Latin America in the World Economy 37
appears to have achieved a better economic performance at a lower level of
education.
The main explanations that have been advanced for this phenomenon have to
do with social structures and power relations.
The education system that was set up during colonial times was designed to
preserve and legitimize the existing social order. Education was a way of "civilizing"
the indigenous peoples, eradicating their customs and beliefs, and indoctrinating
them in the Catholic religion. Teachers were members of different religious orders
(Franciscans and Dominicans, among others), and there were very few schools.
Higher education was primarily for the European and Criollo (creole) elite and the
children of the Caciques (Indian chiefs), and instruction was given almost entirely in
Spanish and Portuguese.
A more modern system of education emerged in Latin America in association
with other processes, the most important of which was the creation of independ-
ent states. This was accompanied by the appearance of new political parties, the
emergence of entrepreneurs, and the arrival of internal and foreign immigrants.
All of this fueled rapid progress in the creation of education systems, the gradual
universalization of primary education, and the narrowing of the educational gap
between men and women. And all of this, in turn, promoted social mobility.
As pointed out by Reimers (2006), however, these processes were all imprinted
with a very basic division between those who advocated a democratic, inclusive
form of education and those who crafted hierarchical, authoritarian social struc-
tures that went hand in hand with a high degree of social exclusion. The nine-
teenth century was a time of political infighting between different elite groups.
Two factors or events signaled a change in the direction that the education system
was taking. The first was the gradual shift away from Catholic schools and toward
the secularization of the education system. This change was driven by groups of
intellectuals associated with the independence movement who saw the Catholic-
dominated system of instruction as being directly linked to the authoritarian
social order and religious dogma that eclipsed the individual and the truth. The
second important factor was this movement's emphasis on primary education,
whose provision it saw as a duty of the state. The second half of the nineteenth
century saw the creation, especially in the countries that were among the first to
achieve advances in development, of what would become national education
systems that would lay the groundwork for the changes that were to occur in
the twentieth century (Reimers 2006; Meyer et al. 1992).
In the course of the twentieth century, the countries gradually consolidated the
national public education systems that had begun to emerge in the previous
century, albeit at different paces in different countries. Public education gained
ground, with a strong link being formed between schools and local governments.
While the two opposing ideological camps referred to above held their ground, the
conservatives gradually came to accept the state's new role in providing education
and in opening up access to it. Their ideological differences continued to exist, but
now shifted into other spheres. Two factors should be underscored here. First, as
noted earlier, the increase in the number of students in the primary education
system was not necessarily accompanied by an improvement in its quality.
Second, as the universalization of primary education ceased to be controversial,
38 Economic Development of Latin America
the focus of this protracted ideological dispute turned to secondary and tertiary
education (Reimers 2006).
As Reimers says, the period of rapid industrialization drove the expansion of
the education system, not only because human capital came to be seen as a key
factor in economic development after the Second World War, but also because of
the emergence of the idea that development could be planned. Development
agencies began to become important players in national financing and in educa-
tion. The World Bank and later the Inter-American Development Bank (IDB)
provided financing for infrastructure works, the construction of universities and
of vocational and secondary schools, and the expansion of the primary education
system. These efforts brought about not only an increase in enrolment in general,
but also the spread of a common teaching methodology that was oriented more
toward driving economic growth than toward promoting people's integral
development.
The uneven performance of education policies in the first half of the twentieth
century had, by the 1950s, led to clear differences in enrolment rates. According to
Frankema (2009), if we focus on the point in time at which a transition was being
made toward education for all, we can, in an approximate way, identify three
groups of Latin American countries. In the last three decades of the nineteenth
century, primary-school enrolment rose most sharply in Argentina, Chile, Costa
Rica, and Uruguay, although, somewhat surprisingly, less so than in the British
colonies of Jamaica and Trinidad and Tobago. After winning its independence
from Colombia in 1903, Panama joined the ranks of the countries that were first to
expand primary education. In the 1920s and 1930s, gross enrolment rates started
to climb more steeply in Bolivia, the Dominican Republic, Ecuador, El Salvador,
Mexico, Brazil, Peru, and Venezuela. Some of the poorest countries in the region,
such as Guatemala, Honduras, and Nicaragua, lagged behind, as was to be
expected, and the upswing in enrolment rates did not pick up speed until the
early decades of the post-Second World War period.
This classification appears to be a reflection of some important features of Latin
America's historical legacy. The countries which were the first to increase school
enrolment rates are the countries that were on the periphery of the colonial
system, where the Iberian colonizers had much less of an impact than they did
in the central colonial territories. These countries appear to have been: (a) the
most heavily urbanized ones, (b) the most ethnically homogeneous ones, with
European immigrants being in the majority (Argentina, Uruguay), and (c) rural
societies with comparatively lower levels of inequality (Argentina, Uruguay, Costa
Rica). The countries with the most limited development were generally the most
highly stratified rural societies that had the lowest levels of urbanization and a
highly heterogeneous ethnic make-up that included a relatively small Criollo elite.
Most of the Latin American countries were somewhere in between these two
extremes and began to invest in mass public education in the early years of the
twentieth century, particularly in the 1920s and 1930s.
Most of the expansion in primary and secondary education has been in the
public sphere. While the enrolment rate in private schools is substantial, private
education-especially at the primary level-has not become dominant. This is less
true at the secondary than at the primary level, however, and still less true at the
Latin America in the World Economy 39
university level, where, generally speaking, enrolment in private educational insti-
tutions is higher.
Secondary-school enrolment was much lower at that time, partly because the
increase in primary-school enrolment was achieved by introducing a series of
measures that worked to the detriment of educational quality, which in turn led to
an increase in grade repetition rates that held students back from entering the next
level of instruction. By the same token, for most of that century, the emphasis was
on achieving literacy for all and on universalizing primary education, while scant
attention was paid to the secondary and tertiary levels, with the idea of equitable
access to education at all levels being reduced to its minimum expression.
Reimers's views tie in with the neo-institutionalist approach, which, in its turn, has
brought back the entrenched beliefs ofthe Latin American structuralist tradition. The
underlying idea, then, is that, despite all of the Latin American republics' efforts to
universalize education, the region has not achieved the levels of education that it
would be expected to have attained given its level of economic development, and this
situation can hold it back from making more significant economic and social changes.
Proponents of the neo-institutional school of thought maintain that Latin
America's lagging progress has to do with the concentration of wealth and
political power in elite groups. In support of their thesis as to the distribution of
political power, they contend that, even though investment in education is highly
and positively correlated with per capita income over time and across countries,
there is a great deal of variation that cannot be accounted for by income differen-
tials. Inequalities in political power, as expressed in the percentage of the popula-
tion that has the right to vote, appear to be associated with lower literacy rates and
less educational coverage (Engerman, Mariscal, and Sokoloff2009; Lindert 2010).
Frankema (2009), along with other authors, has looked for a relationship
between the development of the education system and the concentration of land
ownership. The basic idea is that large landholders are not in favor of educating
the workforce because they fear that education will build workers' capacities and
thus their political power and because they are more inclined to make use of
unskilled labor than to use education as a means of boosting productivity.
Lindert (2010) has recently described how the concentration of political power,
the concentration of wealth, and low levels of education are linked to one another.
He also attempts to account for what he calls "education anomalies" (countries
with higher incomes but worse education systems than others) by analyzing their
tax systems and looking at how fervently opposed high-income sectors are to
paying taxes to finance the cost of universal public education.
There is another line of thought that complements this interpretation. While
acknowledging that the above-mentioned mechanisms are at work, the question can
also be asked as to whether or not it is possible for a fairly uneducated population
(i.e., one with a low level of human capital) to generate a high level of per capita
GDP. This has to do with a production function in which the abundant factor is not
labor, human capital, or physical capital but instead primarily natural resource
endowments. Latin America's traditional export pattern, in which the predominant
component is made up of commodity exports that incorporate relatively low levels of
value added but that nonetheless do generate economic rents, would be the main
factor underlying its tendency to have a high level of per capita income relative to its
endowment of human capital as measured by levels of education.
40 Economic Development of Latin America
This characteristic, which could serve as a good point of departure for a
development process, could also inhibit such a process if those who have control
over the countries' natural resources also manage to gain political control and if
the production pattern is oriented toward deriving profits from those natural
resources rather than toward building the capacity for innovation based on the
development of human capital and structural change in the production sector.
This line of reasoning does not point to a straightforward relationship between
natural resource endowments and levels of education. On the contrary, this relation-
ship will always be influenced by the patterns of economic and political power in a
given society. For example, the countries in the extreme south of South America,
which have a generous natural resource endowment relative to the size of their
populations, succeeded in attracting immigrants and attaining higher wages and
higher levels of social expenditure than other parts of the region in which the per
capita natural resource endowment was not as great. Countries that are rich in
natural resources but in which ownership is highly concentrated and large sectors of
the population are uneducated and have little political power (owing, in part, to racial
and cultural discrimination) may lag even further behind in terms of education.
Life expectancy at birth
The last ten generations of human beings have availed themselves of technical and
physiological developments that were not within the reach of the many more
generations that preceded them. The expression "technophysio evolution" is used
to refer to the interaction between technological advances and improvements in
human physiology, which is a synergy in which the whole is greater than the sum
of its parts. The huge increase in the longevity of the world's population has gone
hand in hand with changes in height and weight. This technophysio evolutionary
process may also involve genetic processes of natural selection, but during the
past three centuries, the non-genetic factors have been particularly influential
(Fogel 2009).
During the twentieth century, the mean life expectancy in twelve Latin Ameri-
can countries for which information was available jumped from 29 to 71 years
(data for the early twentieth century for some of the countries with the lowest life
expectancies are unavailable, so the actual mean was no doubt lower).
The nineteenth century does not appear to be one in which economic growth
brought any appreciable improvement in this variable for most of the world's
population. Fogel contends that this type of indicator may provide a clearer
picture of living standards than income-based measurements do because real
wages may entail "bribery" in the sense that workers agree to work under condi-
tions in which they are at greater risk of on-the-job (including fatal) accidents.
Using these types of biomedical indicators, the industrialization process in
England is a clear example of one in which the degree of inequality seems to
have increased even though income distribution appears to have remained
unchanged.
The twentieth century appears to be the point in time when most of the
advances in this respect converged and when the majority of the population saw
a decline in inequalities in life expectancy at birth.
Latin America in the World Economy 41
The reduction in mortality rates that raised life expectancy stems from four main
processes: the improvement ofpublic health systems, advances in medical theory and
practice, improved personal hygiene, and higher income levels and living standards.
The way in which life expectancy at birth indices have been constructed has also
been a subject of debate. While life expectancy at birth has risen enormously,
some argue that there are certain biological limits which we are approaching and
that each additional year oflife expectancy for the general population is therefore
becoming more and more difficult to achieve. This is why, rather than having a
linear index, it makes sense to use a convex function that will reflect the increasing
difficulty of attaining further increases in life expectancy. This would mean that
advances at higher ages would be weighted more than advances in average life
expectancy at lower average age levels (see Prados de la Escosura 2007).
