SUPPLIER-AREA STOCK PRICE MOVEMENTS

The regulations on sugar imports in the United States distinguished eight sugar supplier areas by geographical and political boundaries. The defined “supplier areas” included five domestic areas—mainland beet and cane sugar producers, Hawaii, Puerto Rico, and the Virgin Islands; and two main foreign suppliers, Cuba and the Philippines, and other “full-duty” foreign suppliers that received small quotas, mainly the Dominican Republic and Mexico.⁷

To observe their relative performance, we have constructed indices of common stock prices of sugar companies in the various supplier areas weighted by their relative total book assets.⁸ The data are weekly prices of common stocks for sugar companies traded on the New York Stock Exchange, the American Stock Exchange, the Havana Bolsa, and the Honolulu Stock Exchange. Including all frequently traded sugar company stocks on these exchanges, we constructed indices of 32 sugar-company stocks of the four principal supplier areas—the U.S. mainland, Cuba, Hawaii, and Puerto Rico, which together on average constituted 89 percent of the U.S. market during our period. The indices are of 7, 9, 11, and 5 companies, respectively, weighted by total assets.⁹ There is some possibility of selection bias in these indices as indicators of the average supplier-area performance. The available data contain only the larger, higher performing, publicly traded companies. Any selection bias, however, works against our conclusions, because sugar companies were more heterogeneous in Cuba and Puerto Rico than in other supplier areas.¹⁰

The stock price movements of sugar companies in Cuba and the United States differed because the U.S. companies were insulated from the world market and Cuban producers were not. Figure 1, which gives the movements of each supplier-area index from 1947 to 1959, shows this. Two periods of divergence stand out. The first one begins with the Korean conflict, which began in June 1950 and stimulated the world demand for sugar. The strong sellers' market was reversed abruptly in 1952 by a huge bumper crop of sugarcane in Cuba that exceeded the previous five-year average (of 6.3 million short tons) by 27 percent (to 8.0 million short tons).¹¹

That caused Cuban sugar authorities to intervene and withdraw 1.96 million tons of sugar from the market, financed privately by the producers at a sum of $129 million U.S. It produced a large overhang of physical stocks of sugar, which depressed share prices for several years. The second divergence corresponds with an unusually strong international market for sugar from November 1956 to July 1957, associated with disruptions of ordinary supply channels caused by the Suez crisis, followed by drought in Puerto Rico, sugar workers' strikes in Hawaii, and political unrest in Cuba in 1958.¹²

From Wall Street's perspective, investment in Cuban sugar companies was highly speculative and dependent on world political conditions. Investment in U.S. mainland sugar was considered less risky because it was insulated from world shocks. Figure 2 shows how U.S. and world sugar prices diverged in these periods. Comparison of Figures 1 and 2 show that U.S. mainland and Hawaiian firms, which sold exclusively in the U.S. market, were not as responsive to world price shocks as were Cuba and, to a smaller extent, Puerto Rico.¹³

THE QUOTAS UNDER THE SUGAR ACTS

The U.S. sugar market first came under a quota-based regulatory regime in 1934 as part of the Agricultural Adjustment Administration program of the USDA, adopted to enact relief measures in response to the Great Depression. The Sugar Act of 1948 restored the quota regime after World War II.¹⁴

Subject to renewal every four to five years, the legislation was revised in 1951 and 1956.¹⁵ In each of these, the law authorized the Secretary of Agriculture to administer quota allotments to each supplier area for sugar production (for mainland suppliers) or imports (for off-shore suppliers).

To determine the quota each year, the law established formulas that, depending on the supplier area, were either fixed or a function of an annual estimate of total U.S. consumption to be determined by the Department of Agriculture.¹⁶

Table 1 gives the U.S. market share of each supplier area. Table 2 outlines the quota formulas for the Sugar Act of 1948 and the revisions of 1951 and 1956. Domestic producers and the Philippines were assigned fixed quotas in 1948 and 1951. The remainder, or residual share, went to Cuba and the full-duty foreign suppliers at the ratios of 98.64:1.36 percent in 1948 and 96:4 percent in 1951.¹⁷

Before 1956, therefore, Cuba was assigned almost all the growth and variability in the market. However, mainland beet sugar producers' and the Philippines' quotas were set to be nonbinding for much of our period of study such that they received some of the upward, but none of the downward, variation in the market. The legislation charged the Department of Agriculture to select estimates of U.S. consumption so as to stabilize the domestic price of sugar. Cuba had sugar-production capacity of more than double its quota to the U.S. market, and the price Cuban producers received for raw sugar sales in the U.S. market, net of duties, between 1948 and 1955 exceeded the price on the world market on average by 25 percent. In short, Cuban sugar producers had the ability and incentive to assist the USDA's sugar price stabilization effort by absorbing much of the variability in demand and filling other supplier areas' deficits.¹⁸

Cuban sugar policymakers cooperatively absorbed most variation in the size of the U.S. market and, in return, received nominal quota rights for most of the future growth of the U.S. market.

