Mexico’s Oil Nationalization of 1938

The nationalization of oil companies under the presidency of Lazaro Cárdenas is perhaps one of the most widely discussed instances in Mexican history, along with Independence and Revolution. One can see the common theme in these episodes: the explosion of national revolutionary sentiments causing important upheavals in the structures of society. The promises these movements made were seldom realized, but people still remember and regard them as the pillars of the nation. The expression of Nacionalismo Revolucionario remains an integral ethos across Mexican social movements, unions and even politicians. The monumental event of expropiation and nationalization in the 18th of March in 1938 is always remembered as the culmination of these ideals, the revolution and as a prime example of the nation’s anti-imperialist stance. The expropiation is of great relevance to current events: for the last two decades in Mexico, neoliberal governments have attempted to privatize PEMEX, the state owned oil company, generating staunch opposition from the left and center of the political spectrum.

This opposition rejects the foreign ownership of Mexico’s oil, still using the rhetoric of nationalism, the primacy of a nation’s sovereignty and control of its resources for its own benefit. Conservative arguments are that PEMEX is corrupt and inefficient, which are strangely some of the same arguments the left hurled against the oil trusts during the 1930’s. The former are not lying about corruption, which obviously would not disappear with privatization. However this concern does raise some questions. Is this nationalist fervor in defense of an energy resource really a widespread national rallying cause that could exert political pressure, or is it one designed and orchestrated mainly by state elites for their own purposes? In Mexico’s case, did president Lazaro Cardenas deliberately plan the expropiation of the oil industry or was it his sudden response to a rising crisis? Historiography shows an interesting divide concerning the question previously posed.

The Mexican oil expropiation is most commonly presented as the unexpected culmination of a labor dispute between the Oil Workers Unions, the STPRM and the CTM, and the foreign oil trusts, most of them American, British and Dutch. However, many British and American historians tend to minimize the extent of popular nationalism and tend to attribute the action as less a response to social pressure and more an attempt to cement an authoritative state. In stark contrast, Mexican historians focus more on the iniquity of the oil companies, labor militancy and strong national support for the cause. This essay will deal with examining these two different lenses and attempt to make clearer the symbiosis and delicate balance of the dichotonomies involved: social justice and authoritarianism, nationalism and international integration. The first part will deal with the context and details of the events, and the second will take the issues historians have discussed and compare the two main currents. Finally I will propose some areas of focus that might help clarify the issue. Oil has brought conflict between Mexico and the U.S. since the early days of its discovery.

During the dictatorship of Porfirio Diaz foreign trusts were easily able to acquire property for development and established many refineries along the Poza Rica area of Veracruz. Most of these companies were American: Standard Oil Company, and Sinclair Group. The largest refinery, “el Aguila”, was British owned but came to have Mexican shares. Oil was not the only foreign posession, in 1912 an American consul assessed Mexico at “$2,434,241,422, of which the foreigners had $1,705,054,180 and the Mexicans $729,187,242. Citizens of the United States…possessed about $1,000,000,000 of the total.” Americans possessed most of the oil, most of the mines, and about one half the surface of foreign-owned land. In addition, the British owned the railroad system while the French controlled the textile industry. Space constraints prevent me from going into more statistics on trade balances, but from a glimpse of the data it is evident that Mexico might have achieved formal independence in 1821, but a hundred years later it was nowhere near securing effective independence. The Revolution of 1910 was in large part a response to this situation.

This social movement has been remembered as a reaction to the dichotonomies and marginalisations inherent in a society organized by an entrenched racism and parochialism. It has been painted as a fight for social justice and equality, but it must be remembered that many of the causes advanced for the situation was the elite’s deference to foreign interests. The period if upheavals that began in 1910 had many causes and many leaders, but it was also in large part a reaction to the United States’ growing domination of the American continent. In this respect and across the radical wings of the revolution, it was largely a movement against what a segment of the Mexican population saw as U.S. imperialism, even if not articulated in strictily ideological terms. To guard against these threats, philosopher and revolutionary of the time Jose Vasconcelos came up with the idea of the Cosmic Race, the convergence of all races into a mestizo nation of Mexicans who shared the same culture and celebrated the precolombian past. He thought of aesthetics and imagination as the foundations of culture, and was certain that this realization would provide a strong unity in society.

