Development and Underdevelopment in America: Contrasts of Economic Growth in North and Latin America in Historical Perspective [Reprint 2020 ed.] 9783110872859, 9783110135183

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de Gruyter Studies on North America 8 Development and Underdevelopment in America

de Gruyter Studies on North America Politics, Government, Society, Economy, and History Series Editors Willi Paul Adams, Carl-Ludwig Holtfrerich, Hans Joas, Hans-Dieter Klingemann, and Knud Krakau (Freie Universität Berlin) Advisory Board David P. Calleo (School of Advanced International Studies of the Johns Hopkins University, Washington, D.C.), Robert Dallek (University of California, Los Angeles), Robert J. Jackson (Charleton University, Ottawa), Roger Morgan (European University Institute, Forence, Italy), Richard Sylla (New York University, New York), Martin P. Wattenberg (University of California, Irvine)

Development and Underdevelopment in America Contrasts of Economic Growth in North and Latin America in Historical Perspective

Edited by Walther L. Bernecker and Hans Werner Tobler

w DE

G Walter de Gruyter • Berlin • New York 1993

Walther L. Bernecker, Ph.D., Professor o f History o f Latin A m e r i c a at the Institute of Social Research, University of Erlangen-Niirnberg, G e r m a n y Hans

Werner

Tobler,

Ph.D.,

Professor o f History at the Swiss Federal

Institute of Technology, Z u r i c h , Switzerland © Printed on acid-free paper, which falls within the guidelines of the ANSI to ensure permanence and durability. Library of Congress Cataloging-in-Publication

Data

Development and underdevelopment in America : contrasts of economic growth in North and Latin America in historical perspective / edited by Walther L. Bernecker and Hans Werner Tobler. VI, 336 p. 23 x 15,5 cm. - (De Gruyter studies on North America ; 8) Includes bibliographical references. ISBN 3-11-013518-3 (acid-free paper) 1. America — Economic conditions. 2. North America — Economic conditions. 3. Latin America — Economic conditions. I. Bernecker, Walther L., 1 9 4 7 - . II. Tobler, Hans Werner. III. Series. HC94.D48 1993 93-11856 330.97-dc20 CIP Die Deutsche Bibliothek

— Cataloging-in-Publication

Data

Development and underdevelopment in America : contrasts of economic growth in North and Latin America in historical perspective / ed. by Walther L. Bernecker and Hans Werner Tobler. - Berlin ; New York : de Gruyter, 1993 (De Gruyter studies on North America ; Vol. 8) ISBN 3-11-013518-3 NE: Bernecker, Walther L. [Hrsg.]; GT

© Copyright 1993 by Walter de Gruyter & Co., D-10785 Berlin. All rights reserved, including those of translation into foreign languages. No part of this book may be reproduced in any form — by photoprint, microfilm, or any other means nor transmitted nor translated into a machine language without written permission form the publisher. Typesetting and Printing: Arthur Collignon, Berlin Binding: Dieter Mikolai, Berlin Cover Design: Hansbernd Lindemann, Berlin.

Table of Contents

Introduction

1

I. Economic Problems and Development in the Long Run Introductory Note

7

Notes on the Comparative Economic History of Latin America and the United States John H. Coatsworth

10

Hazards of Growth and Conditions of Long Run Economic Success: The Case of the United States Hansjörg Siegenthaler

31

II. The Impact of the Colonial Heritage on the Economic Development in the 19th and 20th Centuries Introductory Note

47

Economic Growth and Stagnation in the Colonial Americas: An Exploratory Essay Daniel D. Garcia

51

The Impact of the Colonial Heritage on the Economic Development in the Nineteenth and Twentieth Century: North America Hermann Wellenreuther

88

III. International Economic Relations and their Impact on Economy, State, and Society Introductory Note

127

VI

Table of Contents

Latin America and Europe in the Nineteenth Century: The Impact of an Unequal Relationship Walther L. Bernecker

131

International Economic Relations of the United States and their Impact on Economy, State, and Society to 1860 162 Carl-Ludwig Holtfrerich

IV. Agrarian Structures and Economic Development Introductory Note

191

Agrarian Societies and Economic Development in NineteenthCentury North America 194 Christopher Clark Agrarian Development in Mexico: The Contending Models of Great Estate and Smallholder 213 Simon Miller

V. Industrialization: Contrasting Patterns in North and South Introductory Note

229

Why America and Britain? The Roots of Industrialization in the United States 232 Thomas C. Cochran Revolutions and Continuities in American Development William N. Parker

243

Industry in Latin America Colin M. Lewis

264

About the Authors

303

Bibliography

305

Walther L. Bernecker / Hans ^Werner Tobler

Introduction

The sharp regional differences in world economic development over the past 200 years have caused intensive research in economic history during the past decades. Examples of the search for the causes of today's wide economic gap between "rich" and "poor" countries or regions are Rostow's attempt at a reconstruction of modern economic development in his "Stages of Economic Growth", and Alexander Gerschenkron's efforts to arrive at an understanding of "Economic Backwardness in Historical Perspective", but also André G. Frank's model of "Development of Underdevelopment" and the works of other authors of the "dependency"-school on the structural consequences of world-economic dependency in general. America, North and South, exhibits all the features of the modern development gap in a particularly acute form; hence the significance of the contrasting American histories in "explaining" the manifold differences of today's America, north and south of the Rio Grande. In 1992, the quincentennial year, the consequences of the events of the year 1492 have been widely questioned and reexamined. In what appears to be an astonishing example of tunnel vision, however, debate has focused consistently on Latin America, with the Anglo-American region largely excluded from consideration. Yet a comparison of North and South America (understood as shorthand for those parts of the American continent settled mainly by the British and the Iberian powers, respectively) would seem to hold out some promise of explaining the divergent lines of development experienced by the two subcontinents. That such comparisons have so seldom been attempted is partly due to the fact that until now scholars of these cultures have rarely been willing to go outside their own areas of specialization; moreover, academics with the knowledge needed to deal with such comparative and supraregional issues are in rather short supply. At the same time, politicians and scholars have long been exercised by the enormous differences in the development of the two subcontinents. In recent decades, as mentioned at the beginning, one school of thought has linked Latin America's relative underdevelopment to its centuries-long de-

2

Introduction

pendence on the Iberian powers, seeing a causal connection between the subcontinent's colonial and post-colonial dependence and its economic backwardness. According to this theory, the dependent countries failed to develop economically because the colonial powers (and later the North Atlantic industrial powers) on which they were dependent developed at their expense. In rebuttal, it has been rightly pointed out that the example of North America proves that Latin America's underdevelopment cannot be entirely and exclusively ascribed to its colonial past. More decisive, in this view, were the divergent characteristics of the Latin American and Anglo-American systems, both during the colonial era and in the subsequent periods of national independence. Those differences, moreover, cannot be adequately grasped with the limited concepts of "colony" and "dependence", but require more nuanced historical elaboration. Comparisons should be made on a number of levels. First, the political system: A Spanish settler felt the influence of the central colonial government far more profoundly and frequently than did an English settler. The Spanish colonial empire was bureaucratically and paternalistically structured from the outset, with the highest officials appointed from Madrid and the institutions in the overseas colonies denied any effective political voice. By contrast, the British crown had less power across the Atlantic, and London's administration of its colonies was weaker. As early as the 17th century, a system of political representation was established among the English colonists, open mainly to the prospering middle class (farmers, artisans, merchants) and accepted as representing their interests. Hence, what arose in the Spanish colonies was a centralized form of government with power concentrated in the Crown, while the English colonies gave rise to a loosely coordinated form of colonial government, with power divided between Crown and Parliament, which allowed the crystallization of self-governing institutions based on the consent of the governed. The second level for comparison is social structure: The very different development of the social structure in the Spanish and English colonies involves several factors. For example, the imbalance between men and women was far more pronounced in the Hispanic parts of America than in the English. An estimated two thirds of all the Spaniards arriving in the New World could not find a wife from back home, while the proportion of female to male immigrants was far more balanced in the English colonies. There were also fundamental differences in the organization of labour. All Europeans exploited the indigenous population to compensate for the labour shortage in the settlements. But the Spanish had far greater success than the English in this respect, since the Spaniards colonized the most densely populated parts of the New World (in 1492, 90% of the approximately 50