The Sugar Act of 1948 was revised in 1951 with few major changes: an increase in Puerto Rico's fixed quota and an increase in the residual share going to full-duty foreign countries. By contrast, the 1956 revision introduced major changes in the assignment rules. Below an overall consumption benchmark of 8.35 million tons, quotas remained as in the 1951 sugar law. Beyond that benchmark, there were three main changes in the quota formulas: Domestic producers, for the first time, were awarded an explicit share of the increase in the U.S. market; they were given priority in reallocations of deficits; and full-duty foreign suppliers were awarded a larger share in future market growth. All of these were at the expense of market rights formerly assigned to Cuba.

Table 3 gives projections of expected quotas by supplier areas for five-year and ten-year horizons based on a constant rate of growth of consumption projected from 1956. Assuming an annual rate of growth of 2.2 percent (the trend rate 1948–1956), domestic beet sugar producers expected an increase in their quota in five years of about 0.34 million tons in the 1956 legislation relative to the 1951 legislation—an addition to the projected quota of over 60 percent. Other domestic producers expected similar proportionate increases. Meanwhile, after five years under the 1956 legislation, Cuban producers expected a loss in annual exports to the U.S. of 0.98 million tons, relative to what they would have had under the 1951 legislation—a loss in the projected quota of about 32 percent. Cuban officials objected that in 1948 they had “accepted” the reduction to their historical share of the U.S. market (an average of about 40 percent since 1902) only because of the compensation expected from future market growth. Assuming the regulatory parameters established in 1951 would continue, they would have expected an average annual rate of sugar export growth to the U.S. market over the next five years of 7.8 percent. Under the new 1956 regime, expected market growth fell to 2.6 percent or less.

Two hypotheses emerge about the pricing of sugar company securities before and after these two regulatory revisions. First, Cuba's quota was relatively uncertain because it depended on market variability and the deficits of other producers. On that basis, investors would assess the risk of Cuban securities as above average, and that of mainland sugar companies as below average, relative to average security risk of all suppliers to the U.S. sugar market. Second, we expect a change in pricing structure as investors foresaw the regulatory changes of 1956. After 1956, Cuban sugar producers would have to sell a larger proportion of their sugar on the more volatile (non-U.S.) world market. Investors would have required a higher risk premium for Cuban securities once information about the 1956 revision was incorporated into their valuations. Risk premiums on U.S. securities would have fallen as uncertainties were reduced about whether the U.S. government would respond to relieve mainland companies of the burden of fixed and binding quotas. The reallocation of the benefits of expected future sugar market growth widened the relative risk assessments of long-run performance in the two areas.¹⁹

THE POLITICAL ECONOMY OF THE REVISIONS

The three spikes in Figure 3 identify the most likely dates at which new information produced the most abrupt changes in investor behavior. What was the nature of this new information? Each of the three coincided with a critical legislative or political moment. The third occurred during a week in which Batista's regime was beginning to collapse.²⁸

The first two spikes fall on weeks during which events occurred that changed the expected course of the anticipated revision in the sugar law scheduled to expire in 1956. Besides their intrinsic effects on sugar politics, these events released information to the informed sugarcompany investor that abruptly changed the expected timing and content of the sugar law revision. The first spike, on 31 December 1953, corresponds with the initiation of a campaign by domestic beet and cane sugar interests to demand immediate revisions to increase domestic quotas, rather than wait until the expiration date of the 1951 law. The second spike, on 1 April 1955, corresponds with the submission of the bill that most influenced the shape of the final bill. The information content of this bill was particularly significant because it proposed the main innovations to the quota formulas, and predictably set the bargaining parameters that steered the subsequent course of debate in Congress.

An important fact that impinged on the political economy of the revision was that some of the quotas were nonbinding. Most important, the fixed quotas for mainland sugar, in the original 1948 act, were deliberately set beyond current production capacities so that mainland producers did not face crop restrictions before 1953. In that year, beet sugar producers balanced their quota deficit, and mainland cane sugar growers, for the first time since 1948, exceeded their quota and had to accept crop restrictions set by the Department of Agriculture.²⁹

Beet sugar producers expected to face similar crop restrictions beginning in 1954.

