Podcast: What manufacturers need to know about the U.S.'s growing interest in the Panama Canal

Andrew R. Thomas, PhD, is an associate professor of marketing and international business at the University of Akron. Andrew has authored over 20 books on the intersection of global business, security, development, energy, and strategy. His most recent book is "The Canal of Panama and Globalization: Growth and Challenges in the 21st Century (2022)." A successful global entrepreneur, Andrew has traveled to and conducted business in 120 countries on all seven continents. Andrew recently spoke with IndustryWeek editor in chief Robert Schoenberger about the history of the Panama Canal and why the waterway is relevant again.

Below is an excerpt from the podcast:

IW: So, you wrote a couple of articles for IndustryWeek earlier this month looking at the history of the canal and what's changed in the past several years that has made it a different story than it had been. I was really fascinated by your discussion of how back in the ’50s, ’60s, and even into the ’70s, there was a push for the U.S. to divest itself from that canal as much as possible, which seems foreign today, considering how important it’s become in the past few years. Could you briefly go through again how it resumed its prominence following World War II?

AT: The canal was built for military purposes. That was the way Teddy Roosevelt was able to get the funding from Congress to build the canal. Really, only the United States government could do it. The French tried it previously in the 19th century. They privately financed it, couldn't make it happen, and ran out of money. They didn't have the largesse that only the U.S. government could provide. And when Roosevelt went to Congress to get the funding, he said it would really give the United States a cost savings. Ultimately, we wouldn't need a Navy for two oceans. We would just need one Navy that could transmit the canal and be able to service the Atlantic and the Pacific. That cost-savings sales pitch convinced Congress that it was a good idea. So, we built the canal for military purposes. It was never built for an economic one. The idea that we would go from the East Coast to the West Coast was opened up by the railroad that was built in the 1840s and ’50s. So, the canal is open. We move through the ’20s and ’30s to get to World War II.

It was really World War II, paradoxically, that made the canal pretty much, the U.S. Navy has used this term. an auxiliary or an ancillary to U.S. military power. Because, during World War II, the ships got bigger, and they just simply were no longer able to transmit the locks of the canal. They were too big, and the locks were too small. And the other thing that was going on at the same time was the design of the canal, the way it was set up. The canal zone itself was 50 square miles of the United States, transplanted into the independent nation of Panama. And that was a bad look. It was bad optics. We were funding the Cold War after World War II, against Soviet-style imperialism, and then everybody can point and say, ‘Well, look, you guys are occupying Panama.’ So, we had the canal really being kind of military irrelevant. There was an economic factor too, but it wasn't dramatic. After World War II, we expanded our railroad networks and laid the Interstate Highway System, so moving across the country wasn't dependent upon the canal. And then, we also had the Western United States for the first time in world history, certainly in our country, where California, Oregon, Washington, those West Coast states had become economic powerhouses themselves. They were no longer dependent upon the East for their survival. They were independent in energy, chemicals and resources, manufacturing was moving out there, and capital was there.

So, the canal was really kind of declining in terms of importance to the United States. Even in 1947, Harry Truman famously said, ‘Why don't we get out of Panama gracefully before we get kicked out?’ And then Dwight Eisenhower, the Republican president after him, kind of saying the same thing about the canal being once a good idea and maybe no longer a good one. Lyndon Johnson thought the same. Richard Nixon even thought the same. None of them would risk political capital to try to get the canal out of the hands of the United States. It was because of some powerful lobbies in Washington, particularly the trade unions, that were working in the canal zone—carpenters and machinists and day laborers—Americans paying no taxes, living incredibly well, making three or four times what the average American worker in that job would be making. And of course you had some ultra-nationalists, particularly on the right of the political spectrum, that were really proud, and this is kind of where President Trump, I think, would fall in, that we built a canal, that we made the investments, and they just thought it would be a shame, in terms of our national character, to get rid of it.

So, you have all of these factors in play. Nobody wanted to get rid of it. We’re not making money on it, in fact we're losing money on it. Nobody really knows how much we lost. I estimated it was probably in the tens of billions of dollars running this thing. It was becoming less important as the country now is fully developed on both coasts. So, Jimmy Carter, to his credit, finally took the leap and risked to his political capital and was able to get enough support in the United States Senate to give it back to Panama. And that started in the mid to late 1970s, with the transition period built in that we would eventually slide out and we would have Panamanians replace the American workers. By the time the canal would finally fall into Panamanian hands at the beginning of the new Millennium, it would be run by Panama.

IW: I thought it was really fascinating how the way the Panamanians took over the canal was probably one of the biggest surprises. Seeking the ISO standards and really showing that they were better at running the canal than we had been in terms of logistics and control.

AT: Again, from an American perspective, the canal was in decline. It wasn't as important. By the time we get to the 1990s, that last transition phase before the Panamanians take full control, we were tired of it. We wanted out. There was lots of concern. In fact, there was a famous New Yorker cartoon that showed, this is in the mid ’90s, Uncle Sam giving the canal to Panama, and it was the same thing as a father giving his 16-year-old the keys to the family Ferrari. We're giving them something they're never going to be able to handle and will probably crash. That was the expectation. So, when Hutchinson in 1997, the Hong Kong company, stepped up to get the contract to manage the ports on either side of the Atlantic and the Pacific, the United States really wasn't interested in that either. We were just kind of tired of it. When we did the formal transition, I was in Panama when this happened, I remember the day, the only American who represented the United States at the handover was Jimmy Carter, the retired president from 20 years before. We didn't send any delegation or any representatives from our own government. Just Jimmy Carter showing up and saying, ‘OK. Here you go. Here's the keys. Now run with it.’

And to your point, Robert, the Panamanians have done a phenomenal job. And I say this as someone who's been going to Panama, studying this for a long time, lives in Panama a lot of the year, and is married to a Panamanian. So, I say this with pride as both an American as well as a Panamanian. It's a success story made in Panama. The Panamanians have made more money each year, returning it to the Treasury of Panama, because that's the purpose of the canal, than the Americans ever made. They do billions of dollars of net profit return every year. About $2 billion or $3 billion goes into the government coffers.

You mentioned ISO 9001 standard, something the Americans never achieved, the Panamanian sought out from the very beginning to make it happen. And they did, very quickly. And this is not to say that the Americans didn’t help in this. They did. The Americans who were involved in the transition, they were very heroic. They got no credit for giving the canal back to the Panamanians. Yet many people who were working there for that transition period were teaching the Panamanians. This is what you need to know about maintenance. Get some ISO 9000 standards put in. Reach out to international partners to do things that you don't do so well, focus on your core competencies. The things we teach in business school, the things Mackenzie teaches from a consulting perspective. That's what we were telling the Panamanians to do. And by God, they did it. It's a great success story made in Panama.

About the Podcast
Great Question: A Manufacturing Podcast offers news and information for the people who make, store and move things and those who manage and maintain the facilities where that work gets done. Manufacturers from chemical producers to automakers to machine shops can listen for critical insights into the technologies, economic conditions and best practices that can influence how to best run facilities to reach operational excellence.