In 1921 the Secretary of Public Education was founded, who was to begin a campaign of indoctrination in popular nationalism, celebrating a united revolutionary family fighting for the ideals of the revolution. So, it is true that mass nationalism was not yet mature, but there were many groups with very real preoccupation of U.S. intervention. These groups slowly worked ways to stop this threat throughout the years after the revolution in the real battleground, the legal field. This struggle was mainly against the oil companies; U.S. pressure and local sectors that did not think Mexico could do without American support. The struggle for oil began in 1917, when in the Queretaro convention to draft the new constitution, general Fransisco J. Mújica proposed Article 27, which declared, among other things that Mexico’s subsoil was property of the nation. Afterwards it was an endless sucession of litigation and demands on the part of the oil trusts to clear the status of their ownership. In 1923 president Alvaro Obregon obtained the U.S. recognition with the signing of the Bucareli accords. One of the main issues in contention was Article 27 of the constitution, which was clarified in the third point of the agreement: The article would not be retroactive pertaining to oil nationalization if owners had obtained their concessions before 1917, and had a positive act to prove their purpose of searching and obtaining hydrocarbon.

Throughout the 20’s and early 30’s The U.S. reached a series of accords with then president Plutarco Elias Calles. First came the organic law of 1925, which specified that concessions were only valid for 50 years and had to be renovated. Discussions ended with the Morrow-Calles accords, where the U.S. would concede to Calles to publicly speak with a nationalist rhetoric while the latter permitted the oil companies to operate. This balance was upset in 1935, a year of widespread labor agitation. In the 1936 Lazaro Cardenas came to the presidency and began consolidating his power. Calles, who had been behind the curtains of all previous administrations, gave a speech unsympathetic to the labor movement. Much more radical Cardenas took the opportunity to rally the people’s condemnation and became the father and supporter of all labor grievances, at the same time securing control of key army sectors, and ousting Calles and his followers from the cabinet.

Cardenas organized all unions into immense umbrella organisations such as the Confederaciom Trabajadores Mexicanos, the Sindicato de Trabajadores Petroleros de la Republica Mexicana and the Confederacion Nacional Campesina, skillfully controlling their political balance. This political style gave rise to the great paradox of Cardenas’ presidency: Despite the he was consolidating a corporate and bureaucratic state with ever more power in the executive, he did this while appealing to all social struggles and a sense of morality, a sense of paternalism answering agrarian and proletarian demands for economic justice. This contradiction can be two things. First of all it is crucial to understand Cardenas motives and behavior, and a historical or judgemental reading of his actions, but it is precisely this that blurrs the episode. It is unclear wether Cardenas arrived at a moment where he could take advantage of the social movements emerging, or if he made effective efforts to organize them into a larger design.

Companies complained that government officials sent to arbitrate labor disputes were in fact agitators and where reaping political and electoral benefits by supporting labor unions. The oil workers union succeedeing in drafting a collective contract to be signed by the oil trusts, which included an exorbitant increase in wages and services that the companies obviously rejected, on the grounds that their finances were insuficient. The workers went on strike from May 31st to June 9th, with popular and presidential support. At this point the companies began an intense publicity campagin against the strikers, claiming they were destroyng the nation’s economy, and at the same time began to push the department of state for intervention. The U.S was hesitant to intervene, but the Mexican government did come in to resolve the dispute. Cardenas appointed a commision of experts to verify the firms’ financial standing, the Junta General de Conciliación y Arbitraje. All experts in oil matters hap pened to be staunch nationalists, including later PEMEX historian Jesus Silva Herzog.