Political demands for increased mainland quotas emerged as the threat of binding crop restrictions approached in late 1953. An alliance of the American Sugar Cane League and the U.S. Beet Sugar Association emerged publicly by the spring of 1954.³⁰

Cane and beet competition for quotas had often been antagonistic, so the announcement of an alliance represented a significant political event. The bargain between the two groups was needed to settle a disagreement over timing. Facing more immediate crop restrictions, cane sugar producers called for an immediate revision, rather than wait until the current law expired on 31 December 1956. Beet sugar interests, not yet facing restrictions, were holding out. In the meantime, the Eisenhower administration opposed accelerating the revision in 1954 because of the ramifications for its Cold War policy in Central America. The U.S. was involved at the time in overthrowing the leftist Guatemalan president, Jacobo Arbenz, and the State Department did want to not risk further destabilization of the region. A cut in Cuba's quota might weaken Batista, who had seized control in a coup d'état on 10 March 1952.³¹ Cane sugar interests alone were insufficient to pressure Congress to go against the administration's Cold War policy.

The first spike in the event-study coincides with the week in which investors perceived the possible effect the new alliance could have on the timing of the anticipated revision. As late as 22 December 1953, the Journal of Commerce noted with disdain that the “bleat of Louisiana attracted scorn more than anything else. Trade interests felt it undignified for Louisiana to whine so often.”³²

It suggests that the financial press at that time disregarded the significance of the “bleating.” But subsequent reports in the press show that the unity and resolve of Louisiana producers grew as they cultivated “virtually unanimous support” for an increased quota toward the last week of 1953. It became public news as the organized interest group prepared to voice demands at a meeting with the USDA on 6 January 1954 in New Orleans.³³

A complementary, portentous event explains more why investors inferred a need to update their market forecasts. The effects of a coordinated grassroots letter-writing campaign on the part of myriad local beet and cane sugar growers' associations and processing companies began to be felt in Washington by the last week in December 1953. Letters poured into congressional representatives' offices from December through the first few months of 1954. The first of the letters preserved in the archives of the Secretary of Agriculture was dated 19 December 1953.³⁴

Most of the letters accumulated at the Department of Agriculture circuitously, sent first to congressional representatives, then forwarded to the appropriate administrative offices, accompanied by a cover letter from the congressman who received it demanding appropriate action. Clearly there was some delay between the drafting of the first letters around 19 December and its impact in Washington and Wall Street. With postal delays during the holiday season, the first of these letters had to arrive and circulate in Washington no later than the last week of the year. The timing coincides exactly with the week prior to 31 December 1953—the week of the first spike.³⁵ The unexpected emergence of a well-organized grassroots lobbying movement was of great informational significance to sugar-company investors. It signaled an unanticipated increase in the probability that Cuba's quota would be reduced sooner than anticipated (and possibly more drastically) to relax the anticipated crop restrictions on mainland producers. The political effects of this campaign were major news in the press by early February, when progress toward a joint cane-beet proposal was made public. Yet the coordinated letter-writing campaign indicates that the coordination went into effect before the formal proposal was announced.

The transmission of this information from Washington to Wall Street as quickly as we observe required insider information. Whether this is plausible depends on how this information became available to investors. Though newspapers in Louisiana and Havana reflect more insight into its significance, the New York Times and the Journal of Commerce capture the import of the events of that time only with a lag. But were other sources of information available to investors? First, it is important to note that informed investors in sugar company stocks were specialized investors (mill owners, sugar traders, or others in various branches of the business), who did not rely solely only on the press for information. The financial press warned that the normal investor should leave investment in sugar-company shares to the specialized investor.³⁶

Very likely, insiders and informed investors were well represented among buyers in this market. Insiders had not only informal but also formal information networks. For example, David Fernsler circulated a mimeographed sugar newsletter to specialized clients, entitled: “Sugar in Washington: A Confidential Personal Advisory Service for Restricted Clientele”—an unpublished source of sugar intelligence. From these newsletters, one learns that Fernsler had a network of confidential informants, well placed in the various sectors of the sugar industry, some of whom attended private top-level meetings.³⁷