Table 1.9 shows an index constructed on the basis of a maximum life expect-
ancy at birth of 85 years (a value of 100 on the index). Developed countries would
have a value of89, while Latin America (12) would have one of78. Ifwe were to
adopt the less optimistic view of advances in life expectancy, then both groups of
countries would be much further from the maximum. What is most important,
however, is that, if we use the second yardstick, then Latin America would not be
at 88 percent of the level of developed countries, as shown in column 13, but at 69
percent, which would indicate the distance that it has to cover in terms of the
effort needed to match the life expectancy achieved by developed countries.
Regardless of which index is used, it can be seen quite clearly from the lower
portion of Figure 1.6 that Latin America's main achievements relative to
developed countries came between the 1930s and the 1960s, when the deployment
of social policies was at its height. The closing decades of the twentieth century, on
the other hand, appear to have been a time of stagnation or even of regression in
relative terms, especially if the index built on the basis of a convex function is used.
Historical human development indices
As we have seen, indices of each of the components of human development can be
built in different ways. By combining two alternative versions of each indicator,
we can construct eight alternative aggregated indices. To simplify, in Figure 1.7 we
show three indices that reflect the two extremes and one intermediate one.
IR3 is the index that best reflects the values and criteria traditionally used by
UNDP, although the reader should bear in mind that the information that we
have on education (and that used most recently by UNDP) is completely different
from traditional estimates (based on school attendance and illiteracy). This index
uses the logarithm of per capita GDP and does not alter either the level of
education or life expectancy at birth. The result indicates that Latin America
has progressively narrowed the gap between it and developed countries, although,
by around the year 2010, it was still at just 75 percent of the developed-country
level. It also shows that more ground was gained during the middle decades of the
twentieth century, particularly between 1930 and 1960.
If we use the IR2 index instead, which does not alter per capita GDP but does
recalculate the indices for years of education and life expectancy at birth to reflect
the fact that it becomes more difficult to make further advances as one moves up
42 Economic Development of Latin America
A. Average years of education -_?--
60.0 -.-~~~~~~-
:~:~ ~·==========~====-~~~-~~-.~~~~
30.0 -!---~~-~~~~-...-......-......-.==-~~
20.0 ~--======:::.~~------
10.0 -!---~~~~~---~~~----
0.0 .... .... .... ...,.... .... .....(.X._),
(X) (cXo) co ~ co cwo co co co c...o_, co ~ 1\) 1\)
(X)
0 1\) (/1 Ol (X) ccoo 0 ~
0
0 00 00 0 0 00 00 0 0 0 0
1 - IEDU - EDU(conv)
B. Life expectancy at birth =
100
20 80
60
~40
0 .... ...,.... .....(.X._), ......
ccoo
(X) (cXo) co ~ co cwo co co co c...o_, co 1\) 1\)
(X)
0 1\) (/1 Ol (X) 0 ~
0
000000000000000
1-LE - LE(conv)l
C. Per capita GDP
~~:~~-~~
60.0 +-0"'~~~~--~~~-~~~~~~-
50.0
40.0 -l-----~----~------
30.0 ~
20.0 -!--~~~~~~~~---~__:____~
10.0 -1--~~~~~~~~~--~~-
0.0 +(-....X.._-.),.--((XX-)).--(c..X-o..).--c0..-o...--..c..-o....-.-c1.-.o.\-.) -.cw.-.o.-. -...c-,.o..-..-.(c-../o.-1.--Oc.o-l--c....-o_,-.-(c.X.-o..)-.-cc-oo-.-100-\-) ,-1~-\-),
000000000000000
1 - IPer capita GDP -o- Log of per capita GDP
Figure 1.6. Latin America: Historical HDI relative to developed countries. A. Average
years of education. B. Life expectancy at birth. C. Per capita GDP
Note: Developed countries include Germany, France, United Kingdom, and United States.
Source: Table 1.9
Latin America in the World Economy 43
1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 2010
I-RI1 Rl2 - - Rl31
Figure 1.7. Historical human development indices 1900-2000:
Latin America (LA7) and developed countries
Note: See Table 1.9 for details. Latin America (LA7) includes Argentina, Brazil, Chile, Colombia, Mexico, Peru, and
Venezuela.
Developed countries include Germany, France, United Kingdom, and United States.
Relative Index I (RII): Geometric mean of per capita GOP, and life expectancy at birth and education indices
(GDPPCI, LEI, EI).
Relative Index 2 (RI2): Geometric mean of GOP per capita index, and the indices of convex function for life
expectancy at birth and education (GDPPCI, LE-con, EI-con).
Relative Index 3 (RI3): Geometric mean of log GOP per capita, and life expectancy at birth and education indices
(logGDPPCI, LEI, EI).
Source: Authors' calculations based on Bertola, Hernandez, and Siniscalchi (2011)
the scale, we see, here again, that the greatest progress in relative terms was made
between 1930 and 1960. After that, the rate of advance was slower and then came to
a halt in the 1980s, though resumed the upward trend in the first decade of the
twenty-first century. In this case, Latin America's ranking on the Human Develop-
ment Index has been in recent decades slightly over 40 percent of that of developed
countries. The IRl index, which does not alter the original values at all, reflects a
trend similar to that seen with the IR2 index, with the difference that the relative
value amounts to slightly over 50 percent of that of developed countries.
Clearly, none of these indices provides an entirely accurate picture of the
situation. Each one reflects different aspects of human development trends, and
each is influenced by what we think may happen in the future, as in the case oflife
expectancy at birth. Taken together, they provide us with a more nuanced view of
the complex social and economic development process in Latin America, which,
starting from an initial position in which it lagged extremely far behind the
developed world, began to close that gap in the middle decades of the twentieth
century (with varying lags in different countries) and then came to more or less of
a standstill in the final decades of that century.
44 Economic Development of Latin America
INEQUALITY
It is well known that Latin America is the region with the highest levels of income
inequality in the world, which is why there has been so much interest in inequality
studies in recent years. One of the main questions to be asked is: To what extent
does the existence of inequality help to account for the region's relative backward-
ness? The other is: To what extent is this characteristic a result of the region's
particular style of development?
After the Second World War, the tradition of research led by Simon Kuznets
focused on the impact of economic growth and structural change on levels of
inequality. Although the relative levels of productivity in urban and rural sectors
played a predominant role in his analyses, he also devoted a great deal of attention
to non-economic (at least in a strict sense) factors such as demographic, social and
political changes linked to industrialization and to the development of welfare
states.
In conventional economics, inequality has primarily been discussed in terms of
income distriblltion. Viewing growth as a process of resource allocation, the main
idea is to look at what kinds of price movements are experienced during processes
of market integration and de-integration. The link between globalization and
inequality has sparked a great deal of interest, with the focus being on the impact
that initial endowments of factors of production (i.e., the relative abundance of
land, capital or labor) have in terms of inequality (O'Rourke and Williamson
2006).
While this tradition continues to exist, the question of the kind of impact that
inequality has on long-term growth has become one of the most dynamic areas of
theoretical research. According to conventional economic thought, human capital
formation is the main channel through which inequality affects the growth rate:
the more equal a society is, the greater its rates of human capital formation and
growth will be. Other channels for inequality's negative impact on growth would
be unequal access to financial resources and social and political instability.
The theoretical discussion has increasingly focused on determining which
institutions promote inequality, both from the standpoint of income and wealth
distribution and in terms of political power (North, Wallis, and Weingast 2009;
Acemoglu, Johnson, and Robinson, 2005). From this vantage point, market forces
and resource allocation play a secondary role.
The concept of human development has also been a focus of attention in this
debate. In order to understand the dynamic of economic and social development,
we have to look not only at the distribution of income and wealth, but also at the
distribution of human capabilities.
Most of the research done on and in Latin America in the 1950s, 1960s, and
1970s (with, in the second case, the structuralist school of thought leading the
way) underscored the importance of the oligarchic aspects of Latin American
development, which were manifested in the concentration of political power,
wealth, and income in elite groups of landowners and financiers who controlled
labor relations and trade. While the winning of independence disrupted the
political order, opening the way for chaos and making it difficult for the state to
protect property rights and to maintain security, what we now call the first wave of
globalization was associated with the consolidation of the state's political power
Latin America in the World Economy 45
and a heavy concentration of wealth, along with a stauncher defense of the elites'
property rights. At the same time, labor relations were changing, but they
remained clearly subordinated to the interests of the elites and, in fact, became
subject to old and new forms of extra-economic coercion typical of pre-capitalist
forms of organization. Thus, the problem was not only the heavy concentration of
land ownership, which was in itself excessive by international standards (see
Frankema 2009: ch. 3), but also the continuation of various forms of labor
subordination that curbed labor mobility. The countries that were relying on
immigration from Europe were the conspicuous exception to the latter rule.
These new elements had their roots in the region's colonial legacy. These new
types of relations played out in different spheres, however, owing to the inter-
action of powerful international forces (the Industrial Revolution, the independ-
ence of the United States, the outcome of the Napoleonic Wars) that influenced
the liberal reform movement in Latin America. These liberal reform processes
took place in varying settings, however, due, as we have seen, to the combination
of growth in the areas that played a central role during the colonial era, of the
expansion of tropical crops that were cultivated with the use of large contingents
of slave labor, and of advances in pushing back the frontier with the help of
immigrants from Europe (Cardoso and Perez Brignoli 1979).
Neo-institutional theorists have revived this older tradition of research
(although they generally ignore the older Latin American structuralist literature),
arguing that the institutions set up by the colonial powers immediately following
colonization created a long-term equilibrium situation marked by sharp political
and economic inequalities, sluggish human capital formation, and slow economic
growth. Different authors put emphasis on different factors-from the role of the
region's political and cultural legacies (North, Summerhill, and Weingast 2000),
to its natural resource endowment and population density (Engerman and Soko-
lof 1997 and 2001) or the balance of social and political forces (Acemoglu,
Johnson, and Robinson 2003; Robinson 2006)-but they all agree as to the
decisive role played by early colonial structures. This school of thought has had
a strong influence, not only in the academic world, but also in major international
organizations (see, for example, World Bank 2004).
These views have recently come under fire. Coatsworth (2008) contends that the
root causes ofLatin America's backwardness should be sought in the period between
1770 and 1870, when the Latin American economies missed the opportunity to
engage with the Industrial Revolution and bring about one of their own. In his view,
the local elites did not become stronger in the colonial era but only later, toward the
end of the nineteenth century, and-contrary to what the neo-institutionalists
contend-that reinforcement would not have been possible had it not been for
economic growth. Viewed from this standpoint, the concentration of economic
power was not an adverse factor but instead one that fostered development.
Unlike the advocates of earlier traditions, the neo-institutionalists looked to
local conditions as the sole explanation for the region's development path and
inequalities, while turning away almost entirely from an analysis of how those
inequalities were reproduced at the international level and how they influenced
the existence of inequalities at the national level. Similarly, the emphasis on
colonial institutions has diverted attention from research into how institutions
have been altered by their interaction with national and international processes of
46 Economic Development of Latin America
change, with the most significant of those processes undoubtedly being the Indus-
trial Revolution and the ensuing succession of economic growth impulses, tech-
nological change, and structural and social transformations (Bertola 2011).
There appears to be broad agreement that the degree of inequality in Latin
America (both across and within countries) increased during the first wave of
globalization. Proponents of this view do not deny that sharp inequalities were
inherited from the colonial era but regard those conditions as feeding into the
inequalities that arose during the first period of globalization. With 20 percent of
the population being Caucasian (many of whom were very privileged), 25 percent
slaves, a large mestizo group subject to multiple forms of discrimination, and an
indigenous population subject to differing types of servitude, and given the
strength of the colonial powers, sharp inequalities in terms of both economic
opportunities and civil rights took shape and reinforced one another.