Introduction

3

million indigenous Americans lived south of the Rio Grande). Moreover, the Spaniards succeeded in bringing the natives under their rule and incorporating them into their economic system, while the British colonials failed to do so. As a result, very diverse ethnic conditions developed north and south of the Rio Grande. To the south, the races mixed extensively, while to the north there was systematic racial segregation buttressed by legislation, judicial interpretation and social mores. The third area of comparison is that of economic structure. The differing social conditions, as sketched above, resulted in Anglo-America having a higher per capita income from the outset (even compared with today's developing countries), which constituted an important prerequisite for further economic growth. Most particularly, North and South differed in the distribution of land. In the case of Spain, it was only the opportunity for social advancement through acquisition of wealth and land holdings that prompted some of the populace to engage in overseas enterprises. And the only thing that persuaded people to settle permanently in the conquered territories was the prospect of a plentiful supply of dependent, indigenous labour. It was on this basis that the hacienda developed, Latin America's distinctive form of large landholding, which constituted not only an economic structure but a lifestyle. The agrarian elite in the Hispanic colonies were under far less egalitarian pressure than their counterparts in North America, and so could cultivate a parasitic self-image to a much greater degree. This basic attitude was facilitated by the extremely inequitable distribution of land ownership and by a strongly hierarchical society with a very numerous, dependent lower class. Land development in North America proceeded in a fundamentally different manner. The frontier — the line of settlement between Europeanstyle civilization and wilderness, pushed ever forward by the pioneer spirit — became the central experience and mythos of American society. Historian Frederick Jackson Turner emphasized the democratizing effect of the frontier experience on the society of the United States. He explained how a dynamic process of land settlement and development gave rise to a spirit of social equality and self-governance, coupled with a powerful individualism, which together shaped the specifically American form of democracy. In marked contrast to Latin America and to the plantation farming in the Southern U. S., the predominance of an agriculture based on the family farm in New England, and later in the Northwest, gave rise to a class of independent farmers that had a dynamic and democratizing effect on the overall development of the nation. At the same time, the impetus for development of a diversified and increasingly industrialized economy which emanated from that region was much greater than that generated in Latin American regions

4

Introduction

with a hacienda-based agriculture, producing mainly for the local market and (beginning in the last third of the 19th century) for export. A fourth area for comparison involves institutional factors. Recent research has increasingly stressed that economic factors and social conditions are not sufficient to explain North and South America's divergent paths of development, and has turned increasingly to institutional factors which go far beyond the economic. These new perspectives continue to recognize the importance of such elements as geographic differences, unequal potential in natural resources, differences in production factors, as well as divergent policies of the colonial metropolis toward their colonies. But they view politico-legal and socio-cultural factors as equally significant. The stagnation of the Latin American colonies, for example, is explained in terms of the pre-modern institutional structures of Spain and its colonial empire, and their overwhelmingly negative effects on productive activity, including the absence of such civic principles as equality before the law, the right to own property, and a rational system of justice. Or it is pointed out that the industrial rise of the USA began in the northeastern part of the country, which saw itself as far more similar to England — rich in capital and labour, but poor in land — than to the rest of the U. S. or Latin America, which had plenty of land but was poor in capital and short on skilled labour. In this new perspective, emphasis is also placed on the varying quality of "human capital" in the New World colonies. The North American "success story" may be ascribed in part to the British cultural legacy and the subsequent long-term immigration from Europe, which resulted in long-term U. S. economic growth promoted by the special ability of that society to adapt to the constantly changing conditions brought about by growth itself. In contrast to these favourable historical circumstances, we see in Latin America the destructive effects of the 19th-century wars of independence, which marked the start of a cycle of violent political conflicts that lasted in most countries into the last third of the 19th century. Governmental structures remained unstable, so that there were serious institutional limits on economic growth and the integration of markets, hence a starting position much less conducive to profound structural change, as witnessed in the United States in the late 19th and early 20th centuries. This volume is an attempt to address at least some of the problems just mentioned. To begin with, two essays treat economic problems and development in the long run. Then, the question of the impact of the respective colonial heritages on the economic development of the two regions in the 19th and 20th centuries is raised. Since trade relations and the effects of foreign investments are a pivotal issue in the discussion of the economic causes of underdevelopment, this topic is developed for North and South

Introduction

5

America, concentrating especially on the 19th century. Finally, the two last sections treat those two economic sectors whose inter-relationship is a central topic of all research about economic modernization: agriculture and industry. Are the differences in modern economic development to be attributed to the specific agrarian structures which developed in the two regions? As for industry, economic growth in the 19th century is traditionally equated to industrialization; the question therefore has to concentrate on why industrialization has been so successful in the United States, whereas at the same time most attempts at industrialization in Latin America have to a large extent had only modest and locally isolated success. The following essays concentrate on contrasts of economic growth in the historic experiences of North and South America. Yet, by talking of "development" and "underdevelopment", it is clear, that the social dimension of growth effects, even if not treated specifically here, cannot be excluded from a broader view of achievements and shortcomings. Precisely the comparison between North and South America shows that mere growth rates or average per capita incomes are of little use in determining the real living conditions of broad social classes in cases where the political and social contrasts are as strong as in many Latin American countries, and where, therefore, the distribution of the welfare benefits created by economic growth is still highly unequal. The editors wish to thank the following persons for their help in the preparation of the manuscript: Margit Boscher, Volker Schirmer (Nürnberg); Dusica Hilbich, Stefan Karlen (Zurich).