Besides this, lobby organizations were formed to monitor and respond to relevant political events. The main lobby group for Cuban, and associated American, sugar interests was the New York-based United States-Cuban Sugar Council (USCSC), to which relevant specialist firms and individuals subscribed as members. The USCSC employed a full-time secretary whose primary responsibility was to gather intelligence about the politics of sugar in Washington and pass it on to its members. We know that they knew about the letter-writing campaign and considered it important; copies of some of the letters were found in USCSC members' files, with cover letters indicating they were forwarded by the Secretary of USCSC. The USCSC files also contain drafts of letters being prepared for counter-reply. Also, the Cuban corporatist regulatory agency, the Cuban Sugar Stabilization Institute, maintained a full-time official representative in Washington. He had direct personal connections with the prominent members of organizations such as the USCSC and incentives to leak information to them. Informal networks and extant records of unpublished communiqués illustrate the type of information available to the specialized investor. The quantity of such information, naturally, was more abundant than that which has been preserved.³⁸

For the dynamics of the market, it is worth noting that not all investors had to be specialists to give the kinds of responses we observe in the event study. With a sufficient number of specialized investors, the networked information described would be rapidly transmitted to the market.

The bill submitted by the mainland sugar alliance was blocked by the State Department in 1954 on Cold-War grounds, but the political climate changed in 1955 after the Republicans lost control of both the Senate and the House. Senator Ellender (D-LA), who returned to chair the Senate Committee on Agriculture, was also the self-appointed leading advocate of domestic sugar interests in Congress.³⁹

Working in conjunction with the domestic cane-beet sugar alliance, on 1 April 1955, Ellender introduced a bill that was co-sponsored by 49 senators—over half the Senate. An identical bill was submitted in the House of Representatives on 31 March. The Wall Street Journal, usually uninterested in sugar, gave the story front-page coverage. The New York Times wrote that “most observers are betting that [the strong backing by Congress] will prove a decisive advantage [for domestic interests].” The submission of the Ellender bill set the benchmark provisions that would dominate the rest of the debate. The news was received with alarm in Cuba and prompted the Cuban Congress to meet in a joint emergency session that very night. It unanimously approved a resolution expressing strong dissatisfaction, and futilely, it demanded a 50-percent share of the U.S. sugar market.⁴⁰ This date coincides with the second spike identified in the event study.

For reasons extraneous to this study, the revision was not passed until 17 May 1956.⁴¹

That no spike in Figure 3 occurred at the bill's passage is no surprise. Passage of some revision was a near certainty, because without it the sugar law would expire, and an overwhelming majority in Congress did not want that. The uncertainties to which investors responded were the date the revision would go into effect and the form that proposed innovations to the quota formulas would take. And those issues were resolved before passage. The significance of the Ellender bill in setting the terms is corroborated by the fact that most of its provisions survived in the final bill. In the end, there were some minor changes in magnitudes, but only one in principle. First, beyond a specified sugar-consumption benchmark, both bills gave 55 percent of future market growth to domestic producers, leaving 45 percent for foreigners. The benchmark quota, beyond which the 55-45 split would go into effect, was 8.2 million tons in the Ellender bill and 8.35 in the final bill. Second, both bills awarded domestic areas priority in fulfilling all domestic deficits, displacing Cuba's former share. The only difference in principle was a greater concession to other foreign suppliers. The Ellender bill gave Cuba 43.2 percent of future market growth (45 percent of its former 96-percent share); but the final bill carved the 45 percent foreign share differently, giving larger quotas to the Dominican Republic, Mexico, Peru, and other full-duty producers, and reducing Cuba's share to 29.59 percent.

THE POLITICAL ECONOMY OF THE REVOLUTION

Hugh Thomas gives an apt description of the connection Cubans saw between these world political crises affecting the sugar market and Cuban domestic politics:

Yet despite widespread recognition of the importance of sugar and its price to the Cuban political situation, Jorge Domínguez notes with puzzlement that “perhaps no other hypothesis about the origins of the revolution has been held in such wide disrepute and treated with so much scorn” as the notion that “economic causes contributed to the downfall of Batista.” One reason, Domínguez proposes, is that until the last few months of the insurrection in 1958, the economy was doing unusually well. In 1957 and 1958, sugar prices and quantities, and wage and employment figures were high. In macroeconomic performance, 1957 was one of the best years in recent history.⁴⁹