As we will see in Chapter 3, the increasing inequality experienced during the
first wave of globalization was not confined to the impact of market forces. For the
most part, it involved a redistribution of wealth and institutional changes that
consolidated a particular configuration of ownership, wealth, and political power.
Thus, far from being a purely economic phenomenon associated with an adjust-
ment to a new type of equilibrium situation in the wake of the revolution in
transportation, the increase in inequality during this period was closely linked
both to the patterns inherited from the colonial past and to their interactions with
new economic, social, and political forces.
The period of state-led industrialization had differing results in terms of equity
in different countries. In those that developed some form of welfare state, this was
a time of declining inequality. This is the case of countries such as Argentina,
Chile, and Uruguay, which combined a relatively poor economic performance
during this stage of development with advances in terms of improved equity, until
this progress was cut short by the advent of bloody military dictatorships. In other
countries with very large domestic markets and highly segmented labor markets
in which a large percentage of the population was made up of the descendants of
slaves or of mestizo campesinos (mixed-blood peasants) or indigenous groups, the
industrialization process heightened the concentration of wealth and, even among
wage-earners, led to a growing polarization of income levels. Brazil may be
regarded as the epitome of this type of experience. In still others, these kinds of
phenomena were in evidence until the industrialization process was quite far
along, but at some point distribution began to improve, particularly as the surplus
of rural labor began to shrink and the effects of the development of the education
system began to be felt. Mexico, Venezuela, and Colombia are some of the main
examples of this type of pattern. In the long run, a significant effect of industri-
alization and of the urbanization that went along with it, in conjunction with
widely varying types of agrarian reforms, was the erosion and ultimate elimination
of long-standing forms of servitude that had existed in rural areas, in particular.
There is a broad consensus, as well as detailed information, about how the
market reforms of the late twentieth century led to a significant increase in
inequality and about the association between this increase and deregulation, the
destruction of state capacity, and de-industrialization. In the Southern Cone, the
military dictatorships that seized power played a major role in the early phases of
the reform process, which they accompanied with a systematic repression of the
Latin America in the World Economy 47
attempts made by the people to organize, with one of the results being substantial
reductions in real wages. More generally, however, the economic crises that took
place had a powerful negative distributional impact, while the restructuring of
production generated a demand bias for skilled labor that also had an adverse
effect on income distribution. In the first decade of the twenty-first century,
however, the trend in distribution improved and inequality declined. The reasons
for this are still open to question, but it is clear that at least two types of policies
have had a broad impact: the improvement of the distribution of educational
opportunities had a cumulative effect, and the newly designed system of social
assistance succeeded in reaching the poorest sectors of the population.
A comparison oftoday's Latin American societies with those that existed when
the countries of the region were just winning their independence clearly shows
that the distribution of wealth (which is now based more on capital than on land)
continues to be highly unequal and that income distribution is possibly even
worse than it was then. On the bright side, however, after an initial period during
which the situation deteriorated, educational opportunities and access to health
care have since improved. Even more importantly, slavery has been abolished,
along with almost all of the various forms of servitude that were typically found in
rural areas. These latter developments represent significant advances in terms of
improved equity, although their implications for providing more equal access to
the full exercise of citizens' rights are still not entirely evident.
2
The Economic History of the Young
Independent Republics, 1810-70
INTRODUCTION
The Latin American republics won their independence as part of a quite complex
international political process that entailed the independence of the thirteen
North American colonies, the French Revolution and the Napoleonic Wars.
This broader process led to the formation of many republics, but also to the
establishment of an empire (Brazil, up to 1889). Cuba remained a colony until the
late nineteenth century but it, too, made the transition to an independent republic
in the early twentieth century. In the end, all of the Latin American countries
eventually became republics. Consequently, although it is somewhat inaccurate in
relation to Brazil and Cuba, in this chapter we will be using the term "young
republics" to refer to the Latin American countries during the decades following
the paradigm shift that began around 1810.
From an economic and technological perspectiv~, the high point of the second
half of the eighteenth century was the Industrial Revolution in England, which
gradually spread to other European countries and to the United States. The
Industrial Revolution was not an isolated event: it involved a radical transform-
ation in the way the capitalist economies operated. From that time on, the pace of
technological change picked up as a series of new technical and economic
paradigms took the place of one another and then radiated out to the rest of the
world. All of this had an exceedingly strong impact in terms not only of new
products and production processes, but also of means of transport and communi-
cations. In their turn, the changes that took place in these latter two areas sparked
a revolution in trade and international finance.
The sweeping technological changes experienced during the period, which will
be the focus of this chapter, had three main components: the mechanization of
industry made possible by the use of iron, the use of hydraulic energy, and the
construction of canals. These were the prime technologies of the Industrial
Revolution of the late eighteenth century. This expansion set the scene for further
innovations that would not begin to crystallize until the 1830s, when steam
engines (for, among other uses, railroads and shipping) came into widespread
use, machine tools began to be used in a growing number of production processes,
and the telegraph revolutionized long-distance communications. Finally, toward
The Economic History of the Young Independent Republics 49
the end of this period (well into the 1870s}, another technological paradigm came
into being. This one was based on the use of steel in transport and heavy
engineering industries, of electricity as a revolutionary and easily transportable
form of energy, and of the internal combustion engine, which would revolutionize
transport all over again.
This accelerating pace of technological change (in which the Iberian colonial
powers played almost no part) opened up new opportunities for international
trade and set the scene for what Lynch (1992) has called the "second conquest"
and the development of a new "colonial pact." Between 1750 and 1870, the way in
which Latin America related to the world economy changed radically in ways that
Cardoso and Perez Brignoli (1979) have called the "transition to peripheral
capitalism," i.e., a type of capitalism that lacks the structural and technological
forcefulness of the central economies.
From a political vantage point, this process was marked, first, by what are
known as the Bourbon and Pombaline reforms of the late eighteenth century,
which were an attempt by the Iberian monarchies to revitalize their ties with the
colonial economies as they sought to broaden and diversify the opportunities
offered by the expansion of the international economy. The aim of these reforms
was to extract as much profit as possible from the colonial system by reversing the
relative autarky that had existed in large sections of the Ibero-American econ-
omies. Thus, although the basic workings of the system were not altered, the
economy was revitalized, the colonies became more fully integrated into the world
economy, and the regional development process became more diversified. All this
allowed the local elites to begin to seize the opportunities that these changes in
technology, production, and trade were opening up. This latter-day move to
galvanize the colonial economy was still based on the exploitive approach of
earlier times, however, and actually reinforced the monopoly of the colonial
powers. This monopoly was nothing new, but it was now even more zealously
guarded than before, and this had a particularly strong impact on the more
peripheral regions, which had been trading with other European powers beyond
the reach of colonial control.
The next crucial change to occur was the independence of the new republics and
the painful, slow, and complex process involved in building up these new states. The
independence of the thirteen colonies in North America played an extremely
influential role in shaping the context in which the Latin American countries won
their independence. The 1791 slave revolution in Haiti, which ultimately led to the
country's independence in 1804, was another pivotal event. There is, however, a
growing consensus among historians that the countries of Latin America would not
have won their independence, at least at that point in time and in the way that they
did, if it had not been for Napoleon's invasion of the Iberian Peninsula, which led to
Spain's and Portugal's defeats at the hands of the French and the exile of the
Portuguese Emperor to Brazil, and for the conflicts between England and France,
which created a huge power vacuum in Hispanic America.
In terms of social relationships, this period was marked by three different types
of economic transitions that occurred in differing combinations in the three
groups of countries identified in Chapter 1. These transitional processes were:
(1) the liberal reforms, whose key components were the expropriation of land
held by the Church, the privatization of large tracts of public lands, the transfer of
50 Economic Development of Latin America
the lands formerly held by indigenous communities to individual owners, and
changes in taxation; some of these initiatives, however, came too late or were not
fully implemented in a number of countries; (2) the abolition of slavery; and
(3) the move into frontier areas.
In this chapter, we will look at the performance of the Latin American econ-
omies in the decades following independence in an effort to see how their
performance links up with the political and institutional processes of the time
and the trade and technological opportunities that were open to them.
THE LEGACY OF THE COLONIAL ERA AND THE BATTLE
FOR INDEPENDENCE
The legacy of the colonial era
The closing decades of the colonial period, which are associated with the Bourbon
and Pombaline reforms, were a time of relatively rapid economic growth in many
regions of Latin America. These decades followed a fairly long period of decline in
the colonial economy; in some areas, this downward trend had been interrupted
before the introduction of those reforms, but the reforms gave an additional boost
to this growth trend. As during the preceding growth spurt, up to the mid-
seventeenth century, the mining industry was the engine of growth. In the course
of the eighteenth century, gold was discovered in Brazil, New Grenada (Colom-
bia), and Chile, and large silver deposits were discovered in New Spain (Mexico)
while smaller ones were found in the Viceroyalty of Peru. These mining centers
were, for the most part, located in geographically disadvantaged areas, but the
high value-to-weight ratio of these products worked to their benefit. In addition,
although they were surrounded by a huge volume of very low-productivity
activities, they generated all sorts of linkages with local and regional economic
activities that produced inputs for the mining sector (foodstuffs, meat, horses and
mules). Regions near shipping routes also prospered, since those of them that
were in temperate zones had a market for hides and grains, while those located in
tropical climates had a market for products such as cacao, coffee, tobacco, indigo,
and especially sugar. Many of these production activities used slave labor. Trade
and transport activities flourished in this environment.
These positive elements (with the glaring exception of the use of slave labor)
notwithstanding, the legacy of the colonial period had two major negative aspects.
On the one hand, the protracted crisis in the colonial economy had caused the
Latin American economies to fall so far behind that, despite the growth experi-
enced in the second half of the eighteenth century, there was a significant gap (in
terms of per capita income and, especially, of technological capabilities) separat-
ing Latin America as a whole (although with the exception of a few countries)
from the countries that were industrializing and whose agrarian and industrial
sectors were consequently undergoing sweeping changes. Toward the end of the
colonial period, Latin America had lost any advantages it had once had over the
colonies in the North and had fallen substantially behind the emerging industrial
powers of the US and Europe in the areas of science and technology.
The Economic History of the Young Independent Republics 51
On the other hand, the legacy of the colonial era has to do, first and foremost,
with the particular type of industrial configuration involved, which accounts for
both the earlier lag and the future difficulties of the young republics. Above and
beyond geographic determinants and the influence of natural resource endow-
ments, many institutional factors played a decisive role in shaping these econ-
omies' potentials and actual development paths.
The economic disincentives that were in evidence had to do with the particu-
larism with which land titles and commercial permits were awarded, the high
taxes levied on businesses, and the risks involved in business ventures. Three
factors were particularly harmful: the political risk associated with the unpre-
dictability of decision-making; the high costs associated with the inefficient
regulation of property rights, the heavy tax burden and overly complex regula-
tory systems; and the shortage of investment in public goods (human resources
and infrastructure).
