Panama: Does Geography Matter?

An unpretentious cement boat—the Cristobal—was the first ship to go through the canal in the early days of August, 1914. Many journalistic accounts of the ocean-to-ocean crossings that followed emphasized the ease with which all the locks, floodgates and engines that towed the ships at some stretches of the 47.9 miles long waterway worked.

One man on board of the Ancon—the ship that perfunctorily performed the “grand opening” of the canal on August 15, only a few days after the lowly Cristobal went through the canal—wrote, “So quietly did she pursue her way that… a strange observer coming suddenly upon the scene would have thought that the canal had always been in operation, and that the Ancon was only doing what thousands of other vessels must have done before her.”

Almost a century later the Panama Canal still works exactly as intended by its designers, everything functioning as originally devised by the American engineers who, at the turn of the 20 century, took to finish the waterway the French had commenced to construct circa 1880 only to be defeated by the malarian swamps. Malaria and yellow fever took the lives of more than 20.000 workers in less than 13 years. All sorts of insurmountable technical problems eventually forced the French to abandon the works in 1893, amidst tremendous financial scandals.

David McCullough, a most remarkable American historian (twice winner of the Pulitzer Prize and who also has twice garnered the National Book Award) wrote in 1977 a modern classic on the political, financial and engineering intricacies involved in the construction of the Panama Canal.

In one of the final chapters of this remarkable book, Mr. McCullough relives the moment in which, just before the canal was completed, a Commission of Fine Arts attached to the General Administration, “sent the sculptor Daniel Chester French and the landscape architect Frederick Olmsted, Jr., son of the famous creator of New York’s Central Park, to suggest ways in which the appearance of the locks and other components might be dressed up or improve upon.” Here is what the two men reported:

The canal itself and all the structures connected with it impress one with a sense of their having been built with a view strictly to their utility. There is an entire absence of ornament and no evidence that the aesthetic has been considered except in a few instances… Because of this very fact there is little to find fault with from the artist’s point of view. The canal, like the Pyramids or some imposing object in natural scenery, is impressive from its scale and simplicity and directness. One feels that anything done merely for the purpose of beautifying it would not only fail to accomplish that purpose, but would be an impertinence.1

The canal may not have changed its looks ever since those two sensible architects declined to “embellish” it, but the symbolism of the continental role of the United States that it used to carry has changed as drastically as Panamanians have come to grapple with their long cherished ambition: the reverting of the Canal Zone to local control.

Originally a remote province of Colombia, Panama’s politics during the 20th century has not lacked the violent simplicity that is conventionally attributed to its neighboring banana republics. But curiously enough, agriculture represents less than 7% in the composition of Panama’s GDP. Services, on the other hand, account for 77% of a strongly dollarized economy that rests primarily on the operation the Panama Canal, banking, the Colon Free Zone, insurance, container ports, flagship registry, etc.

Panama’s greatest economic asset always was the privileged geographic peculiarity that shaped its history ever since the 16th century when, suddenly, as a result of Spanish conquests in the New World, the Panamanian isthmus became significant to a newly born global trade.

It was through Panama that 16th century Spaniards transported on pack mule trains all the silver that came from Peru—along with Mexican gold—to be stockpiled in the fortified seaport city of Cartagena, before having it all shipped across the Atlantic.

That thin strip of land, infested as it was by all sorts of tropical diseases, was nevertheless meant to revolutionize the transport of goods from one side of the world to the other.

Up to a century before the New World was discovered, the cost of transport of goods over long distances was sufficiently high as to make space a strong and enduring obstacle to competitive production and trade. With the advent of the industrial age, however, economies of scale growingly went hand in hand with the fall of transport and communication costs, thus making space—distances—an everyday element of economic life that definitely demanded to be taken into account.

The construction of the Panama Canal coincided with the United States’s coming of age as a global power. The canal in itself became a symbol of American continental hegemony. Today, however, it may only symbolize the noxious effects that a globalized economy can have on trade systems that refuse to catch-up with the times.

The trading systems of centuries past, most especially those of the era of container shipping, are now yielding to the so-called “post-Panamax” generation of transport vessels which is expected to dominate shipping within the next decade, putting the canal in severe danger of going out of date.

Should the Panamanians do nothing about it, the Panama Canal will be forced to turn away some 37% of the world’s container traffic by 2011 because the ships will just be too big to pass through.

The volume of global container shipping has tripled over the last 15 years and increased more than 50 percent over the past seven. Queues of up to 100 cargo ships waiting to make the nine hours passing are not an uncommon sight on either side of the canal. And a day in idle can cost a large container vessel up to $50,000.

British journalist Andrew Gumbel has reported of “a complex bidding system whereby ships can jump the queue for the right price. Last year [2006] a British oil tanker paid a record $220.3000—not including the hefty transit fees—to jump ahead of 83 other ships.”

To be sure, Panamanian authorities have been on the issue and two years ago year lobbied for a public referendum to approve the canal expansion. The referendum passed easily and now Panama is embarked on a seven-year project with an estimated cost of more than 5 billion dollars. The plan entails doubling the width of a set of locks that elevate the traffic over sea-level and move it along the 48-mile waterway.

Global economic recession nothwithstanding, the truth is that even the expansion of the Panama Canal might not settle the global problem of cargo-vessel overcrowding. As international shipping companies look around for alternatives, and as unlikely as it may sound, the Panama Canal might well become just one sea passage among many others. Consequently, lobbyists urge competing governments to float their own ambitious projects.

Only two years ago, for example, high-ranking Nicaraguan government officials advanced the proposition of what they called Grand Inter-Oceanic Canal. Though in Nicaragua the distance between the Pacific and Atlantic oceans is 173 miles rather than the Panamanian 48, the Nicaraguans insisted that their canal could be ready by 2020 and welcome the most modern ships from the get-go at an estimated cost of $18 billion. Not an interesting idea among would-be international investors, especially after the re-election of Sandinista leader Daniel Ortega as Nicaraguan president.

The hunt for alternatives, however, goes on and on, and as Mr. Gumbel writes, “there has even been talk of the effects of global warming on the Arctic ice pack and the possibility of one day using the North-west Passage, assuming, somewhat unnervingly, that its icebergs melt into harmlessness.”

At the turn of the 20th century, U.S. technology solved the swamp problem that had defeated the French. American engineers successfully raised the canal and built the locks that granted big ships access to both oceans. At the same time, key advances in medicine helped eradicate malaria and yellow fever just before construction began.

But with ocean levels rising because of global warming, so the pessimists affirm, sooner or later the Panama Canal could get to be at serious risk and then the opening of the North-west passage might not be a folly.

In the meantime, the cargo vessels line up as Panama hopes to keep reaping the benefits of global trade.