The committee worked tirelessly for 90 days and finally published a report of forty points in which they declared the issue in favor of the labor unions. This is a very open and historical document, on which the first point reads, “The main oil companies which are operating in Mexico are part of massive economic units owned by British or Americans.” The document went on to explain that the oil trusts had never contributed any benefits to Mexico, but reaped considerable economic benefits and sometimes worked against national interests. Furthermore it detailed how the companies drilled mainly to export, and the little domestic market they stood at much higher prices. The companies rejected the document, and again pushed the state department to intervene, who decided it would be inconvenient given the international situation, and the size and tenacity of Mexico. Cardenas himself said he was lucky to have been president during the presidency of F. D. Roosevelt and Ambassador Josephus Daniels, who were actually sympathetic to his land and labor reforms, regarding it as an extension of the New Deal, and abiding by the Good Neighboor doctrined opted to assure unity and prevent discontent from the American continent given the tense situation in Europe.

Cardenas also had to obtain the support from the American commercial and financial sector, who did not want activities and national relations paralized because of the oil companies’ intransigence. The oil trusts appealed to the Mexican Supreme Court, which again favored the verdict of the inspectors’ commission. Again, the Oil trusts rejected the verdict and refused to pay the demand increase of 26 million pesos in wages. This was definitely the last straw for Mexcian politicians and the general populace: The oil trusts had completely disregarded Mexican jurisprudence and refused to abide by legal orders under the Calvo doctrine. National dignity and sovereignty were deeply hurt, and there was little sympathy for the oil companies outside conservative circles. At the last minute the companies reluctantly agreed to pay the 26 million. Cardenas thought: now they have proved they were bluffing all along. There was now no other way out that would not hurt Mexican sentiments.

The evening of March 18th Cardenas read out a manifesto declaring the expropiation of the oil industry under the law of expropiation of 1936, which provided for due indemnization to affected parties, but clarified that the ownership of the oil trusts was reduced to what they had extracted and not what remained in the subsoil. The companies, again, were quite unhappy and there were rumors that they funded the contrarevolutionary armies of de La Huerta in 1939, this belief was nut unfounded: it was known that the companies bribed and used money to influence internal politics. I don’t believe its far-fercheted to believe that the large part of Mexico sincerely abhorred the multinationals. Cardenas move was even applauded by conservative sectors. For the first time a weaker state had achieved a solid victory against an Empire. The importance the companies gave the issue was not so much over the oil barrels, rather, the industrialists were terrified that the nationalization would set a prescedent for the rest of Latin America. While the companies were united in their refusal, the U.S. government and Josephus Daniels accepted the move as legal, but general consul of Britain Mr. Owen St. Clair O’Malley adopted a hard line against the government in defense of the multinationals.

What ensued was a lengthy legal fight over indemnization and recognition, boycott and diplomatic intricacies that did not end until the war was well under way. The questions that are still subject to debate and I wish to scrutinize are Cardenas motives, timing and whether his actions were a show of support to the demands of the population or a strategic action. As strategic it seemed suicidal at the moment since nobody believed Mexico could handle the oil industry on its own; in addition fears of intervention were very real. However Cardenas might have wished to consolidate state sovereignty by attaching it to a valuable resource. As a show of support it could have been more a garnering of support. As for intervention: Mexico had the high moral ground, and the U.S. lacked its gospel of democracy excuse.