Arbitrary and discretionary decision-making on the part of highly corrupt
colonial authorities was coupled with the continued existence of slavery and the
caste system. In addition, the land market was underdeveloped and property
systems were archaic; examples included the collective ownership of land by the
Church, the municipalities (ayuntamientos), and indigenous communities, as well
as restrictions on inheritance that made it difficult for people to sell their land.
Meanwhile, the colonial tax system was based on a complex array of regulations,
monopolies, and trade permits.
While the colonial powers siphoned off large surpluses, they offered few public
goods. They did not invest in education or social services, which were almost
entirely left in the hands of the Church. Nor did they invest in infrastructure,
which was left to the merchant guilds.
As for the development of the production sector, the existence of this trade
monopoly meant that the colonies were limited to buying from and selling to their
colonial power (and, in the second case, only those goods that did not compete
with its products). Their trade deficits were covered by transfers of precious
metals, in addition to the net transfers to the colonial powers made by the richer
regions. This system was exposed to the sharp fluctuations that characterized
mining activities. Meanwhile, since the production sectors of the colonial powers
were lagging behind, these powers became more and more involved as intermedi-
aries between Latin America and the industrializing nations of Europe, which
made Latin American imports more expensive, reduced capital accumulation in
the imperial centers, and opened the way for illegal trade flows between the
colonies and other powers. The Bourbon and Pombaline reforms were intended
to turn this situation around by improving the administrative system and by
diversifying the colonies' exports and facilitating trade between the different
colonies, thereby creating something akin to a customs union.
Thanks to the growth experienced during the second half of the eighteenth
century, by the time that the colonial domination of the Latin American territories
came to an end, these nations were in front of other undeveloped colonies and
areas in the world, although they were no longer in an advantageous position
vis-a-vis the North American colonies. For all of these territories, but especially
those on the periphery, the international trade opportunities that were emerging
were much more promising than those that had existed under the colonial regime.
52 Economic Development of Latin America
The latter-day colonial reforms did not substantially alter the existing system.
As noted by Sanchez Santin) (2009a: 35-6) based on an analysis of the situation in
Mexico (the top colonial supplier of revenues to Spain), these reforms reflected a
conservative approach to modernization. In particular, the reforms of the com-
mercial monopoly associated with that approach left high degrees of corporate
privilege in place, thus making this incipient process of market liberalization
compatible with pre-existing colonial institutions. In other words, rather than
involving a systemic paradigm shift, the reforms led the way for a geographic
expansion, at differing scales, of the existing system while bringing in new players,
diversifying products and regions, and the establishment of state monopolies in
certain profitable activities. In addition to giving a boost to an already-growing
economy, this also reinforced the Crown's ability to reap profits from its colonies.
When war broke out in Europe, this appetite for resources from the colonies
became voracious as governments strove to fund their military operations and
subordinated all their colonial policies to this objective.
On the other hand, while local elites' ability to accumulate surpluses was on the
rise (which was not necessarily true of the Criollos, since most privileges were
concentrated in the hands of the Spanish and Portuguese colonizers), they failed
to make the same type of inroads in the political sphere, since the development of
representative political processes, especially the cabildos (city council), made
much less headway than was made by the assemblies of the English and Dutch
colonies. Meanwhile, the growing mestizo sector of the population was left
without any genuine land rights or access to education, as well as being entirely
blocked from political participation. This situation was compounded by the
unequal treatment of indigenous peoples and slaves. From the very start of the
colonial period, land awards had led to a very marked concentration of land
ownership, and this was mirrored and amplified by the land concessions that
were granted later on. Be this as it may, large tracts ofland remained in the hands
of the Church and the region's indigenous communities.
The cluster of institutions that stood in the way of economic development were
buttressed by "pureblood policies" and religious sectarianism that heavily influ-
enced the education system and whose chief goals were to convert the population
to Catholicism and to keep the large indigenous and slave populations in check.
What little higher education was available was reserved for the white elites, who
had full control over the few forums that existed for political decision-making.
There has been a great deal of debate about the idea that economic and social
inequality has been a characteristic feature of Latin America ever since the
colonial period and has simply been perpetuated in more modern times. There
is little doubt that there was a great deal of inequality in terms of civil rights, as
shown by the fact that, as of 1800, only one fourth of the population was white
and, consequently, had full access to those rights. Inequality before the law was
just one of the many types of inequality that were deeply rooted in the social
structure and cultural patterns.
In economic terms, while it is true that the ownership of land by the Church
and by campesino communities helped to counter the concentration of land
ownership and that not all privately owned land generated large profits, it is
also true that there were marked degrees of inequality, especially in the societies
that relied on slave labor, servitude, and coercion. The existence of a large surplus
The Economic History of the Young Independent Republics 53
is a necessary condition in order for the levels of inequality to be so high. As ~
result, the fact that the Crown was siphoning off such a large part of that surplus
was, ironically enough, a contributing factor in the reduction of inequalities
among the population of the colonies. However, as we will see in the following
chapters, above and beyond the actual levels of inequality that existed, it is clear
that colonial society embodied all of the elements required to perpetuate an
inequality-prone social structure.
The battle for independence
The struggle for independence spanned a period of about sixteen years in length,
from 1808 until the Battle of Ayacucho in 1824. The wars of independence in
Spanish America-both the initial civil wars and the wars waged by the liberation
armies against the forces sent by Spain to reconquer the region following its
victory over France-took a huge toll in terms of the destruction of human and
material resources. These wars left in their wake just under 800,000 casualties out
of a total population of slightly less than twenty million (see Tables 2.5 and 2.1),
while the material losses included the vast herds of livestock used to feed the
armies, abandoned and flooded mines, the taxes used to cover the cost of the war,
the destruction of portions of the wealth held by elites through expropriation by
the forces that they did not support, and the disorganization of the slave-labor
system, partly as a result of the reaction to the pledges that slaves who fought on
either side would be liberated.
The war was waged differently, however, in different areas, and it was no
coincidence that these elements of differentiation reinforced some of the charac-
teristics identified in the typology used in Chapter 1. The imperial powers put up
much fiercer resistance-and the elites were far less supportive of the new
republics and their independence-in the areas at the center of the colonial
economy. This was where most of the indigenous population was to be found,
and the dominant sectors of production in these areas were haciendas, mining for
export, and plantations (the latter worked primarily by slave labor). In these
regions, where the political and administrative presence of the imperial powers
was much greater and where the colonial elites saw the vast sectors of the
population that had suffered from racial and social discrimination as more of a
threat, the revolutionary push for independence was weaker, and the struggle for
independence made headway at a much slower pace, or was entirely absent (as in
Cuba). This was all accompanied by greater divisiveness and, in the long run,
much higher social and economic costs.
By contrast, in the more peripheral areas of the colonial structure, the process
moved ahead more quickly. Rio de la Plata became a revolutionary stronghold and
served as the platform from which General San Martin launched his campaign
into Chile and Upper Peru. In the northern part of South America, on the other
hand, Bolivar had no solid base of support, while, in Mexico, the liberation forces
soon succumbed to the internal resistance put up by forces loyal to the Crown.
Once the dynasty in Spain had been restored to the throne, the struggle in the
Americas ceased to be a local civil confrontation between royalists and those in
favor of independence and instead became a clash between Criollo forces and the
54 Economic Development of Latin America
armies of the Reconquista. In 1815, Rio de la Plata was the sole bastion of the
revolution, while the rest of the continent was to go through a long and painful
process whose military phase would not come to a head until1824 in Ayacucho.
All of this deepened the differences in economic development that had been
emerging during the period of the Bourbon and Pombaline reforms. When the
wars of independence came to an end, the previously peripheral regions were
already starting to recover lost economic ground. This was also true in Cuba,
where the colonial system had remained in place.
THE PERFORMANCE OF THE YOUNG REPUBLICS
This is the period in the economic history of these republics about which the least
is known. This is partly due to the unreliability of the sources of information about
these times, given the institutional weakness of these emerging nations. This lack
of information makes the debate as to the economic performance of the republics
difficult to resolve and, as a result, some analysts have very different ideas from
others as to whether the region's economic performance was poor during the
decades following independence or whether it was generally satisfactory, although
uneven.
In the following sections of this chapter, we will try to put together a picture of
the region's economic performance during this period based on the little infor-
mation that we have available for some countries. What information we do have
leads us to align ourselves with those who believe that these were bad economic
times during which many opportunities were lost. Thus, we are inclined to agree
with the classic view of Halperin (2008/1969), who speaks of the region's "long
wait" and with Bulmer-Thomas (1994, reissued in 2003), who contends that only
a few countries that enjoyed a measure of institutional stability were able to make
use of the advantages offered by independence to promote trade liberalization and
gain access to capital markets. Other works in which the authors reason along
these same lines are Coatsworth (1998 and 2008), Bates, Coatsworth, and Wil-
liamson (2007), and Kalmanovitz (2010).
Revisionist views are espoused by Llopis and Marichal (2009), who argue that
growth rates were not so low and that the outlook was not all that dim in all
areas. Gelman (2009 and 2011) also feels that it would be inaccurate to make
generalizations about the region's poor economic showing, since there were
areas that saw strong growth, thanks primarily to their factor endowments
and the "commodity lottery," while others succumbed to institutional problems.
Prados de la Escosura (2009) also agrees with this view, pointing out that, in
comparison to Africa, Asia, and some of the peripheral European countries,
Latin America's performance was not so bad. In the case of Mexico, Sanchez
Santir6 (2009b) maintains that, up until the mid-1850s, Mexico saw strong
growth and radical changes in its production structure, in the relative weight
of different regions within the country, and in the organization of its circuits of
production and trade.
The Economic History of the Young Independent Republics 55
What is the best point of reference for a comparison?
One important consideration is how the expectations triggered by independence
tie in with the potential displayed by the Latin American economies, and a large
part of the answer has to do with the achievements and limitations of the Bourbon
and Pombaline reforms.
Given Latin America's natural resources and the nature of the pre-Columbian
population groups and cultures, the Spanish and Portuguese colonies appeared to
have a greater stock of wealth than North America did. North America was
sparsely populated, had less valuable natural resources and was considered to be
of no more than marginal interest by the European powers of the day (Engerman
and Sokoloff 1997: 260).
The Criollos felt that Latin America had a vast potential for development, and
they saw the Spanish and Portuguese empires as blocking their development.
While the structure of colonial society was complex, the republican Criollos
viewed Spain and Portugal as countries that were walking away from enlighten-
ment, from free trade and from the Industrial Revolution.
For Latin America, then, independence was tied in with the idea of progress and
republicanism and with the opportunity to join in the economic and political
processes that were driving the rapid development of Europe and the beginnings
of a development process in North America.
This is why, when evaluating the performance of the new Latin American
republics, we should not assess them in isolation or compare them with other,
poorer countries, but instead with the nations that they sought to emulate and, in
particular, with the emerging nations of North America. When all is said and
done, it makes much more sense to compare Latin America with the United States
than with Africa in the second half of the twentieth century.
Population
While, as pointed out earlier, the performance of the world economy can generally
be measured by the increase in per capita wealth, it is important to remember that
one of the important economic achievements of the nineteenth century was the
expansion of the population. Population growth is, to some extent, a manifest-
ation of economic well-being, inasmuch as it reflects a given territory's ability to
attract and feed more people and provide them with what they need in order to
reproduce.