A second reason may be its contradiction with a view, held by many historians, that the real problem with trade policy was the U.S.-Cuban reciprocity treaty, which blocked Cuba from adopting importsubstituting trade protection to diversify its economy. Yet regardless whether import-substitution policies were or were not adopted (or even advised), the reduced quota was damaging. In the experience of other countries, one main problem with import substitution was that it ran up against foreign exchange shortages that constrained acquisition of necessary imported inputs. For Cuba, sugar was the only major source of foreign exchange. A few years later, the revolutionary government encountered this very constraint. In 1960/61, the government transferred resources (by then, controlled by the state) out of sugar to fuel industrial diversification; but, overwhelmed by shortages of foreign exchange, in 1963 Cuban authorities reversed the policy and tried to diversify by reintensifying the production of sugar. The industrial reconcentration in sugar is said to have been a pillar of the greater prosperity of the revolutionary economy in the 1970s.⁵⁰

References to the quota in the retrospective historical literature recognize it as a device that strengthened Cuba's sugar oligarchy and reinforced Cuba's dependence on the United States, but they overlook its main effects as a restriction on trade. This is in great contrast to the views of contemporary supporters and opponents of the Batista regime. In the infancy of the revolutionary regime, Raúl Cepero Bonilla, Minister of Commerce, advised Cuba's continued participation in the U.S. sugar quota program but demanded a higher quota.⁵¹

In October 1959 Castro explained Cuba's troubles with U.S. protectionism, featuring a lengthy description of the quantitative details and adverse effects of the quota revisions, completely accurate, which closed with the resolution: “we have to defend our sugar quota, … something that I think it is very just and very proper for our people to aspire to. Besides, we are not doing any harm to anyone; we are only defending ourselves.”⁵²

Our findings of a large, significant economic impact refine and confirm contemporary analyses. Cepero Bonilla, who before the Revolution labored as a dissident economic journalist, published figures that forecasted the losses in 1960 from the 1956 revision at about 4 percent of GDP. The assumptions underlying the forecast clearly caused the estimates to understate the earnings losses.⁵³

A similar estimate we make, using figures from Table 3, projects losses to 1960 of at least 6 percent of GDP. Meanwhile, in 1955, the President of the Central Bank, Joaquín Martínez Saenz, was quoted saying that the United States was “selling Cuba down the river sugar wise,” while his staff estimated that Cuba would need to sell 9 million tons in 1965 (a 35 percent increase over 1950) to maintain a 1947 standard of living—possible under the 1951, but not the 1956, quotas. Though on opposite sides of the domestic political divide, both leaders placed the quota among Cuba's greatest economic obstacles.⁵⁴

The institutional mechanisms through which economic effects were translated into political outcomes are consistent with recent work by Stephen Haber, Armando Razo, and Noel Maurer on the fall of Porfirio Díaz in Mexico.⁵⁵

First, in the 1950s, the Cuban economy was heavily regulated after extensive interventionist reforms in the 1930s in agriculture, labor, and especially the sugar industry. Two elite groups competed for control rights over Cuba's economic policies.⁵⁶ Those most associated with Batista were insiders who advocated continued specialization in sugar exports. The opposition, referred to by the sugar bloc as the “Latin bloc,” was a group of technocrats, Keynesians and Prebischites, who sought to channel fewer national and fiscal resources into sugar and advocated macroeconomic controls and import-substitution policies as instruments. Before 1954 the sugar bloc argued effectively that high expected growth in U.S. sugar demand, and Cuba's quota, made sugar the nation's most reliable engine of growth. After the quota revision, that argument was hard to sustain.

Just as Haber, Razo and Maurer find for Porfirian Mexico, the narrow cronyist support upon which the Batista regime depended gave little flexibility to deviate much from its commitment to the sugar program. Yet pressures from political supporters in other sectors increasingly demanded it. Batista's political backing was tied to relational commitments to the Cuban Sugar Stabilization Institute (ICEA), a corporatist body controlled by private sugar representatives with vested interests in the quota system, and to domestic and foreign bankers and merchant houses whose enterprises held liens on most of the sugar crop. Batista's closest economic advisers were in this group. Other political support for the regime was built upon deals with select leaders of organized labor and insiders among the clases económicas (businessmen, bankers, and corporate directors). Batista's ties to sugar, at the time of the 1952 coup, were seen as consistent with business's outlook for economic growth in Cuba, but that outlook changed with the revision in the U.S. sugar quota.⁵⁷

The post-1956 climate demanded new policy ideas about how to make the shift toward diversification, which seemed a necessary step for a healthy economy, but Batista's cronies could not credibly be expected to veer much in the medium run from the sugar program status quo. In short, despite the great differences usually attributed to the causes of the Mexican and Cuban Revolutions, the collapses of their predecessor regimes appear to have more parallels than the literature has suggested.⁵⁸

