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Coups, corporations, and classified information

When I was growing up in the 70s there was much speculation about the ties between big business interests in Central and South America and US-backed coups in banana republics.  A new paper posted online by The Quarterly Journal of Economics examines the impact of coups and top-secret coup authorizations on asset prices of partially nationalized multinational companies that stood to benefit from US-backed coups. Below is a brief excerpt outlining some of the background and history of coups and corporations who benefited from US meddling.  I hope you enjoy.     –Purdy, Oxford University Press

By Arindrajit Dube, Ethan Kaplan, and Suresh Naidu


The Central Intelligence Agency was created in 1947 under the National Security Act. The act allowed for “functions and duties related to intelligence affecting the national security,” in addition to intelligence gathering. Initially, the scope of the CIA was relegated to intelligence, though a substantial and vocal group advocated for a more active role for the agency. This culminated in National Security Council Directive No. 4, which ordered the CIA to undertake covert actions against communism.  In the United States, covert operations designed to overthrow foreign governments were usually first approved by the director of the CIA and then subsequently by the president of the United States.

After Eisenhower’s election in 1952, Allen Dulles was appointed director of the agency.  Under Dulles, the CIA expanded its role to include planning and executing overthrows of foreign governments using military force. All but eight of the CIA operations listed in Table I, including four of the five studied in this article began during Dulles’s reign as CIA director under the Eisenhower administration. Allen Dulles was supported by his brother, John Foster Dulles, who was the contemporaneous secretary of State.  The Dulles brothers together wielded substantial influence over American foreign policy from 1952 to 1960.

In 1974, partly due to public outcry over the U.S. involvement in the military coup in Chile, the Hughes-Ryan Act increased congressional oversight of CIA covert operations. In 1975, the U.S. legislature formed subcommittees to investigate American covert action. Afterward, the intensity and scope of U.S. covert actions fell substantially. The height of covert CIA activity lasted slightly more than 20 years, encompassing the period between 1952 and 1974.

Our sample of coups includes five such covert attempts. The first one occurred in Iran in August 1953, when the CIA, jointly with the United Kingdom’s MI6, engineered a toppling of Prime Minister Mossadegh. Mossadegh had nationalized the oil fields and refinery at Abadan, which were the property of the Anglo-Iranian Oil Company, itself a partially publicly owned company of the U.K. government. In Guatemala, the CIA overthrow of Jacobo Arbenz Guzman in June 1954 occurred after the Arbenz government had nationalized most of United Fruit’s assets in Guatemala. Next, in 1960 and 1961, both the United States and Belgium engaged in independent operations to politically neutralize the government of Patrice Lumumba in the Congo. Lumumba had refused to allow Katanga, a copper-rich enclave controlled by the Belgian multinational Union Miniere, to secede and avoid taxation and potential nationalization. In Cuba, the Castro government nationalized all U.S. property in 1960, one year before the failed Bay of Pigs coup attempt in April 1961. Finally, the Chilean nationalization of copper and other foreign-owned assets began under the Frei government, but proposed compensation was substantially lower and nationalizations more frequent after the Allende government came to power in late 1970. Allende was in office less than three years before he was killed during a coup on September 11, 1973. In Online Appendix A, we provide a more detailed synopsis of each coup, focusing on the nature of the precoup regime, the motivations behind the expropriations, the foreign  responses, and the resolution of the coup.

The qualitative evidence on links between business and coup planners is substantial. First, much of the early CIA leadership was recruited from Wall Street. A 1945 report on the CIA’s precursor by Colonel Richard Park claimed that the “hiring and promotion of senior officers rested not on merit but on an old boy network from Wall Street”. Second, there was direct contact between the companies that had been nationalized and the CIA. For example, at the time of the coup planning against Arbenz, three high-ranking members of the executive branch of government had strong connections with the United Fruit Company.  Alan Dulles, a former member of the board of directors of the United Fruit Company, was director of the CIA. Thomas Dudley Cabot held at different times the positions of director of International Security Affairs in the State Department and CEO of the United Fruit Company. His younger brother, John Moore Cabot, was secretary of Inter-American Affairs during much of the coup planning in 1953 and 1954. Besides the fact that Anglo-Iranian was a majority state-owned company, the company met with CIA agent (and later historian) Kermit Roosevelt, who alleged in his 1954 history that the initial plan for the coup was proposed by the Anglo-Iranian Oil Company. In Belgium, the royal court and the powerful bank Societe Generale tied together a social and financial network of colonial officials and businesses. De Witte writes that “the incontrovertible political conclusion is that the political class, including the [Belgian] court, had a direct material interest in the outcome of the Congo crisis”. Most directly, the minister of African Affairs, a key instigator and planner of Operation Barracuda, Harold d’Aspremont-Lyden was the nephew of Gobert d’Aspremont-Lyden who was an administrator for Union Miniere. The Senate Church Committee reported that the CIA held meetings with U.S. multinationals involved in Chile on a regular basis, even to the point of ITT (whose board included John McCone, a former director of the CIA) notoriously offering the CIA $1 million to overthrow Allende’s government. In short, social links between the government officials responsible for the coups and financial interests are well documented.  Secret plans for regime change could have easily made it in to the ears of financial actors who, even if not directly connected to the affected companies, could arbitrage this information on the market.

Our results are consistent with the presence of both direct information leakage between political decision makers and the companies that stood to benefit, as well as indirect information flows to the market. We are unable to produce definitive evidence on the identity of the traders or pinpoint the exact source of the information leakage.

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