From this point of view, the population of Latin America grew relatively
rapidly, rising at an annual rate of 1.3 percent between 1820 and 1870, as
shown in Table 2.1. It would appear that the rate of population growth was higher
in 1820-50 than it was in 1850-70, but this may be a difference that falls within
the margin of error of the available measurements. Even so, when the region's
performance during this period in this respect is compared with the annual rate of
1.7 percent registered during the following one (1870-1913), it seems somewhat
lackluster. Here again, however, this overall population growth rate during the
closing decades of the colonial period is an aggregate of widely varying rates. The
56 Economic Development of Latin America
Table 2.1. Latin America: Population, 1820-70
Millions Shares in total(%) Annual growth(%)
1820 1850 1870 1820 1850 1870 1820-1850 1850-1870 1820-1870
Group 1 1,100 1,374 1,495 5.7 4.8 4.1 0.74 0.42 0.62
Bolivia 1,206 2,065 2,392 6.2 7.2 6.5 1.81 0.74 1.38
Colombia 2.6 2.8 2.8 1.65 1.09 1.42
Ecuador 500 816 1,013 1.3 1.3 1.3 1.31 1.49 1.38
El Salvador 248 366 492 3.1 3.0 2.9 1.20 1.20 1.20
Guatemala 595 850 1,080 0.7 1.2 1.1 3.23 0.72 2.22
Honduras 135 350 404 34.0 26.6 25.1 0.51 0.93 0.67
Mexico 6,587 7,662 9,219 1.0 1.0 0.9 1.61 0.58 1.20
Nicaragua 186 300 337 0.7 1.2 1.0 3.03 0.46 2.00
Paraguay 143 350 384 6.8 7.0 7.1 1.40 1.33 1.37
Peru 1,317 2,001 2,606 62.1 56.1 53.0 0.99 0.93 0.96
Subtotal 12,017 16,134 19,422
23.3 25.1 26.7 1.59 1.53 1.57
Group 2 4,507 7,234 9,797 0.3 0.4 0.4 1.59 1.54 1.57
J;lrazU 63 101 137 3.1 4.1 3.6 2.27 0.58 1.59
Costa Rica 0.5 0.5 0.7 1.66 2.56 2.02
Cuba 605 1,186 1,331
Dominican 89 146 242 3.7 4.6 4.5 2.06 1.12 1.68
Republic 30.9 34.7 35.9 1.72 1.39 1.59
Venezuela 718 1,324 1,653
Subtotal 5,982 9,991 13,160 2.8 3.8 4.9 2.44 2.48 2.46
4.0 4.9 5.3 2.03 1.62 1.87
Group 3 534 1,100 1,796 0.3 0.5 0.9 2.96 4.89 3.73
Argentina 771 1,410 1,945 7.0 9.2 11.1 2.24 2.20 2.22
Chile 100.0 100,0
Uruguay 55 132 343 100.0 1.33 1.22 1.29
Subtotal 1,360 2,642 4,084
Total 19,359 28,767 36,666
Source: Maddison (2007) and typology according to Table 1.2
typology presented in Chapter 1 provides a way of discerning clearly differentiated
demographic patterns that are a continuation of the trends that were taking shape
in the final years of the colonial period. The areas at the center of the Spanish
colonial empire's holdings saw a very sluggish rate of population growth (less than
1 percent per year). The tropical and coastal regions where export crops were still
largely tended by slave labor in the two economies that did not abolish it until well
into the nineteenth century (Brazil and Cuba) nearly doubled that rate, although
they also saw a decline in Cuba and Venezuela in 1850-70 relative to the three
preceding decades. The temperate zones in which European immigration played
the most important role were, however, those that grew the most, more than
doubling the population growth rates of the first category of countries.
As a result, a significant shift occurred in the distribution of Latin America's
population, with the first group of countries losing a significant part of their share
of the total population. Even so, more than 50 percent of the population was still
concentrated in these areas, which dragged down the region's overall perform-
ance. In fact, the newly settled areas still accounted for a very small proportion of
the population even as late as 1870. This is an important factor to take into
consideration when assessing the overall impact of the performance of individual
countries.
The Economic History of the Young Independent Republics 57
As we have said, the different categories of countries that we defined earlier
provide us with a powerful framework for analysis in general terms, but they do
not always encompass entirely consistent levels of performance. In the group of
new-settlement countries, Argentina and Uruguay had the highest population
growth rates. Sharp differences are also to be seen among the countries that were
at the center of the colonial economy. Be all this as it may, given the unreliability
of the little information that is available on this period, any conclusions that we
may reach must be viewed with some caution.
In addition, sharp regional differences within each country are found in this, as
well as other, periods. The Argentine coastline was home to 36 percent of the
population in 1800, but to 48.8 percent in 1869 (Gelman 2009: 31, table 2). While
the population of Cordoba increased by a factor of less than three between the
1820s and 1869, the population of Buenos Aires quadrupled. The highest growth
rate was marked up by Entre Rios, although its impact on the total population was
smaller. This was also the case in Antioquia in Colombia, whose population
expanded and migrated southward. Mexico also displayed divergent trends,
with the population expanding in the northern and eastern parts of the country
but shrinking in the central areas (Sanchez Santin) 2009b: 78, table 3).
Table 2.2 provides a clear picture of the differing ethnic make-ups of the various
groups of countries, with a large proportion of indigenous peoples and mestizos in
Group 1, of persons of African descent in Group 2, and of European Americans in
Group 3. But the actual ethnic make-up of these different groups mattered less
than the implications of that distribution in terms of the underlying social
structures. Despite the limited number of observations that are available, the
following table shows how population density reflects the characteristics of each
region, as the central regions of the colonial era were more densely populated
while the differences between Groups 2 and 3 do not stand out so sharply in this
respect.
In general terms, the population trends that began to become apparent in the
final years of the colonial era adopted a more definite shape. These trends reflected
strong growth in the Atlantic and Caribbean economies, especially in the more
temperate zones, and slower growth in the highlands and areas where mining
operations were located (the central areas of the colonial economy). These
structural differences were a harbinger of the scale and nature of future reform
processes in each of these countries. They also have something to do with the
geographical considerations and issues relating to transport technology that will
be examined later on.
Exports
Given the lack of reliable GDP estimates, the debate concerning Latin America's
performance during this period has shifted to measurements of export
performance.
Table 2.3 summarizes the available information. The only data available for the
closing years of the colonial era cover just seven countries (and, starting in 1830,
58 Economic Development of Latin America
Table2.2. Population structure c.l800
Year Indigenous Mestizo Blacks and Whites Density
Mulattos (Population
per 1000
Group 1 1788 48 31 5 inhabitants)(ca)
Bolivia (b) 1778 20 16 39
Colombia (d) End of 65 16
Ecuador (b) 18th c. 7 26
1804 58 27
Guatemala (b) 1810 60 38
Mexico (d) 31 12 10 5
Paraguay (d) 1795 80 18 3050
Peru (a) 52 11 58
Subtotal 1798 7 13 1016
8 23 2688
Group 2 1792 20 21 12
Brazil (a) 31 384
Costa Rica (d) 19 61 9
Cuba (a) 55 16
Panama (d) 1800-9 13 49 2365
Dominican 15 51 15
Republic (d) 66 34
Venezuela (a) 1800 23 66
Subtotal 1780 10 25
23 62 27 537
Group 3 19 54
Argentina (d) 37 118
Chile (b) 38 3 37 75 707
Uruguay (d) 79 77
Subtotal 63 483
23 27
Total 13 26
Sources:
a: Engerman and Sokoloff (1997: table 10.4)
b: Newsom (2006: table 5.3)
c: Coatsworth (1998: table 1.2)
d: Andrews (2004: 41, table 1.1)
an eighth). 1 Fortunately, this group is quite representative of the region as a whole
and of the different categories of countries, since the eight countries concerned
represent 83 percent of Latin America's population.
We can begin by looking at the different countries' per capita export levels. In
1800-70, Group 1 had the lowest levels and lagged far behind the other two.
Group 3 consistently had the highest rankings, while Group 2 was midway
between the two, but this is due to the fact that it includes Cuba. While remaining
a colonial economy, Cuba had been marking up the highest per capita levels of
exports since 1800 thanks to the great sugar boom that started in the last decade of
the eighteenth century as a direct result of the 1791 Haitian revolution (Moreno
1 Since Venezuela's share in total exports was very small in 1830, in the interests of maintaining
comparability for this entire period, we have assigned Venezuela a share of that group's results for 1800
that is similar to what it was in 1830.
The Economic History of the Young Independent Republics 59
Table2.3. Total and per capita exports of Latin America
Exports (in millions of dollars)
1800 1830 1870 1800-1830 1830-1870 1800-1870
Group 1 19.2 22.7 59.6 0.6 2.4 1.6
Colombia 3.6 3.1 7.6 -0.5 2.3 1.1
Mexico 12.6 14.6 30.4 1.9 1.3
Peru 3.0 5.0 21.6 0.5 3.7 2.9
Group 2 21.7 33.4 1.7 3.7 2.7
Brazil 15.5 15.8 141.7 1.5 4.0 2.3
Cuba 5.0 15.9 75.7 0.1 3.3 3.6
Venezuela 1.1 1.7 58.0 3.9 3.9 2.8
Group 3 4.2 11.8 8.0 4.5 4.1
Argentina 3.3 7.9 68.5 3.5 4.4 3.8
Chile 0.9 4.0 43.5 2.9 4.7 4.9
TOTAL 45.0 67.9 25.0 5.2 3.5 2.6
Population of 8 countries/ 83.4 269.7 1.4
83.8 1.5 0.8
1.0 -0.2
total population 1.1
2.3 0.6
Per capita exports (in thousands of dollars) 2.1 1.8
2.4 1.6
Group 1 2.4 2.3 4.2 -0.1 1.8 0.7
Colombia 3.8 2.1 3.2 -1.9 2.3 1.2
Mexico 2.1 2.1 3.3 2.3 1.3
Peru 2.3 3.3 8.3 0.0 1.9 1.9
Group 2 3.7 4.8 11.1 1.2 2.8 1.3
Brazil 4.8 3.0 7.7 0.9 2.2 3.0
Cuba 18.4 21.0 43.6 -1.6 1.2
Venezuela 1.9 2.0 4.8 0.4
Group 3 5.1 7.3 18.3
Argentina 10.0 11.6 24.2 1.2
Chile 1.6 4.2 12.8 0.5
TOTAL 8 Countries 3.9 3.7 8.8 3.2
-0.1
Sources: 1800 f
Coatsworth (1998: tables 1.2 and 1.3), except for Colombia, which is based on Ocampo (1984). The share o
Venezuela in 1800 is assumed to be the same as in 1830.
1830 and 1870: Tena-)unguito and Federico (2011), except for Cuba 1870, which is taken from Bulmer-Thomas
(2003/1994) Statistical Appendix I.
Fraginals 1978). Brazil and Venezuela were not far off from the countries in
Group 1. .
Between 1800 and 1830, per capita exports at current pnces were stagnant.
Actually, the countries' performance was even worse than that, since the figures
for Peru are misleading, as export levels were much lower around 1~0~ than they
were both before and after that period (Chocano et al. 2010: quantitative appen-
dix, table lll.l.1). Chile was the only economy that saw strong growth at that time
and, since Argentina's export levels were edging up slowly, Group 3 shows the best
per capita performance for the period in question.