I. Economic Problems and Development in the Long Run

Introductory Note The following chapters concentrate all — more or less strongly — on facts and structures which are not in a strict sense purely economic. This is particularly evident in the general introductory surveys by John Coatsworth and Hansjorg Siegenthaler. In the last analysis, it is the range of institutional factors of economic organization in a very wide sense — from the evolution of dominant social values to the development of specific political and legal systems and to the influence of educational systems promoting or hindering development, not to forget the structure of political and social power — which may, by their differences, explain the contrasting economic histories of North and South. A mere analysis of purely economic features is not sufficient to account for the different economic developments of the two American regions; only a comprehensive study of the wide range of factors within the respective societies having a decisive influence on the economy — e.g. the specific features of the North American "growth society" (Siegenthaler) — can give us a clue. The main argument of John Coatsworth's contribution is that all significant obstacles to economic growth in nearly all countries of Latin America had disappeared by the late nineteenth century. As a consequence, Latin American Gross Domestic Product growth rates since the late nineteenth century have roughly equalled (and in some cases surpassed) those of the United States. Latin American "underdevelopment" is therefore mainly the legacy of problems which arose in the colonial era and in the immediate post-colonial decades, i. e. between 1700 and 1850. Coatsworth rejects the dependency hypothesis concerning the negative effects of the region's external economic relations. The evidence on the terms of trade even suggests the opposite hypothesis: that Latin America could have benefited had it been able to expand its exports and strenghten its economic ties to the North Atlantic in the colonial era. It is not dependency which explains the stagnation of most Latin American colonies, but rather the pre-modern imperial institutional structures whose impact on productive activity was pervasively negative. The South lacked

8

I. Economic Problems and Development in the Long Run

institutional progress: the region needed new governments founded on the bourgeois principles of equal legal rights, a modern regime of bourgeois property rights, juridical systems capable of enforcing the sanctity of private property and contracts. Institutional modernization did not take place in Latin America because of two major constraints: first, the colonial system proved remarkably stable; second, the reforms of the Crown were successful in expanding the economy and increasing trade, but productivity stagnated because the tax and administrative reforms repressed potential gains. After achieving independence, the new states of the region proved unable to avail themselves of Gerschenkron's institutional solution. It was not until the second half of the 19th century that Latin American states — after important juridical, legislative and political changes — began to assume responsibility for active promotion of economic development. Growth rates in most Latin American countries, for which data are available, between roughly 1850 and the First World War approximate those of the United Kingdom and the USA. It is persistent and rising inequality in the distribution of wealth and income rather than slower economic growth which constitutes the principal distinguishing feature of Latin America's 20th-century development. In this period, Latin America's external economic relations did not retard growth, but — here the dependency theory is right — they did contribute to a growth trajectory characterized by extreme concentration of wealth and income. Also with regard to North America many traditional concepts explaining its long-term economic development are insufficient. Taking the United States as an example, Hansjorg Siegenthaler emphasizes the argument that longterm economic growth cannot be deduced from the process of growth itself, insofar as it does not warrant its own irreversibility. An identification of the "casual factors of growth" is therefore not sufficient to account for longterm growth (as it occurred in the USA); rather, one has to look for those social conditions which prevent the manifold consequences of economic growth from destroying its own social foundation, but which, on the contrary, renew it continually. "Institutional innovations and a society's capacity to generate them are the crucial conditions of whatever long run success becomes observable." The capacity of the North American society to adapt to conditions changed by the process of growth, which has always set limits to coalitions of distribution which would have had a tendency to impede growth, is, according to Siegenthaler, due to the stability of cognitive structures in the American society, i. e. to the existence of a determined set of "basic beliefs" and recognized basic rules in social discourse. This "rhetoric of understand-

Introductory Note

9

ing" — the explanation of which lies in the structure of the North American society, relatively egalitarian for historical reasons — has, in situations of crisis (inherent to modern economic growth), set clear limits to tendencies endangering or even destroying growth, by reverting to common ideological and institutional traditions, thereby contributing in an essential manner to long-term economic growth — the basic American "success-story".

John H. Coatsworth

Notes on the Comparative Economic History of Latin America and the United States

Introduction1

While it may appear anachronistic if not downright perverse to do so just now, this paper will argue that all of the significant obstacles to economic growth in nearly all of the countries of Latin America had disappeared by the late nineteenth century. The empirical basis for this argument remains weaker than I would prefer because of the absence of macroeconomic time series data prior to the 1930s for most of the countries of the region. It is further weakened by the difficulties involved in translating what data there are into comparative measures of economic performance that take into account the vagaries of exchange rates across time. 2 Nonetheless, the evidence is sufficiently robust as to make inescapable one important conclusion: Latin American GDP growth rates since the late nineteenth century have roughly equalled (and in some cases surpassed) those of the United States. Growth rates of real per capita Gross Domestic Product (GDP) for six major countries, all taken from Maddison's recent work, are found in Table 1. In Table 2, Maddison's data are reassembled to show real per capita GDP in international dollars as a percentage of the U. S. level for 1900 and 1987. The evidence on the Mexican case may be the most persuasive. It now seems likely that Mexico's income per capita roughly equalled that of Great Britain and the thirteen British North American colonies at the end of the seventeenth century. Between 1700 and 1800, Mexico's economy expanded

1 The author wishes to acknowledge the support of the Social Sciences Division Research fund of the University of Chicago and the research assistance, and helpful comments, of Daniel Garcia S. 2 For a discussion of the methodological issues, see J. R. Hanson, II, Third World Incomes Before World War I. Some Comparisons, in: Explorations in Economic History 2 5 / 3 (1988), 323 - 336.

Notes on the Comparative Economic History of Latin America and the USA

Table 1

11

Annual Average Compound Rates of Growth of Real Per Capita GDP, 1900-1987

Selected Countries United Kingdom United States Argentina Brazil Chile Colombia Mexico Peru

1.4 1.8 1.1 2.4 1.5 1.9 1.6 1.6

Source: Angus Maddison, The World Economy in the Twentieth Century, Paris 1989, 15.

Table 2

Per Capita GDP in International Dollars (1980 Prices)

Selected Countries Country

1900

(% USA)

1987

(% USA)

United Kingdom United States Argentina Brazil Chile Colombia Mexico Peru

2,798 2,911 1,284 436 956 610 649 624

(96.1) (100.0) (44.1) (15.0) (32.8) (21.0) (22.3) (21.4)

9,178 13,550 3,302 3,417 3,393 3,027 2,667 2,380

(67.7) (100.0) (24.4) (25.2) (25.0) (22.3) (19.7) (17.6)

Source: Maddison, The World Economy, 19.

at roughly the rate of population growth, but failed to match the modest but sustained rise in productivity experienced in the North Atlantic. By 1800, Mexico's per capita income stood at one half that of the United States and roughly one-third of the British level. From 1800 to the restoration of the Republic in 1867, Mexico's economy stagnated, with per capita income falling by roughly 30 percent to a level equal to about one eighth that the United States. And there it has remained, with occasional fluctuations, for

12

I. Economic Problems and Development in the Long Run

more than a century. That is, Mexico's economy from 1867 to 1982 grew at approximately the same rate as the U. S. economy. 3 Most of the Andean countries appear to have followed a similar course. Fragmentary data suggest that the population of the Viceroyalty of Peru did not begin to rise until after 1730, in contrast to Mexico where demographic growth resumed in the seventeenth century. Even more fragmentary data suggest that late eighteenth century income per capita stood at perhaps as much as a fifth below that of Mexico. Growth began, in any case, in the late nineteenth century and, for most of the region, roughly equalled that of the United States for most of the twentieth century. 4 T h e Brazilian experience differed from that of Mexico and the Andean republics. Per capita income probably stood at a level somewhat lower than Mexico at the beginning of the nineteenth century, grew slowly (instead of declining) after independence, and may have stagnated or even fallen during the last tumultuous decades of the nineteenth century. In effect, Brazil postponed paying the costs of major institutional change until the second half of the nineteenth century. In the twentieth century, however, Brazil's economy has grown faster than any other in the western hemisphere. 5 At the other extreme of the Latin American spectrum stands Argentina. Fragmentary evidence suggests that Argentina (and possibly Uruguay as well) had already achieved a level of income per capita well above the rest of Latin America by the end of the colonial era. 6 The traumas of the independence era (as yet unmeasured in their economic effects) were overcome by the late nineteenth century. In 1900, according to some estimates, Argentine per capita income stood at roughly one half (Maddison) to two thirds (Mulhall) of the United States level. 7 Despite this early advantage,