What is interesting is that these questions might have not arised if it wasn’t for a literature that emerged in the late seventies. From reading Mexican historians and the opinion of the old campesinado, the fact that there was an almost ubiquitous hatred and distrust of the oil companies, rests without a doubt. In their accounts, the fervor of revolutionary nationalism pushed and supported the action all along, and the socialism of Cardenas had the active support of millions of obreros and agraristas, even some Catholic and conservative sectors. His action was almost unanimously approved, since it was widely known that the companies had always mistreated the Mexican population, policing and mistreating their laborers, swindling its actionists, and lying to its authorities, Alejandro Carrillo writes:

“unfortunately for us, there are some foreign companies in Mexico, among whom the oil trusts have always played the leading part, that consider Mexico as one which is inhabited by an inferior race and whose government can be forced to do whatever is in the mind of the foreign owners of Mexican wealth. To these foreign countries Mexico is just a country full of riches to the benefit of which the people that inhabit it have no right. On the contrary, they consider that the Mexican people’s only purpose in life should be that of furnishing “cheap labor” for those powerful foreign companies which have voluntarily taken upon their shoulders what has come to be termed as the “white man’s burden in the tropical, backward countries.”

Mexico was a blooming nation that wished to assert its sovereginty and see itself on an equal basis with the great powers. Many of the oil owners could not comprehend this idea, and would not shed their hard Imperial attitude of la mission civilicatrice and gunboat diplomacy, something that seemed itself backwards to Mexicans. In Mexico there is deep and tense distrust of foreigners, more than these think so. But the history of racism has provoked its inverse reaction, many mexicans, as evident in popular songs and a long historiography, were sincerely disgusted of the oil companies’ protagonists and their practices of “murder and plunder”, i.e. Wheetman Pearson, Edward L. Doheny. Even if this was propaganda it was not hard to believe.

It seems pretty clear that there was widespread support and mobilization, in fact this was the revolution itself, fought through constitutional means. Most interactions the ¾ mestizo population had had with foreigners was unpleasant, so it was not hard to turn this feeling into nationalism. As for going back to the rupture with this historiography, which seems to have generated in the late 70’s, we can quote George Philip, who says, “While the oil nationalisation certainly appears to have been a popular act, public opinion played a role which was essentially subordinate. There is no sign that there existed any general public opinion which played a real part in pressing Cardenas to move against the oil companies,” Philip goes on to claim that the demands of workers and consumers were channelled in a nationalist direction by the government, but that this was not unevitably so. Furthermore mobilization died off and the workers “never in fact received the award of the arbitration commission.” He also says that afterwards, the political elite leaned toward conservative policies and put Mexico back firmly into the world capitalist order.

On a similar line, Alan Knight believes that Cardenas was in fact more moderate than usually thought and he refuses to believe that the ex-president had planned nationalization a long time before its realisation. He contends that expropiation was not an expression of a consistent nationalist economic policy but a spectacular exception. He believes that “Cardenas’ stand was stiff-necked, principled and ultimately uncompromising in compariosn with his pragmatic, moderate policy towards other foreign investments, this was because the companies’ attitudes were all these things and more.” In addition Jonathan Brown advances that the mobilization of worker’s had more to do with job security and personal reasons than a strong patriotism. These considerations might have some truth in them, but we cannot think that revisionist history has to fix everything, because we might not have it all wrong.

Lorenzo Meyer, for example, reminds us that after expropiation thousands of Mexicans gathered inside the Palacio Bellas Artes to turn in everything they could to sell so as to gather money for the indemnization. They would never gather the money demanded by the trusts, but it was an excellent show of solidarity. Also, it is true that the marches were staged, but they incredibly surpassed central planning. Arturo Grunstein Dickter also invites us to look at other industries to see if Cardenas had a wide radical policy, and in fact, land, railroads, and electricity were very similar stories as that of oil, garnering extensive support. It was obvious that land reform would steam more support since the proletariat was just coming into existence, and peasants were eternal. As for the question of whether Cardenas had this planned, it will be subject of debate for times to come, but my personal opinion is that he had. Every participant of the revolution must have dreamed of that, and not everyone could achieve it. Cardenas and Mujica used to patrol the Veracruz area as generals, and there developed certain animosities to the companies and their guards. They surely dreamt of revolutionary victory and retaliation.