In an interview in 1957 Castro explained that the revolutionary forces did not expect to defeat Batista single handedly; they aimed rather to produce a “climate of collapse.”⁵⁹

Louis Pérez, among others, focuses on the political and military events, such as the series of failures during the republican army's march on the rebels' stronghold in the Sierra Maestra in 1958.⁶⁰ But the significance of the economic impact of the revision to Cuba's sugar import quota in the U.S. market should not be underestimated. There was rising opposition in the military soon after the terms and political support for the Ellender bill were public knowledge. A plot to assassinate Batista, led by Colonel Ramón Barquín, was discovered and foiled in 1956. The event reflected a withdrawal of support in the middle-class ranks of the military, whose economic interests were sensitive to the downward revision of sugar's prospects. The mutiny enlisted significant backing from the economic and political elite, including Felipe Pazos, former president of the central bank, and prominent political figures from the Ortodoxo Party (of which Castro once had been a member). Pazos and Castro later coauthored one of the most influential (but not particularly radical) documents of the July 26th Movement.⁶¹

Other archival evidence supports our argument that businesspeople in Cuba saw it coming. In late February 1955 Arturo Mañas, President of the Cuban Sugar Stabilization Institute, forewarned that the current economic situation for Batista was delicate. “[E]specially adverse sugar legislation could blow things wide open and cause the downfall of not only [Amadeo] López Castro, [Carlos] Saladrigas, etc. [i.e., various prosugar members of Batista's cabinet] but the Batista Government itself.”⁶²

Mañas presciently made this remark just one month before the Ellender bill announced “especially adverse sugar legislation.” Similar remarks were made in intelligence memos in the U.S. State Department.⁶³

Unusually advantageous world sugar market conditions in 1957 diverted the effects of the quota revisions. The Batista regime was weakened politically but it did not fall until later. The popular withdrawal of support happened progressively throughout the summer of 1958, yet significant elite business support remained. Our final piece of evidence relates to the event study's identification of 5 December 1958 as a likely structural break in sugar company rates of return—the third spike in Figure 3. Although the analysis of this event is outside the scope of the study, it is noteworthy that the week of that event coincides with a fateful meeting of a group of U.S. businessmen in Cuba with Ambassador Earl T. Smith less than three weeks after Batista's handpicked successor, Andrés Rivero Agüero, was declared the victor in a presidential election widely considered as fraudulent. This group informed the ambassador that business interests in Cuba viewed the political situation as irreparable. They recommended that the United States abandon Batista and Rivero Agüero and “give full and actual support” to a military civilian junta. The abandonment of key business support ended the last hope for Batista, and the event resonated on Wall Street, as Figure 3 indicates.

In conclusion, though the literature downplays the adverse effects of U.S. protectionism on the revolutionary movement in Cuba, we find that view to be mistaken. After 1955 Batista lost significant political support from the clases económicas because of his regime's inability to offer a viable policy alternative as the anticipated sugar market growth was legislated away in the United States. Three kinds of evidence combine to show the economic and political impact of the downward revision of Cuba's import quota into the U.S. sugar market. First, projections of the quotas five or ten years after the 1956 law went into effect show substantial losses in Cuba's sales to the U.S. market that could not be shifted to the non-U.S. world market because of inelastic world demand and Cuba's already dominant position in that market. Second, behavior of stock prices of sugar companies shows that investors revised their assessments of Cuban sugar-company risk upward (and U.S. mainland sugar-company risk downward) in 1954 and 1955 as they learned about the probable contents and expected date of the 1956 revision. Finally, private memoranda and letters among key figures confirm it. On these events, Julio Lobo, a prominent figure among the Cuban sugar interests alienated by Batista's ineffectiveness, commented: “We didn't care who overthrew Batista, so long as someone did.”⁶⁴

The collapse of the Batista regime and the popularity of the revolutionary movement led by Fidel Castro undoubtedly had multiple causes. Cronyism, the illegitimacy of the Batista government, and fraudulent elections explain why democratic processes were not expected to produce a satisfactory response to popular demands for a change of government. Yet, contrary to conventional views, our findings show that the adverse shock from U.S. trade policy contributed to the demands for the change of government by imposing economic stresses that alienated Batista's political and military support just as the popular cry for a restoration of constitutional government served as a focal point for the Revolution.