3 See J. H. Coatsworth, The Decline of the Mexican Economy, 1800 — 1860, in: R. Liehr (ed.), América Latina en la época de Simón Bolivar. La formación de las economías nacionales y los intereses económicos europeos 1800 — 1850, Berlin 1989, 2 7 - 5 3 . 4 See Table 1 for Chile, Colombia, and Peru. For data on recent decades, see The World Bank, Trends in Developing Countries, 1990, Washington, D. C. 1990. 5 See A. Maddison, Country Study of Brazil, unpublished paper presented at Conference on "The Political Economy of Poverty, Equity and Growth", Lisbon 1986. 6 See essays by L. L. Johnson and J. H. Coatsworth, in: L. L. Johnson and E. Tandeter (eds.), Essays on the Price History of Eighteenth-Century Latin America, Albuquerque, N . M . 1990, 2 1 - 3 4 , 1 3 7 - 1 7 2 . This conclusion is based on Johnsons data, which suggest substantially higher real wages in Buenos Aires than anywhere else in Spanish America. 7 The Maddison data are in Table 2. For the higher estimate see M. Mulhall, The Dictionary of Statistics, 4th ed., London 1903, 589.

Notes on the Comparative Economic History of Latin America and the USA

13

Argentina's economic performance in the twentieth century, particularly after 1929, has lagged notably behind that of the United States (and much of the rest of Latin America). 8 If Mexico's experience is closer to that of most Latin American countries than Argentina, then it must be concluded that the perpetual search for more recent impediments to growth in the region has largely missed the point. Whatever the difficulties Latin America, with its burdensome external debt, is encountering today, its "underdevelopment" is mainly the legacy of problems which arose in the colonial era (especially during the doubly misnamed "siglo de oro") and the immediate post-colonial decades. Economic historians have thus paid too little attention to the critical period from the eighteenth to the mid-nineteenth centuries in analyzing the determinants of Latin America's contemporary underdevelopment. By the same token, development specialists may have anguished too long over the negative effects of the alleged structural and institutional obstacles to growth which remained after the great transformations of the past century. This paper will argue that analytical perspectives developed, ironically, to understand twentieth-century obstacles to growth in the region should more appropriately be applied to the pre-modern era, while for the twentieth century, the major, unsolved analytical puzzle is how the region's economies managed to perform so well over the long run in the face of persistent social and institutional instability.

Colonial Stagnation Latin America's relative backwardness is an historical phenomenon whose origins can be traced to an era in which North Atlantic productivity grew and that of Latin America did not. Tables 3 and 4 summarize what data there are. Table 3 compares eighteenth century rates of growth in real per capita GDP in Britain and the United States (the thirteen colonies before independence) with those of four Latin American colonies for which estimates can be constructed. The data show long-term growth of about 0.3 to 0.4 percent per year in the first two countries in contrast to stagnation in three of the four Latin American colonies. One of the major questions at issue in much of the development literature in the past three decades of debate between modernization theorists and

8 See Tables 1 and 2.

14 Table 3

I. Economic Problems and Development in the Long Run Annual Average Compound Rates of Growth of Real Per Capita GDP, 1 7 0 0 - 1 8 0 0

Selected Countries Country

Rate

United Kingdom United States Argentina Chile Mexico Peru

0.3 0.5 0.0 (or negative) 0.4 0.0 0.1

Sources: For Britain, recent work has tended to reduce the higher estimates of P. Deane and W. A. Cole in British Economic Growth, 1688 —1959, 2nd ed., Cambridge, 1969. See N. F. R. Crafts, English Economic Growth in the Eighteenth Century. A Reexamination of Deane and Cole's Estimates, in: Economic History Review, 2nd. ser 29 (1976), 226 - 235. The estimate of 0.3 percent in the table is taken from N. F. R. Crafts, British Economic Growth, 1700—1850. Some Difficulties of Interpretation, in: Explorations in Economic History 24 (1987), 246. For the United States, see A. H. Jones, The Wealth of a Nation to Be, New York 1980, esp. chap. 3. The Argentine estimate is rather crude. It is based on tithe data for 1750 —1800 from the Archbishopric of Buenos Aires in S. Amaral and J. M. Ghio, Diezmos y producción agraria. Buenos Aires, 1750 — 1800, in: Revista de Historia Económica 8/3 (1990). The series was deflated using Larrain's price index for Chile in J. Larrain, Gross National Product and Prices. The Chilean Case in the Seventeenth and Eighteenth Centuries, in: L.Johnson and E.Tandeter (eds.), Essays on the Price History of EighteenthCentury Latin America, Albuquerque,N. M. 1990, 133 —134. Population growth is suggested by N. Sánchez Albornoz, The Population of Latin America. A History, Berkeley 1974,106. For Chile, see Larrain, who estimated growth of physical product (primarily agricultural output) at 1.20 percent per annum from 1703 to 1799; population growth is assumed (following Sánchez Albornoz, Population, 106) equal to Peru at 0.8 percent per annum, but may have been higher. For Mexico, see John H. Coatsworth, La historiografía económica de Mexico, in: Revista de Historia Económica, 6/2 (1988). The estimate for Peru is based on tithe data on E.Tandeter and N. Wachtel, Prices and Agricultural Production. Potosí and Charcas in the Eighteenth Century, in: Johnson and Tandeter (eds.), Essays on the Price History, 249 — 259, which implies a growth rate of 0.87 percent between 1719 and 1800; population growth is given by Sánchez Albornoz at 0.8 percent. The figure in the table is rounded up from 0.07 percent per year and is probably excessive. Government revenues deflated by the Tandeter-Wachtel index increased at only 0.26 percent per year between 1716 —1720 and 1796 —1800. The revenue data are found in John TePaske, General Tendencies and Secular Trends in the Economies of Mexico and Peru, 1750 —1810. The View from the Cajas of Mexico and Lima, in: Nils Jacobsen, Hans-Jürgen Puhle (eds.), The Economies of Mexico and Peru During the Late Colonial Period, 1750-1810, Berlin 1986, 337.