In 1830-70, the differences between the export growth rates for these three
groups were as expected, with the lowest growth rate being in Group 1 and the
highest in Group 3. These groups were internally homogeneous as well: all the
countries in Group 3 grew more than any of the countries in Group 2, and all
those in Group 2 grew more than any country in Group 1 (with the exception of
60 Economic Development of Latin America
Peru). As already noted, however, population growth followed the same pattern
and, as a result, if we look at per capita export growth, the differences among the
three groups are somewhat blurred, although Group 1 still had the most lethargic
growth rates.
A more detailed examination of the series for the different countries suggests
that per capita export growth was faster in 1850-70 than in 1830-50 and that, in
the course of that acceleration, the gap between Groups 2 and 3, on the one hand,
and the slower-growing Group 1, on the other, widened.
These groups did not, however, always post uniform growth rates. Group 1, in
particular, has the most uneven figures for export growth. Colombia, after experi-
encing a slump during the first of these periods, bounced back during the second
(Ocampo 1984). Peru, which was the country with the strongest export growth
rate in the first period, thanks to the boom in guano sales (making it one of the
clearest examples of a winner in the "commodity lottery") {Hunt 1985), witnessed
a slowdown in the second. In line with the observations of Sanchez Santir6
(2009b), in a pattern that was almost the exact opposite of the one displayed by
Colombia, Mexico's growth rates not only slowed, but turned negative in the
1850s.
In summary, then, between 1800 and 1830, per capita export growth was
basically flat, despite all the changes that were taking place in the international
economy and the countries' conversion into sovereign nations. As those years
were a time of deflation worldwide, however, there was a small-perhaps around 1
percent per annum-increase in real terms. Between 1830 and 1870, once the
adverse effects of the wars of independence were behind them, the countries
attained an annual real growth rate of about 2.2 percent.
The question that remains to be answered is whether or not that pace of
growth can be viewed as satisfactory. There are two possible approaches that can
be taken in order to answer this question. We can compare their export
performance with the performance of other economies, or we can try to gauge
how much of an influence the countries' exports had on their economies as a
whole and what role was played by production for the domestic market. This
second approach will be developed in the following section. There is very little
information available on exports at constant prices for other regions. According
to Maddison (2001: appendix F, table F-2), in 1820-70 the annual growth rate
for exports for seven European countries (Austria, Belgium, France, Italy, Spain,
Switzerland, and the United Kingdom) and for the United States came to 4.5
percent, which was 36 percent higher than the 3.3 percent rate for the Latin
American countries shown in Table 2.4. Spain and Italy had the lowest rates (3.7
percent and 3.4 percent, respectively), while Belgium, the United Kingdom, and
the United States had above-average rates. A comparison between Latin America
and the United States, whose exports expanded an annual pace of 4.7 percent,
speaks volumes.
Viewed from this vantage point, Latin America's export performance appears
to have been very poor indeed and stands in sharp contrast not only with what
other countries were achieving but also with expectations about the impact of free
trade.
The Economic History of the Young Independent Republics 61
GDP and production for the domestic market
The available information on exports does not provide a clear picture of whether
Latin America's overall performance was good or bad, however. More recently, as
will be seen in Chapter 5, Latin America has combined an excellent export
performance with disappointing results in terms of overall economic growth.
The data on which Table 2.4 has been constructed are questionable in the sense
that they cover, here again, only seven countries. However, as in the case of
exports, they do include the countries with the largest populations and are
therefore more representative of the region than might otherwise be the case.
The aggregate result does not look very good, as per capita GDP grew at an
annual rate of just 0.2 percent, as opposed to per capita export growth of 2.0
percent. Using various sources of information on external trade coefficients, we
arrive at the conclusion, on the basis of residuals, that per capita output for the
domestic market was virtually flat. Remember that the starting point for these
calculations is 1820, when the wars of independence were coming to a close or
were still in full swing. At this point the reader should also refer back to Table 1.1,
which shows that the gap between Latin America and the West had widened from
0.80 to 1.79 times Latin America's per capita GDP between 1820 and 1870.
There are evident differences among the per capita GDP growth rates of the
three groups, and these differences are similar, but not identical, to those found in
the case of per capita exports. Group 3 performed better in terms of per capita
GDP, but in the years around 1820, the worst showing in this respect was not
turned in by Group 1 but rather by the tropical economies that relied on slave
labor.
It can be seen that a number of striking changes had occurred by the end of this
fifty-year period. The richest economies had grown the most, even in per capita
terms, despite the fact that they had also experienced the largest increase in
population. Around 1870, the per capita GDP of Group 3 was more than double
that of Group 1, whereas the difference had amounted to just 16 percent in 1820.
Another important difference was that the tropical economies grew more swiftly
than those in Group 1, with the result that, by 1870, Group 1 ranked last, although
it was not far behind Group 2.
The residual growth rate for the domestic market mirrors these differences very
clearly: whereas the Group 1 economies were virtually stagnant and those of
Group 2 were growing very slowly, those of Group 3 were performing on a par
with the Western economies.
This provides substantiation for the hypothesis put forward by Gelman {2011),
who has argued that inter-regional inequality increased in the decades following
independence. However, our estimates for Latin America as a whole, based on
population-weighted figures for the different subregions, suggest that-the differing
levels and situations found from one area to the next notwithstanding-the region's
overall performance was quite poor.
As shown in Table 2.4, all the groups' export coefficients rose. These indicators
point to a number of very interesting tie-ins among export coefficients, per capita
exports, and per capita income levels. The tropical economies that used slave labor
are a particularly interesting case, since they have higher export coefficients than
~
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The Economic History of the Young Independent Republics 63
the economies of Group 1, but do not have higher levels of per capita
GDP. Countries in which the exports generated by a small sector of the economy
account for a large portion of total GDP tend to have highly dualistic economies in
which workers in the large sectors that cater to the domestic market have low
levels of productivity and low incomes. Although the figures show that, from 1820
on, the countries in this group had much higher export coefficients and per capita
export levels than the countries in Group 1, the former did not have higher levels
of per capita income. Even after fifty years of higher GDP and export growth,
during which differences in terms of integration into world trade circuits between
it and Group 1 deepened, Group 2's per capita income levels were only slightly
higher than those of Group 1. This may be used as an indicator of the patterns of
inequality in these economies and suggests that the slave-based economies were
probably more unequal than the others in economic terms, as well as, obviously,
in terms of civil rights. As early as 1870, however, one of them-Venezuela-had
completed the process of abolishing slavery (as had Costa Rica and the Dominican
Republic, which cannot be included in Table 2.4 due to lack of data).
Unfortunately, it is difficult to draw very precise conclusions regarding the
different stages in which the events of this fifty-year period can be divided. Apart
from Argentina, for which no intermediate data points are available, two different
patterns appear to emerge for the other six cases: Mexico and Venezuela per-
formed better up until about 1850 and then saw a reversal, with a sharp downturn
in Mexico and stagnation in Venezuela. On the other hand, growth rates in Brazil,
Chile, Cuba, and, to a more modest extent, Colombia began to pick up from the
middle of the century on.
In the case of Argentina, Gelman and Santilli (2010) explain how the aggregate
figures reflect a wide array of differing results for the different regions. Toward the
end of the colonial period, both Cordoba, which was a peripheral economy of
Potosi, and Buenos Aires, with its livestock-based incipient development process,
displayed a good, and fairly similar, demographic and economic performance.
During the first few decades after independence, however, these two regions
walked along very different development paths. Cordoba's economy was hurt by
the downturn in the mining industry, since it translated into weaker demand for
its exports of mules, at the same time that its output of hand-woven woolens were
being met with increasing competition from manufactured imports. On the other
hand, Buenos Aires greatly expanded the acreage devoted to its livestock herd and
achieved a much higher cattle density than Cordoba did, thereby capitalizing
upon the very inexpensive rural farmlands that could be devoted to this activity.
The amount of land used for this purpose in Buenos Aires tripled between 1820
and 1833, while, between 1810 and 1865, the cattle herd expanded from 1 million
to 6 million head, in addition to the introduction of 38 million sheep (Gelman
2009: 36). If we calculate the conversion at a sheep-to-cattle ratio of 5:1, the figures
yield an annual rate of increase in the herd of 4.5 percent over a fifty-five-year
period.
The Province of Entre Rios provides a clear example of the strong impact that
the wars of independence and the ensuing civil wars had on production. At the
end of the colonial period, this province had a larger herd oflivestock than Buenos
Aires did, but the herd was largely destroyed in the course of the political conflicts
that followed. It was not until the start of the 1830s that it began to expand rapidly
64 Economic Development of Latin America
again, although it still failed to regain the lead over Buenos Aires that it had
formerly held. A contrasting example is provided by the provinces of Salta and
Jujuy. While there is little information available on the subject, it would seem that
these provinces' exports as of 1830 were no more than 25 percent of what they had
been during the closing years of the colonial period.
The striking differences between these economies are also reflected in the
figures on the tax revenues that they generated. The Province of Buenos Aires
accounted for 82 percent of total tax receipts, and when the other coastal prov-
inces' revenues are added to this, the figure rises to 93 percent. This means that the
remaining 40 percent of the population provided a mere 7 percent of total fiscal
revenues. Per capita tax receipts in Buenos Aires were six times as high as they
were in the province with the next-highest figure-Entre Rios-and more than 25
times as high as they were in Jujuy.
While the terms of trade improved as the prices of manufactured goods fell,
export and import trade flourished and thus boosted fiscal revenues, which came
mainly from import tariffs. Among the coastal provinces, Buenos Aires was far
and away the front runner, with its leather exports being nearly double those of
the next-largest exporter, Entre Rios, and amounting to nearly five times as much
as Santa Fe, the third-ranking exporter.
Peru is a good example of what occurred in the central areas of the colonial
economy. Although product series for this period are not available, we do know
that the Peruvian economy had a large silver mining sector and a vast campesino-
based sector which was heavily concentrated in subsistence agriculture and
produced very little surplus for sale on the market (or, at least, for other than
strictly local markets). Remember that, in 1820, Peru's population was more than
two and a half times as large as Argentina's and that the combined population of
Peru and Bolivia was five times as large.
Peru was one of the countries in which the local elites remained loyal to the
Crown. The war of independence in Peru was a bloody struggle, and the emerging
independent government took political and economic reprisals against the royal-
ists and the local elites who had supported them. The Peruvian economy suffered
grievously from the collapse of the silver mines. The fact that the industry's silver
output in 1820-5 was lower than it was in 1800 or 1810 was a consequence of the
war. And the recovery was slow-going, with output for 1840 reaching 88 percent of
the 1800 level and then slipping back once again. The average output for 1830-70
was 87 percent of what it had been in 1800 (based on Contreras 2004: table 4.1).
Exports were also flat until the early 1840s, prior to the guano boom, despite the fact
that the production sector diversified into cotton, wool, and saltpeter.
The decline of the silver-based economy dampened production activity in the
haciendas that provided inputs for that sector, and these haciendas became
increasingly self-reliant, a tendency that was heightened by a highly radical
form of protectionism. In their turn, the main export activities of the coastal
areas were hit by the dissolution of the slave-labor system on which they were
based (Gootenberg 1989). This downward economic slide was interrupted by the
boom in the guano trade (a typical case of the "commodity lottery"), which had a
huge impact on the Peruvian economy.