Cardenas and other politicans kept taking baby steps through legislation, and were true actors in laying the foundations for a more sovereign Mexico. It seems unlikey that having set up the labor confrontation, he inadvertently fell into brinkmanship. The least we can say is that there was a considerable and for a short time influential radical faction in the PRM that did wish to carry on with the nationalist goals, and they did what they could, given the circumstances. The subsequent failure is another story. The way one can look at it is that Cardenas was working with the people towards similar goals, and this act was much more than one to uphold dignity and morality. The fact that he needed to develop an authoritarian state to achieve social justice and nationalist ideas was a historical circumstance that grew out of the revolution and the U.S. proximity. And for those historians who doubt the sincerity of Cardenas: if they were ever born and lived in Mexico they would think different, even if for sanguine reasons.

The problem was new and is ongoing: how to fight a dominant power that is not an empire, because it has no territorial basis, but every other advantages it does have. The U.S’ avoidance of direct annexation for a sphere of influence where they could pick and choose worked wonders. Free trade is expoused as a way to go back to the XIXth century, where we again put cheap labor and they put the maquiladoras, we send raw materials and assemble, they bring out the guns and we bring out the dead. Obviously I have committed a historian’s sin, and the same one that all Mexicans have: look at the historiography of Mexicans and Latin Americans, its much more anti-imperialist, and it will be, because the neighbor is still there. Objectivity is in fact impossible. And the U.S. might not be an Empire in semantics, but we will regard it as such as long as its practices continue. And perhaps it does not come so much out of nationalism, because I am not a big fan, but out of outrage and becoming indignant, just like the workers.

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[ 1 ]. Donoso Romo, Andrés. Una Mirada al Pensamiento de José Vasconcelos sobre Educación y Nación. Utopía y Praxis Latinoamericana. Año 15. No. 48 (Enero-Marzo, 2010). 51-62 [ 2 ]. Mújica was quite a radical general who had joined Ricardo Flores Magon in one of his colonies and collaborated in the anarchist newspaper Regeneracion. [ 3 ]. Financiers urged Washington to push recognition because they wanted immediate restitution of the debt payments. Oil companies, however, were adamant in Washington and Mexico over claryfing their legl status. See Meyer, Lorenzo. Mexico y Los Estados Unidos en el Conflicto Petrolero (1917-1942): 1972 El Colegio de Mexico. Mexico, pp. 182-190 [ 4 ]. Ibid, 219-238

[ 5 ]. Philip, George. Oil and Politics in Latin America: Nationalist Movements and State Companies. Cambridge University Press 1982 New York, pp.
212-215 [ 6 ]. Silva Herzog, Jesus Historia de la Expropiacion de las Empresas Petroleras. Petroleos Mexicanos: 1988. pp. 50-53 [ 7 ]. Dwyer, John J. The End of US Intervention in Mexico: Franklin Roosevelt and the Expropiation of American-owned Property. Presidential Studies Quarterly, Vol. 28, No. 3, Going Global: The Presidency in theInternational Arena (Summer, 1998), pp. 495-509 [ 8 ]. Basurto, Jorge. El Conflicto Internacional en Torno al Petroleo de México. Siglo Veintiuno Editores. Mexico 197661 -70 [ 9 ]. Carrillo, Alejandro. Mexican People and the Oil Companies. World Affairs, Vol. 101, No. 3 (September, 1938), pp. 171-178 [ 10 ]. George Philip. Oil and Politics in Latin America: Nationalist Movements and State Companies. Cambridge University Press 1982 New York, 225 [ 11 ]. Grunstein Dickter, Arturo. In the Shadow of Oil: Francisco J. Múgica vs. Telephone Transnational Corporations in Cardenista Mexico. Estudios Mexicanos, Vol. 21, No. 1 (Winter, 2005), pp 6-26. See also Alan Knight, The Politics of the Expropriation, in Brown and Knight, The Mexican

Petroleum, 90–128.