Notes on the Comparative Economic History of Latin America and the USA

15

dependentistas is whether the region's backwardness resulted from a mere lag in take-off timing due perhaps to the absence of some essential ingredients) first discovered in the North Atlantic (modernizationists) or from deeper structural differences related to the region's external economic relations (dependentistas). Both interpretations are consistent with the GDP data cited above. From a modernizationist standpoint, the data confirm the hypothesized time lag between the onset of growth in the North Atlantic and the rest of the world. From a dependentista perspective, the data show the expected inverse relationship between growth in the core countries and in the periphery, at least for the eighteenth century. Exploitation of the periphery by the metropolitan economies could thus account for the gap between the two regions, even if the gap itself has not increased since the late nineteenth century. Can the stagnation of the colonial economies of Latin America in the eighteenth century be attributed to structural problems associated with external economic relations? Historical accounts of the late colonial economy tend to stress the region's external ties. Spanish and Portuguese immigrants, whatever their status, avoided regions where mineral or agricultural exports could not be produced profitably. So did colonial administrators and tax collectors. This export bias in the pattern of colonization (among other factors) led Immanuel Wallerstein to characterize the Spanish empire as the first of the new "world systems" in which the dominating center is linked to peripheral regions mainly through flows of trade, capital, technology, and to a lesser extent, labor. This new system developed in sharp contrast to the ancient "empires" based on the extension of sovereign force to extract tribute from conquered regions. 9 To the extent that empirical evidence bears on this question, Wallerstein may have been exactly wrong. The Spanish colonial system operated more like the last of old empires than the first of the new world systems. The success of Spain's efforts to extract revenues depended, as in the ancient empires, on the productivity of the conquered regions and the magnitude of the transactions costs, that is, the capacity of conquered peoples to resist authoritative demands for revenues. As in the ancient empires, productivity

9 I. Wallerstein, The Modern World System. Capitalist Agriculture and the Origins of the European World-Economy in the Sixteenth Century, N e w York 1979. See also Steve Sterns interesting critique in Feudalism, Capitalism and the WorldSystem in the Perspective of Latin America and the Caribbean, in: American Historical Review 93/4 (1988), 8 2 9 - 8 7 2 , and his exchange with Wallerstein, 873-897.

16

I. Economic Problems and Development in the Long Run

constraints limited the export sectors of most of the Latin American colonies to a relatively small proportion of total product. Transactions costs, particularly when the crown sought to extract revenues from indigenous populations, were high. 10 In "prosperous" Mexico, from which the crown routinely exported net tax revenues in bullion worth many millions of pesos in the eighteenth century, total exports (including both privately-owned silver and gold as well as exported treasury revenues) amounted to 8.1 percent of GDP in 1800. 11 And, despite the linguistic and cultural divisions among Mexico's indigenous population which inhibited any large-scale indigenous protests, violent protest against colonial officials was endemic. 12 In addition to the export of net fiscal revenues, the Spanish crown imposed various restraints on external trade. In the last two decades of the colonial era in Mexico, the imperial trade monopoly reduced Mexico's GDP by perhaps as much as three percent. 13 The combined effects of the imperial trade monopoly plus the uncompensated export of revenues equalled perhaps 7.2 percent of Mexico's GDP. Thus, had Mexico achieved its independence from Spain in 1800 (instead of 1821), GDP would have been roughly 7.2 percent higher than it was. This burden, while 35 times greater than that imposed by British rule on the thirteen North American colonies, accounted for only a small portion of the gap in productivity between the two economies. Like the ancient empires, the direct effects of Spanish trade and tax policies skimmed the surface of economic life without much impact, positive or negative, on the underlying pace and pattern of economic activity. This is why the economic benefits of independence proved to be so small and why they were so easily wiped out by the economic costs of post-independence political instability. The dependency model might still be applicable if it could be shown that colonial Latin America was structurally over-committed to the production of primary exports and that this commitment resulted in a loss of income that could have been earned had the colonial economies possessed a greater capacity to respond to opportunities for more productive activities oriented

10 For evidence on indigenous resistance to colonial taxation, see W. Taylor, Drunkenness, Homicide, and Rebellion in Colonial Mexican Villages, Stanford 1979, chap. 4. S. OPhelan Godoy, Rebellions and Revolts in Eighteenth-Century Peru and Upper Peru, Cologne 1985. 11 Coatsworth, Decline, 51. 12 See Taylor, Drunkenness, chap. 4. 13 J. H. Coatsworth, Obstacles to Economic Growth in Nineteenth-Century Mexico, in: American Historical Review 83/1 (1978), 8 4 - 8 5 .

Notes on the Comparative Economic History of Latin America and the USA

17

to domestic markets. Neither of these propositions can be demonstrated. The prices received for the primary product exports of the Spanish and Portuguese colonies in the new world appear to have increased in relation to the manufactured exports of Britain and the rest of northern Europe for most of the period from the mid-eighteenth to the mid-nineteenth century, precisely when Latin America was falling behind. Domestic markets in the colonies lacked the dynamism of foreign markets and could not have substituted for them. Logic and evidence thus suggest that the structure of Latin America's external economic relations could not have retarded the growth of the colonial economies sufficiently to account for more than a small part of the lag in productivity behind the North Atlantic at the end of the eighteenth century, if at all. Indeed, the evidence on terms of trade suggests the contrary hypothesis: that Latin America could have benefitted had it been able to expand its exports and strengthen its economic ties to the North Atlantic in this era. This conclusion is strengthened by two additional considerations. First, the variation in productivity between regions and colonies in the eighteenth century indicates that those areas most integrated into the developing world economy, such as Argentina, enjoyed the highest incomes. And second, the economic growth which began in the second half of the nineteenth century was highly correlated with an increase (rather than a dilution) in the region's external ties. Thus, the dependency hypothesis concerning the negative effects of the region's external economic relations may be definitely rejected. If not dependency, then what does explain the stagnation of most of the Latin American colonies during the first century of the industrial revolution? The answer to this question takes us back to Wallerstein's "empires". It is true that in the development of the Spanish and Portuguese colonies, private production for internal as well as external trade (as opposed to non-market subsistence activities) was important, as it was, by the way, in many ancient empires. It is also true that the colonial tax system, though relatively efficient by European standards of the age, did not extract an immodest proportion of total output. As a percentage of GDP, for example, tax revenues in Mexico were somewhat lower than in Britain during the Napoleonic wars and a bit higher than in the United States at the same time. This quantitative comparison does not, however, exhaust the subject. Throughout Latin America, the colonial tax system was embedded in premodern imperial (or, to use Perry Anderson's term, "absolutist") institutional structures whose impact on productive activity was pervasively negative. I have argued elsewhere that apart from physical geography, the most important differences between Latin America and the North Atlantic in-

18

I. Economic Problems and Development in the Long Run

volved what Douglas North and Robert Paul Thomas referred to as "economic organization". 14 What Latin America lacked in the eighteenth century to achieve the modest rates of growth recorded in the North Atlantic can thus be specified with some precision. Latin America did not need autarky (or a more exalted place in the developing international division of labor), as the dependentistas have argued. Instead, the region needed new governments, founded on the bourgeois principles of equal legal rights for adult male "citizens", a modern regime of bourgeois property rights, juridical systems capable of enforcing the sanctity of private property and contracts, and policymaking institutions that would accord priority to responding to the needs of the rich and successful (whether well-born or not). All of these conditions were met in Britain and its colonies by the eighteenth century. Elsewhere in northern Europe, despite the constraints of monarchy, progress along these lines was already visible even before the French Revolution and the Napoleonic conquests. The modernizationists were right — the North developed first in large part because of institutional progress which the South was slow to adopt. The question arises why institutional modernization in Latin America did not occur as a result of developments within the Latin American societies. Two major constraints appear to have been at work. First, the colonial system proved remarkably stable, not only because it guaranteed the privileges of elites but because it protected the relative autonomy and access to land and other resources of indigenous peoples as well. Revolts from below did not, even in the case of major explosions such as the Tupac Amaru rebellion (1780 — 84) in the Andes, lead to the abolition of castes but to concessions that reinforced some of the corporate rights of the indigenous communities, thus restoring stability to colonial rule at the cost of strengthening institutions inimical to economic growth. Second, when pressures for change did develop within Spain and its colonies, the crown responded with reforms that liberalized external trade and promoted a revival of mining output. These policies were combined, however, with other "reforms" that enhanced its debilitating capacity to tax and regulate. The economy expanded and trade increased, but productivity stagnated because the Bourbon tax and administrative reforms repressed potential gains. Thus, neither popular revolt from below nor modernizing policies from above led to the kinds of institutional changes needed to stimulate productivity advance.