Because of the particular features of the climate in the Pacific islands, the
ammonium, phosphates, and alkaline salts contained in the excrement of the
The Economic History of the Young Independent Republics 65
guanay (a type of cormorant) remain intact. The global economy's discovery of
this fact, which had been a part of traditional knowledge since pre-colonial times,
was a turning point in Peru's history. The country's exports jumped by a factor of
seven between 1845 and 1860, and guano accounted for over 50 percent of total
exports in the latter year (Contreras and Cueto 2004: 116).
As for Mexico, until recently, the prevailing view had been that there was a
more or less unremitting stagnation or even recession that lasted until the late
nineteenth century (Coatsworth 1989; Cardenas 1997; Moreno-Brid and Ros
2009). Cardenas (1997: 65), for example, states that Mexico's GDP fell by more
than a third between 1800 and 1860 and that it was not until the 1860s that the
economy began to rebound, slowly at first, and then more vigorously in the 1870s
and thereafter. This view has recently come under criticism, notably by Sanchez
Santir6 (2009b), who contends that, once the effects of the War of Independence
had been surmounted, Mexico began to recover and to grow until this trend was
cut short by the civil wars and institutional instability of the 1850s, which lasted
until the government ofPorfirio Diaz reestablished conditions that paved the way
for economic growth.
As in Argentina, the growth process, until the critical events of 1854-7, brought
with it major regional changes. In a pattern similar to what we have seen in terms
of population growth, Mexico City's role as a center for coinage, finance, and trade
began to decline. The central zone's influence was eclipsed to a certain extent by
the expansion of the eastern regions centered around the port of Veracruz and the
northern areas, which now had their own transport routes connecting them with
the Gulf of Mexico and the Pacific.
This process was coupled with sectoral changes: an influx of foreign traders, the
expansion of the modern textile industry, and the technological and organiza-
tional overhaul of the sugar industry. All of this made it clear that this transition
was not merely a continuation of the economic development trends of the colonial
period. While the pace of growth was modest, it was remarkable that it occurred at
all, given the persistence of an array of institutional constraints inherited from the
colonial era, in addition to the new difficulties encountered as the country built
itself into an independent nation. The political turmoil of 1854-67 had a stronger
impact on the central areas and a lesser one on the eastern and northern regions. It
is interesting to note that, unlike the political and military conflicts experienced
during the initial period of growth, which were brief in duration, concentrated in
urban areas, and had a relatively small impact on the economy, the conflicts that
arose from the mid-1850s on had a much more profound effect because they were
widespread and made themselves felt in the vast rural areas of the countries,
involved clashes between castes, different ethnic groups and haciendas, and
entailed a deepening of the political and ideological divisions between radical
liberals and conservatives, which was mixed, in turn, with the division between
republicans and monarchists (Sanchez Santir6 2009a: 102-3).
The situation in Brazil was also a combination of stagnation and regional
diversity. According to Leff (1982, 1997), from the time of its independence in
1822, Brazil's rate of GDP growth failed to outpace its population growth. Thus,
while the population did expand at a rapid pace (nearly 2 percent per annum), the
country's efforts to improve its performance in per capita terms were largely
frustrated until the start of the twentieth century. This protracted and very
66 Economic Development of Latin America
difficult period of stagnation was, however, the net result of widely varying trends
in different regions of the country. The north-eastern part of Brazil, which was a
platform for sugar and cotton exports and which accounted for 57 percent of the
country's exports at the start of this period, saw a steady decline in its external
sales. In 1866-70, these crops represented just 30 percent of exports, while the
share of coffee exports-the leading product in the south-eastern portion of the
country-jumped from 26 percent to 47 percent (the external trade data used here
are the author's estimates based on Mitchell 2003).
Leff explains the decline experienced in the north-east in terms of Dutch
disease. As coffee exports came to play a greater and greater role in the foreign-
exchange market, the real exchange rate increasingly reflected the importance of
that product, which had a negative impact on the less competitive regions, such as
the north-east. With Brazil being such a large country with such a wide range of
different geographical areas and climates, it was impossible to restructure the
sugar industry very quickly, nor was it easy to promote large-scale inter-regional
migration flows, although a large number of slaves did move from the north-east
to the south-east. Throughout this period, the expansion of the coffee industry
was not hindered by any increase in labor costs, since up to 1852 (end of the slave
trade), wages were depressed by the presence of slave labor and later by subsidized
immigration flows, particularly from Italy (Leff 1997: 35). This strengthened the
existing pattern in Brazil, as discussed above: an export sector that generated high
levels of earnings alongside a large sector that catered to the domestic market and
a large subsistence economy, both with very low levels of productivity, with the
outcome being low per capita income levels but a high export coefficient relative
to the other Latin American economies.
The work of Ocampo (1984 and 1990) and, more recently, Kalmanovitz and
Lopez Rivera (2009) indicates that Colombia underwent an economic contraction
during the war of independence that was followed by a period of stagnation which
lasted until around 1850. This was the time of the collapse of gold production
along the Pacific coast, which was based on slave labor, but it was also a crisis
period for the main colonial port, Cartagena, and the crafts-producing region of
Santander. These years were, however, followed by a growth spurt that lasted from
the middle of the century until the early 1880s (i.e., beyond the time period
covered in this chapter). This expansion was fueled by the diversification of
exports, which, despite their volatility, gave a boost to economic activity in
different regions of the country. Very short boom-bust cycles were experienced
in a diverse array of new exports such as tobacco, cotton, indigo, cinchona bark
and other forestry products, as well as coffee, which was eventually to become a
longer-lasting export crop. In some regions, this growth period began soon after
independence was won. This was particularly the case of Antioquia, where gold
production, which had expanded there in the eighteenth century, continued and
was turned into a more modern business venture. This region also capitalized
more successfully on the opportunities offered by trade with Jamaica during the
war of independence and thereafter. A long-term improvement in its terms of
trade also helped its economic recovery along.
In seeking to interpret the overall performance of Latin America, which appears
quite lackluster in light of the expectations generated by the Industrial Revolution,
along with free trade and the advent of political independence, we can refer to two
The Economic History of the Young Independent Republics 67
main complementary and closely interconnected lines of reasoning. On the one
hand, there is the school of thought that focuses on institutional and cultural
factors, with the emphasis varying from the continuity of the old colonial order to
the changes that nonetheless-and despite a great deal of instability-began to
come about. On the other hand, there is a school of thought that places greater
weight on geographic, technological, and commercial factors. The proponents of
this approach see the region's geographic features, and the way that technological
advances have interacted with and changed them, as being a key element in the
interpretation of the events of this period.
We will now take a closer look at these two groups of considerations in an
attempt to arrive at a fuller understanding of the region's performance during this
period.
INSTITUTIONAL CONTINUITY AND CHANGE
The new states' turbulent consolidation process
With the demise of the colonial order, Latin America was faced with the need to
build new sovereign states out of a cluster of unintegrated and resource-poor
regions, which in many cases also had unclear borders. At the same time, the
process of giving shape to these national entities was being pursued (as has
happened in other world regions as well) in the midst of more or less openly
declared international confrontations. The countries that emerged from this
process were very different from the territorial units that had existed before
independence. And this was all the result of an unforeseen set of circumstances,
since, as noted earlier, the countries won their independence not as a result of a
movement that grew up from within, but rather, in large part, as the consequence
of the power vacuum created by France's occupation of the Iberian peninsula.
As pointed out by Irigoin (2009), the first few decades after independence
should not be likened to the history of the republics of today. Until 1860, there
was no Argentine Republic and, in the 1870s, there was no national currency. The
Greater Colombia, created in 1821, split into three different countries in 1830:
Colombia, Ecuador, and Venezuela. Panama became a separate country from
Colombia in 1903. Paraguay became independent from the Viceroyalty of the Rio
de la Plata in 1811. Chile won its independence in 1818, and Uruguay did not
become an independent republic until1825. Bolivia was also established in 1825.
Mexico ended up losing more than half of its territory between 1836 and 1848,
and in 1838 the former Captaincy General of Guatemala was divided into five
independent republics.
The establishment of all these sovereign states following the war of independ-
ence was a long, drawn-out, and conflict-ridden process.
Halperin sees the outbreak of violence as a trait that set the newly independent
societies apart from the apparently secure way of life in the colonies. This violence,
which may well have been associated with the legacy of the military forces that
were developed and reinforced when the struggle for independence was at its
height, was not merely an overflow of military might but also acted as a necessary
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The Economic History of the Young Independent Republics 69
curb on potential excesses on the part of the people as they exercised their newly
won power and as a means of ensuring that the expansion of democracy was kept
within bounds. On average, SO percent of the new countries' budgets went to their
armed forces (Halperin 2008/1969: 136-8), which were generally small units that
were incapable of imposing order over large territories. Thus, in times of conflict,
they had to be reinforced by militias, which also often led to rebellions against the
governments in power.
The interaction between political instability, military control, and violence is
also reflected in the form taken by these governments. Under the republican form
of government adopted by all the new states except Brazil, it was accepted that
elections should be the vehicle for the transmission of political power (although,
as we will see, the scope of the right to vote was very limited). However, as stated
by Przeworski (2011), most elections were not competitive, the same party always
won, or different governments lasted for very short times before being driven out
of office by coups d'etat. The governments that took shape under these circum-
stances were unrepresentative and can be viewed as illegitimate, since military
might ultimately provided the underpinnings for their political power. In fact, the
alternation of political parties in power via the electoral process occurred in only
three cases during the period covered by this chapter: in Colombia with the
elections of 1837 and 1848, and in the Dominican Republic with the elections of
1849.
The prevalence of violence and instability has been regarded by some authors,
such as Dye (2006), as a structural trait of these societies, rather than as a sign of a
transition to a new social order in societies that have tried time and time again to
carry out sweeping reforms, only to see those reform efforts blocked or curbed by
elite groups. These cycles of reform and counter-reform within high-conflict
.settings can also be seen as the institutional counterpart of the high levels of
economic volatility in Latin America that were discussed in Chapter 1. This
characterization is valid for the period that we are examining here, but its validity
for the following period may be debatable, since, as we have seen, those years were
a time of growing institutional stability, even though the institutional environ-
ment was an essentially authoritarian one. Nonetheless, as pointed out by Deas
(2011) in an eloquent analysis, institutional instability need not always be
regarded as a stumbling block for growth, but can instead provide an enabling
environment for dynamic innovation.
Table 2.5 provides a picture of the number of civil and international conflicts
occurring in the region, the number of casualties and the scale of constitutional
changes that were introduced.
International conflicts were a reality throughout this period, while civil conflicts
were constantly on the rise. The number of casualties was very high during the
wars of independence and, although it declined in the 1830s, it rose again in the
following years as the number of civil conflicts began to climb.
The increasing incidence of civil conflicts had its counterpart in constitutional
changes. The information on these questions has been divided up to correspond to
the different categories of countries that we have been examining. These statistics
have to be viewed with a great deal of caution, however, since constitutional
stability is not necessarily a sign of an absence of conflict. By the same token, the
frequency of constitutional changes does not necessarily tell us anything about the
70 Economic Development ofLatin America
degree of instability, as it may also be an indicator of the existence of an enabling
environment for institutional change. What is important to look at in the table is
the percentages, rather than the absolute numbers, since each group is made up of
a different number of countries. What is clear is that a steady stream of consti-
tutional amendments was passed during this period, but it is also interesting to
look at how the distribution of these reforms changed in the different groups of
countries.
