this would happen, ships will stay away from the Canal and revenues will decrease. The Commissary has an advantage over the local businesses because it is exempted from paying import duties and enjoy subsidies when their goods will pass the Panama Railroad. Local businesses in Panama have expressed their protest regarding this matter. It would seem that the Panama Railroad was utilized for local businesses to die. In resolving the matter, the United States gave 16 local companies to do business in port facilities. Governnor Goethals then further declared that the people of Panama were not capable of handling the provision and maintenance of the ships (Leonard 1973).
One of the indirect impacts of the Panama Canal to the Panamanians was the protection of the United States. Foreign countries will be hesitant to engage in conflict with the country because of this fact. It is also because of this fact that Panama was able to borrow funds from foreign capital markets. Another major but indirect benefit is the great investment of the United States in terms of public health when the Canal was initially on the construction phase. This is separate from their other investments in the port cities.
The Panama Canal has impacted both the economy of the United States and Panama in different ways. It is important to note that most of the benefits were directed towards the United States and its economy. The American policy was involved in the downplaying of the benefits that would have gone to the Panamanians if the policy had been different and contained another approach that would be more fair to the Panamanians in terms of both economic and social benefits.