14 See D. North and R. P. Thomas, Rise of the Western World. A New Economic History, Cambridge 1973.

Notes on the Comparative Economic History of Latin America and the USA

19

This doleful history contrasts sharply with that of British North America and the United States. First, the settlement colonies in the central and northern regions attracted immigrants with wage and income levels comparable to or better than those in Britain. They could do so for two main reasons: a high land to labor ratio and relatively high productivity. The first of these advantages derived from nature (and Indian mortality from European disease and displacement), the second stemmed from a relatively efficient economic organization. In the eighteenth century, favorable shifts in the terms of trade for colonial exports plus substantial reductions in the marketing and distribution costs in the foreign trade sector helped raise incomes still further. 15 In the southern colonies, the expansion of the slave system may have had an additional positive effect both on the region's export production and on the wages of non-slave labor (though immigration to the southern regions remained well below that of the mid-Atlantic and New England regions). 16 The underlying institutional and legislative framework which permitted these gains to take place contrasted sharply with conditions in the Spanish and Portuguese colonies. Except for slavery, no caste system and nothing approaching the privileges and obligations of Iberian corporatism existed in the British colonies. The British crown made no effort to raise "internal" taxes until the disastrous decade after the Seven Years War, and when it did, the colonies successfully revolted. Taxes were levied by colonial and local legislatures to cover the modest costs of administration, public services, occasional investments in infrastructure, and police. The ubiquitous regulatory and fiscal interventions of the Spanish and (to a lesser degree) Portuguese colonies did not exist. The regulatory acts of local and provincial governments were subject to the constraints of the common law, which protected subjects from arbitrary officials and provided the basis for the relatively untrammeled mobility of both capital and non-slave labor. There were no state monopolies. The negative effects of the British commercial monopoly were miniscule, because the industrialization of the Mother country and the trading interests of its other colonies in the New World and

15 See G. Walton and J. Sheperd, Shipping, Maritime Trade and the Economic Development of Colonial North America, Cambridge 1972. Other sources of income and productivity advances may have included increased investment in agriculture per worker. 16 See S. Previant Lee and P. Passell, A New Economic View of American History, New York 1979, 23 - 24.

20

I. Economic Problems and Development in the Long Run

Africa made the British empire the largest and most profitable free trade zone in the world. Unlike the Iberian colonies, then, British North America was able to take full advantage of favorable conditions for external trade in the eighteenth century. And in further contrast to Latin America, where independence struggles often gave way to bitter civil wars over the fundamentals of political and economic organization, British North American independence consolidated the extraordinary freedom of enterprise which had developed during two and a half centuries of British rule.

Independence Modernization of the state was the historic achievement of Latin American independence. In many cases, however, the institutional and political changes required to replicate the North Atlantic achievements came only after prolonged civil strife which further depressed economic activity. This was because the implicit colonial "pact", according to which Creole elites exchanged loyalty and taxes for the state's defense of their privileges of caste and class, still represented the preferred form of social organization for many of the region's most powerful individuals and institutions. In some cases, independence led to the recovery of indigenous autonomy and lands, thus making subordinate ethnic groups into implicit, if temporary, allies of reaction. In Mexico and the Andes, where the legacy of the old empire weighed most heavily, civil warfare and its economic consequences took the greatest toll. In both cases, mercantilist magnates and their allies conspired to preserve colonial caste systems, monopolies, privileges, tax structures, and governing principles. They were defeated mainly because the colonial legacy was so contradictory — a powerful taxing authority linked to an otherwise weak public sector. Lacking legitimacy, the new governments regularly disintegrated as rapidly as had the colonial regime after the debacle of 1808. Though independence brought the region an unprecedented opportunity to sweep away inherited obstacles to economic growth, it also produced conditions of prolonged civil war just as the North Atlantic industrial revolution raised U. S. and European growth rates to unprecedented levels. Table 4 summarizes the available data on growth rates for the first half of the nineteenth century. None of the three Latin American countries for which growth estimates can be constructed came close to equalling the British and U. S. rates in this era.

Notes on the Comparative Economic History of Latin America and the USA Table 4

21

Average Annual Compound Rates of Growth of Per Capital GDP, 1800-1850

Selected Countries Countries

Rate

United Kingdom United States Brazil Colombia Mexico

0.8 1.1 0.4 0.0 -0.7

Sources: For the United Kingdom, see N. F. R. Crafts, British Economic Growth 1987, 246, which gives a rate of 0.52 percent per annum for the period 1801 —1831; this is combined with the higher rate of 1.5 percent given for the period 1820 to 1870 by Maddison, Phases of Capitalist Development, Oxford 1982, 44. For United States, see Paul David, The Growth of Real Product in the United States Before 1840. New Evidence, Controlled Conjectures, in: Journal of Economic History 27 (1967). For Brazil, the growth estimate is based on data in the statistical appendix to Nathaniel Leff, Underdevelopment and Development in Brazil, London 1982, vol. 1. For Columbia, the rate is for the period 1830 to 1847, based on William McGreevey, Colombia, in: R. Cortés Conde and S. Stein (eds.), Latin America. A Guide to the Economic History, Berkeley 1977, 386. For Mexico, the rate is for 1800 —1860; see John H. Coatsworth, The Decline of the Mexican Economy, 1800 — 1860, in: R. Liehr (ed.), América Latina en la época de Simón Bolivar. La formación de las economías nacionales y los intereses económicos europeos, 1800—1850, Berlin 1989.

The question arises why the new states of the region proved unable to avail themselves of Gerschenkron's institutional solution. Why not take the legacy of centralized, hierarchical rule and make it work to produce a more state-centered growth model? The fact is that "conservative" regimes in Mexico and the Andes tried to take this path in the first decades after independence. 17 Domestic political strife and in Mexico foreign invasion doomed these efforts. So did social strife, involving the new nations' exploited ethnic majorities. Most of all, the region's conservative experiments lacked the legacy of a strong state. They could tax the diminished output of stagnating economies, but they could not manage to do much else —

17 On the Peruvian case, for example, see P. Gootenberg, Between Silver and Guano. Commercial Policy and the State in Postindependence Peru, Princeton 1989.

22

I. Economic Problems and Development in the Long Run

define and defend borders, monopolize the use of force, discipline bureaucracies to public purposes, assume rather than delegate public functions, build infrastructure, educate and train the labor force. Indeed, the effort to accomplish even a few of these goals usually proved fruitless, because conservative regimes so often neglected, or even opposed, the fundamental constitutional and policy reforms needed to consolidate bourgeois principles of governance. Only later in the century, when reforms promised to reward reformers with external resources, did Latin America's conservatives reluctantly embrace (though usually less thoroughly than their liberal opponents) the need for institutional modernization. The southern cone and Brazil did not exhibit the same degree of domestic strife as Mesoamerica and the Andean states. The recovery of the more lightly governed Spanish colonial economies and Brazil, where the weight of colonial institutions created smaller burdens, outpaced those of the older, mineral-rich regions. In Argentina, few local interests remained tied to the ancien régime and these — mainly in the Northwest, which depended on trade with the Andean mines and on the shipment of bullion after the creation of the new Viceroyalty in 1776 — were either rendered obsolete or simply repressed by the new governments. Regional conflicts persisted, but Argentina's conservatives, based in Buenos Aires never proposed to recreate the colonial order. In part, it appears, Argentina's relatively high income per capita, was due to its more thoroughgoing orientation toward the development of profitable exports. In part, it was due to the colony's history as a settlement (as opposed to a conquest) colony. Argentina's largely European population migrated in response to income levels comparable to or better than those enjoyed elsewhere; had wages been as low as in Peru or Mexico, the colony would have been left to its unconquerable indigenous nomads. Brazil's relatively peaceful transition to independence and the preceding dilution of a weaker Portuguese colonial monopoly made this country's trajectory less bumpy than elsewhere. Apart from slavery, Brazil's institutional trajectory differed sharply from Mesoamerica and the Andes. Precapitalist property rights (except for rights in human property) had already disappeared by independence. Positive legislation and government policies evolved slowly, with the economy, and did not give rise to prolonged internal strife. Growth was constrained by policies mildly hostile to urbanization and industrialization, in part because of the influence of slave interests; these constraints disappeared after the fall of the empire. Despite the considerable variations of political and social structure, and even of productivity levels, among the independent countries of nineteenthcentury Latin America, every one of them adopted similar (occasionally identical) constitutional and legislative changes over the course of the nine-

Notes on the Comparative Economic History of Latin America and the USA

23

teenth century. Caste and slave systems disappeared along with pre-capitalist property rights, including entail, indigenous community landholding, and inalienable Church assets. New legal frameworks were adopted, beginning with new commercial codes and extending to a wide range of specialized areas such as banking, limited liability, mining, insurance, land, water, and patent legislation. Public lands were privatized, public monopolies abolished, and public property rights in subsoil resources liquidated or attenuated. Internal tariffs and excise taxes disappeared. Tax systems, tariff schedules, and public administration were reformed and streamlined. Along with these juridical, legislative and policy changes, the nineteenthcentury Latin American states began to assume responsibilities for active promotion of economic development. Though limited in comparison to later state-directed development programs, the late nineteenth-century investments in infrastructure and public services were impressive in contrast to the paralysis of the colonial era and the first half of the nineteenth century. The causes and sequencing of these changes varied considerably from one country to another. Unfortunately, no comprehensive survey of nineteenthcentury institutional changes in the region has ever been attempted. The earliest and easiest transformations occurred in Brazil (except for abolition of slavery) and the southern cone. The last and most difficult transitions occurred in the Andes. In the case of Mexico, de jure caste distinctions disappeared during the independence wars, the liberal revolution abolished corporate property in 1856, and the Porfirian regime initiated railroad construction and adopted new commercial codes in the 1880s. By the end of the century, Mexico, like every other Latin American country had managed to modernize its economic organization and attract substantial flows of external resources. Indeed, in a number of cases, the timing and nature of these institutional changes suggest a close linkage between constitutional and legislative changes and the incentives to enact them provided by the prospect of attracting foreign capital.

Economic Growth since the Late Nineteenth Century Perhaps the strongest argument in favor of the modernizationist view of Latin American economic history is the abundant evidence that links the onset of economic growth in the region to the development of export booms and external capital flows in the second half of the nineteenth century. Unlike the eighteenth century and the first half of the nineteenth, growth rates in four of the six Latin American countries for which data are available

24

I. Economic Problems and Development in the Long Run

between roughly 1850 and World War One approximate those of the United Kingdom and the United States. Table 5 summarizes the data. The two cases where growth did not occur until later (Brazil and Colombia), are exceptions that prove the rule. Brazil's peaceful transition to independence produced modest growth in the first half of the century in part because the country did not have to pay the costs associated with fundamental institutional change; the stagnation of the late nineteenth century was in part due to instability produced by the abolition of slavery and the simultaneous fall of the empire. In Colombia, the disastrous civil wars of the late nineteenth century may be seen in a similar context, though Colombia's conservatives did eventually embrace a late and more limited program of institutional modernization than their Liberal opponents had sought to impose. Marx was no doubt right when he argued that capitalist development requires both a proletariat and a bourgeoisie. In Latin America, the proletariat came from the countryside, driven by population growth which the land could not support and by a continent-wide process of entrepreneurial land-grabbing facilitated by the abolition of Indian communal property rights. Usurpation of village lands deprived millions of peasants of the means of subsistence and thus reduced the wage levels necessary to attract them to labor on commercial estates and in urban industries. The abolition of slavery in Brazil and the increased flow of European immigrants also contributed to the labor supply, especially in the east coast countries. While the Latin American proletariat came mainly from deep within the formerly isolated agricultural hinterlands of Latin America, the capitalists came largely from outside the region. A major portion of the investment capital that stimulated economic growth at the end of the nineteenth century came from the United States and Europe, as did many of the local entrepreneurs. The resulting economic growth, though rapid, tended to exacerbate inherited inequalities more than in the North Atlantic. Persistent and rising inequality in the distribution of wealth and income, rather than slower economic growth, constitutes the principal distinguishing feature of Latin America's twentieth-century growth. 18 In part, this feature reflects the region's colonial legacy of sharp adscriptive caste and status distinctions. In large part, however, modern levels of inequality are the result of the region's successful transition to export-led growth and its access to relatively cheap external capital and technology. The commercialization of agriculture in response to improvements in transport and foreign demand

18 The notable exceptions to this observation include Costa Rica (see Table 6 below) and Cuba since 1959.

Notes on the Comparative Economic History of Latin America and the USA Table 5

25

Annual Average Compound Rates of Growth of Real Per Capita GDP, 1 8 5 0 - 1 9 1 3

Selected Countries Countries

Rates

United Kingdom United States Argentina Brazil Chile Colombia Mexico Peru

1.0 2.0 1.6 -0.4 2.0 0.3 or negative 2.0 1.0

Sources: For the United Kingdom and the United States, see A. Maddison, A Comparison on Levels of GDP Per Capita in Developed and Developing Countries, in: Journal of Economic History 43/1 (1983), 44. For Argentina, see D. García S., Series monetarias y estimaciones de la evolución del PBI. La Argentina entre 1864 y 1929, Unpublished paper, Buenos Aires, 1989). See also Maddison, A Comparison, 44 and G. Delia Paolera, How the Argentine Economy Performed During the International Gold Standard. A Re-examination, Ph.D. diss., University of Chicago 1988. For Brazil in the period 1861 -1899, see C. Contador and C. Haddad, Produto Real, Moneda, e Precos. A Experiencia Brasileira no Periodo 1861 -1970, in: Revista Brasileira de Estatistica 36 (1975) and Leff, Underdevelopment and Development 1982, statistical appendix. For Chile, the rate in the table refers to the period 1855 —1930; see Marcos Mamalakis, The Growth and Structure of the Chilean Economy. From Independence to Allende, New Haven 1976, 4 — 5. For Colombia's exceptionally low growth in the period 1870 — 1925, see William McGreevey, Recent Research on Latin American Economic History, in: Latin American Research Review 3/2 (1968), 98. For Mexico in the period 1860 -1910, see the data in John H. Coatsworth, Obstacles to Economic Growth in Nineteenth Century Mexico, in: American Historical Review 83/1 (1978), 83. But c.f., Maddison, A Comparison of Levels 1983, 28, who estimates the rate of growth from 1870 to 1913 at only 0.8 percent. For Peru, the estimate in the table refers to the period 1850 —1929 and is based entirely on export data in S. Hunt, Price and Quantum Estimates of Peruvian Exports, 1830 —1962, RPED Discussion Paper No. 33, Princeton University, 1973, table 24; population estimates are found in the same author's Growth and Guano, 303.

26

I. Economic Problems and Development in the Long Run

led to a dramatic increase in the concentration (or a reconcentration) of landownership beginning in the late nineteenth century throughout the region. Government policies worked to attract external capital rather than to develop internal human resources. Tax rates, especially for direct taxes, were kept low in most countries and priority given to the development of the improvements in infrastructure needed to induce export growth and to attract new flows of capital. In a sense, Latin America benefitted from the cumulative effects of institutional change in the North Atlantic. The economies of the region were able to attract sufficient external capital and technology to fuel their export booms at a price that reflected only the private costs of supplying these factors of production. To have reproduced the conditions that made the North Atlantic economies efficient suppliers would have cost far more and produced much slower growth. Autarky was not a viable option. Since each nation's development depended critically on attracting large-scale foreign enterprise, policies to support the development of small and medium-sized agricultural and manufacturing enterprise were unnecessary and even distracting. Since technology could be imported at relatively low cost along with the technical skills to operate it, the need for large public outlays on education and other costly public services constituted a similar distraction. Since large farms and plantations produced more efficiently, or could obtain cheaper credit and better information, public land policies favored the new concentration of land ownership. Since foreign credit markets managed to channel sufficient resources to public and private projects that stimulated growth, local imperfections were allowed to fester. And since prosperity required stability and confirmed the wisdom of maintaining it against the clamorings of the excluded and the envious, democratic reforms were often resisted and their proponents repressed. The sociology of the oligarchic states varied considerably, but in most cases powerful landowning groups faced divided or defeated peasantries, while new and poorly organized merchants and manufacturers, dependent on foreign credit or machinery, confronted an urbanizing plebe whose size and capacity for spirited confrontation owed as much to foreign influence as it did to local conditions. The reactionary coalitions that governed most of the Latin American countries until the Depression of the 1930s had neither the resources nor the desire to adopt Bismarkian strategies of accommodation. Throughout the region, public investment in human capital and public spending on social services remained well below the levels achieved at comparable levels of national income in the more developed countries. Here, the logic of the dependency school analysis is convincing. Latin America's external economic relations did not retard growth, but they did contribute

Notes on the Comparative Economic History of Latin America and the USA

27

to a growth trajectory characterized by extreme concentration of wealth and income. Fernando Henrique Cardoso once observed that the dependentistas did not deny the reality of economic growth in dependent regions; they merely questioned its morality. He was right. In this historic context, three fundamental problems arose which are still visible in Latin American societies and economies. First, unlike the United States, where immigrants and native workers alike experienced substantial inter-generational status and income mobility, many among Latin America's popular classes, particularly in the countryside, experienced the onset of rapid economic growth as a personal and collective disaster. Second, this disaster resisted amelioration by political action for three main reasons: (a) the extreme sensitivity of governments to the expressed fiscal and social preferences of foreign capitalists as well as domestic entrepreneurs, (b) the low levels of skills required in most primary product producing sectors and the low cost of importing the skills and technology that were required, and (c) the persistent exclusion of many citizens (particularly, in rural areas) from participation in political life. Third, the political dynamic thus carried into the twentieth century produced alternating regimes of repression and accommodation without altering the inherited tendencies to concentration of wealth and income as well as underinvestment in human capital. This inheritance from the nineteenth century was further exacerbated in the past four decades by the cold war security policies of the United States, which supported reliably conservative, anti-communist political parties, regimes, and military establishments, whose social commitments were often antiquarian at best. Again, the United States provides a striking contrast to the Latin American experience. Despite a bloody civil war, more costly in human and material terms than all of Latin America's nineteenth-century domestic strife (though efficiently concentrated in an intense five-year drama), and despite considerable domestic social conflict from the 1870s through the upheavals linked to racial and political protest into the 1970s, neither revolution nor counterrevolution has ever interrupted the orderly processes of evolutionary change in the United States. This remarkable stability is related to the relative inclusiveness of the U. S. political system and its decentralized governing structures. It is also related to the phenomena of widespread property ownership, early public commitments to certain kinds of social spending (especially on education), and a lesser degree of concentration of wealth and income. It would be convenient if it were possible to conclude that the economic success of the United States resulted from this stability while the backwardness of Latin America stemmed from its long history of political and social

28

I. Economic Problems and Development in the Long Run

upheaval. Two considerations make such a conclusion impossible. First, once the fundamental institutional changes of the nineteenth century were accomplished, most of the Latin American economies managed to grow over the long run at relatively high rates despite domestic turmoil, except for brief periods of time (in most countries) and for more complex reasons over a longer period in Argentina. Second, the success of the western European industrial economies, like those of Latin America, also occurred against the backdrop of intense domestic social and political conflicts. Indeed, two world wars resulted from these struggles. In contrast to the United States, where incremental changes in existing institutions and policies generated a growth trajectory with less friction and upheaval, those of Latin America and western Europe in the twentieth century were achieved despite recurrent political breakdowns. The post World War Two settlement in Europe led to the development of the west European social market economies which have equalled and in some dimensions surpassed the achievements of the United States in mitigating the corrosive effects of social and economic inequality on domestic political and social life. In Latin America, by contrast, no such happy trends have emerged. Indeed, income distribution in the countries for which data are available appears to have become more concentrated in the boom decades of import substitution industrialization and has deteriorated in many countries during the past decade of stagnation as well. In the 1980s, real per capita social expenditures actually fell throughout the region.19 There are no reliable data on income distribution in Latin America before relatively recent times, though there is abundant evidence on the distribution of landownership and some other assets for a much longer period. Recent estimates for income shares are available for the United States and several European and Latin American countries. They are reproduced in Table 6. As expected, all of the Latin American countries (except Costa Rica) for which data are available display greater income concentration than do any of the European countries or the United States. This pattern holds true when the comparison is extended to include countries for which data are available from estimates made 15 to 30 years ago. Though some indicators of social progress have continued to improve, in part because of trends established earlier, there is little optimism anywhere in the region concerning the short to mid-term future. Economic recovery

19 See M. E. Grosh, Social Spending in Latin America. The Story of the 1980s, World Bank Discussion Papers No. 106, International Bank for Reconstruction and Development, Washington, D. C. 1990.

Notes on the Comparative Economic History of Latin America and the USA

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