The figures clearly reflect the earlier institutional consolidation of the countries
in Group 3, which are also the countries that won their independence more
swiftly. But the institutional stability of these countries in no way means that
they were free from national or international conflicts. Quite to the contrary: these
years were rife with unremitting conflicts. The countries in Group 1, which
represent the traditional hubs of the colonial era, were the most active in terms
of constitutional amendments and changes in the mid-nineteenth century, while
the countries in Group 2 lagged far behind in this respect, owing, in large part, to
the much later advent of independence in Cuba and the succession of changes that
occurred in the Dominican Republic.
Liberal reforms
In keeping with the existence of a very wide array of social relationships, there
were many different types of ownership structures, ranging from large land grants
in frontier regions, traditional haciendas, lands held under the ejido system
(communal lands) and public lands in generaJ, to the land held by the Church
and by indigenous communities. The social and political process involved in
workers gaining their freedom and becoming mobile and in turning land into a,
tradable asset is part of the broader and more complex process of creating states
and national markets which we refer to as "liberal reforms." This highly complex
process has taken a sharply differing course in different cases, particularly in the
economies where indigenous peoples made up a large part of the labor force.
The emergence of nation states and the break with the colonial order triggered
changes in social hierarchies and structures. When the former colonial powers
disappeared and, along with them, the power of the commercial elites linked to
them, their place was taken by new economic agents with ties to the new centers of
power, notably the English, who literally invaded Latin America's cities and took
over the main commercial circuits. At the same time, however, new local groups
also appeared and gained influence. Criollo traders and large landowners (with it
being difficult, in some cases, to differentiate between the two), who had previ-
ously been subjugated by colonial authorities and commercial interests, began to
take on a leading role in wielding political power. And all of this was happening in
the midst of a violent appropriation and redistribution of land, together with a
redefinition of property rights. At the same time, new political and military elites
were created as part of a process that was closely intertwined with the increasing
power of large landowners.
Independence was not generally linked with social revolutions and, when it
was, it was soon reversed, as in the case of Hidalgo's revolt in Mexico and the
rebellion led by Artigas on the eastern bank of the Uruguay River. The two
The Economic History of the Young Independent Republics 71
major political/ideological groups that gradually took shape in various Latin
American countries as the nineteenth century progressed-conservatives and
liberals-shared an agrarian, elitist vision which left no room for participation
by the masses in political affairs and, for the most part, cast the state in a very
limited role in the economy. Although they were by no means unanimous in
their approach, the liberals tended to defend political, economic, and commer-
cial freedom and to favor republican, federal constitutional governments based
on the principle of equality before the law and the division of Church and State,
and many of them adopted an anti-clerical stance. The conservatives, who took
much longer to crystallize as a group, joined together in defending long-stand-
ing hierarchical and mercantilist privileges and advocated centralization (Car-
doso and Perez Brignoli 1979, vol. II: 34). The two movements seem to have
agreed, however, as to the desirability of oligarchic forms of government, and
they both seem to have believed, whether explicitly or implicitly, that the threat
to the elites posed by the common people was a greater danger than the threat
to the private property of some sectors of those elites represented by the
excessive concentration of political power in the hands of authoritarian leaders.
As of the mid-nineteenth century, only 2 percent of the Latin American
population had the right to vote, versus 24 percent in the United States (Dye
2006: 181).
Judicial reforms and new commercial laws to take the place of the obsolete
colonial codes were needed, but people with the necessary qualifications or with
experience in the parliamentary legislative process were in short supply, and the
general constitutional framework for such reforms was lacking as well. In add-
ition, while there is no proof that a civil law tradition is less conducive to
economic development than a common law system is, the region's adherence to
the former hindered the gradual, decentralized build-up of innovations. This
tradition also served to add to the power of the state, and this, combined with
the fact that the countries had adopted presidential systems of government, paved
the way for a long-term tendency toward the dominance of the executive over the
judicial branch, thereby giving the executive even greater discretionary powers
(Dye 2006: 189-93).
In the area of judicial reform, an informative example of the institutional
instability that existed at the time is provided by Mexico. The Constitution of
1824 established a dual judicial system at the federal and state levels. General
Santa Anna did away with federalism and centralized the justice system in 1837
and then reorganized it in 1843. In 1845, a federalist system reintroduced the dual
system of justice. Then, following a coup d'etat, the judicial branch was once again
centralized in 1853. The federal system was reinstated in 1855 and set forth as
such in the constitution of 1857, but in 1859 this system was dismantled even as
civil war raged. It was done away with altogether under Maximiliano, but then was
gradually re-established after 1863. Finally, under Porfirio Diaz, a law setting out
the organization of the federal judicial system was promulgated-for the first time
ever-in 1880. Meanwhile, the special systems and privileges of the Church, the
military, and commercial and mining corporations remained in place.
In the midst of political and ideological disputes (but also disputes between
different political bands that largely lacked political or ideological substance),
regional clashes and other obstacles to the formation of nation states, all of
72 Economic Development of Latin America
which was compounded by caudillismo and the behavior of other personal and
military leadership figures, liberal reforms made headway, but very slowly-so
slowly, in fact, that they did not truly take hold in any real sense until the second
half of the century. In some cases1 as in Mexico, the reforms and the cause of
national unity were buttressed by international conflicts that inspired national
solidarity.
G~nerally speaking, during the first few decades following independence, land
holdmgs continued to be a mixture ofplantations, haciendas (which differed from
plantations in that they were less market-oriented ventures), small plots, Church
la~ds,.an~ co~munallands held by indigenous groups. The biggest change seen in
this distnbutwn was brought about by the increasing transfer of title to public
lands to large landholders. The diversity of these holdings made it difficult to
shape a genuine land market. During the colonial period, a jumble of contradict-
ory provisions, traditions, property deeds, and customary land rights had taken
shape that offered few guarantees in terms of the ownership of vaguely defined
tracts of land. While there is a great deal of documentation that shows that
informal markets based on trust did exist in a wide variety of settings, these
were very local markets, and the types of transactions that took place were
generally between relatives or close friends. Thus, in the wake of the wars of
independence, land grabs were rife, and efforts to establish and consolidate land
titling systems moved ahead at a snail's pace. This situation, as noted earlier, was
due to such factors as the lack of governmental legitimacy, the uncertainty created
by frequent changes of government, the new states' inability to maintain effective
record-keeping systems and to enforce property rights, and inconsistencies or
discrepancies between laws and informal mechanisms for establishing those
rights.
The lab~r market di~ not change a great deal either, as the abolition of slavery
came first m the countnes where the least slave labor was in use, while the tribute
exacted from indigenous workers was first abolished but later reinstated in some
cases,.and f~rced labor was. us~d even in places where it had not existed during the
colomal penod. The large mdigenous populations in Mexico, Guatemala, Bolivia,
and Peru did not see any significant changes in their situation.
In areas with large indigenous populations (such as Mexico, Guatemala, and
the Andean countries), it took quite a long time for the caste system to be
expunged from national constitutions. While large landowners expanded their
holdings and although land was bought up by traders and urban professionals,
the amount of land in the hands of indigenous communities did not decrease
despite their lack of effective means of defending their rights and the uncertai~
nature of their land titles. This "archaic form of organization in rural areas,"
where land was in the hands of people who were "atrociously poor," persisted
because of the declining influence of the urban upper class, the failure of
domestic cons~mption levels to rise, and in particular the weakness of the export
sector (Halpenn 1969/2008: 140). The free mulattos and mestizos were the
groups that were best able to take advantage of the scant opportunities for
upward social mobility that were offered, primarily by involvement in political
and military activities.
This e~re~el! slow pace of liberal reforms, which was associated with a highly
unstable mshtutwnal framework, was also linked in some ways to the changes that
The Economic History of the Young Independent Republics 73
were occurring in the elites. The dominant urban elites, especially the merchants
involved in trade with the Iberian peninsula, lost power to new traders and to the
large class of landowners, particularly those who h~d been. part of th~ p.re-
revolutionary agrarian elites. And all this was happemng despite the .conh~~mg
interaction between land ownership and the development of mercantile activity.
Meanwhile, access to land became increasingly contingent on access to polit-
ical/military power, and a new class of wealthy moneylenders came into being
who were regarded as profiteers (in most cases, rightly so). These lenders had close
ties with the government and provided financing to it.
The need to craft a new fiscal structure in these young republics took on critical
importance. As noted by Irigoin (2009), when t~e c?lonial re~ime in Spanish
America was dismantled, the largest monetary umon m the entire world at that
time went out of existence. Her hypothesis is that the new nation states built upon
the fiscal legacy from colonial times and were thus structured around the cent~rs
in which most tax revenues were collected. The political disintegration of Spamsh
America also opened the way for the local elites to take control of local coinage.
The reorganization of the currency system was a complicated affair in many
countries owing to the proliferation of coins of different weights and values and
to more than a few experiments with the use of fiat money.
At the same time, the budget deficits run up by the weak governments of the
time tended to give rise to either inflation or a pervasive reliance on moneylend-
ers. In addition, import duties came to bear an increasingly larger portion of the
tax burden, owing, among other reasons, to the pressure brought by landowners
for a reduction ofland taxes (diezmos), by miners for a reduction in the taxes on
that industry (the quinto), and by merchants to gain entry into areas controlled by
public monopolies or concessions that were left over from colonial times (e.g.,
tobacco, liquor, and salt). This type of monetary and fiscal structure only added to
the fragmentation of political affairs, markets, and monetary units, thereby further
hindering economic growth.
The abolition of slavery
As shown in Table 2.2 and according to Andrews (2004: table 1.1), blacks and
mulattos made up approximately one fourth of Latin America's population, but
less than half of them were slaves. Slaves made up slightly over 10 percent of the
population and somewhat more than that of the labor force (since the labor
participation rate for slaves was very high), with the proportion of this segment
of the population being very large in some countries but negligible in most.
There has been a long-running debate as to whether slavery was brought to an
end for economic reasons or political and institutional ones, or even on ideo-
logical and ethical grounds. While not wishing to underestimate ideological and
ethical considerations in this regard, the abolition of slavery can be better under-
stood as a process of change in social relations whereby wage-based and inde-
pendent labor gradually displaced slavery because it worked better in both
economic and social terms.
The pace at which this process took place was determined by the impact of the
development of capitalism outside Latin America, the expansion of the more
74 Economic Development of Latin America
modern se~tors of the Latin American economy, and the extent to which slavery
played an rmportant role in colonial societies.2
Although slave rebellions and runaways (marronage) were endemic, Haiti was
the only ~lace where ~lavery was abolished as a result of a struggle waged from
below whiCh turned mto a social revolution. The situation in Latin America
evolved differently than it did in the British, Dutch, and French colonies of the
Antilles as well, where ~e ~olonial powers decided to put an end to slavery once
the development of capitalism was well advanced. In Latin America, the wars of
independence brought major changes in the practice of slavery, but its elimination
was a long, slow process. One of the reasons for this was that slave owners had to
b.e compensated, .given the importance of another liberal principle: property
nghts. As shown m Table 2.6, the slave trade was banned (in more than a few
cases because of pressure from the British) and the "freedom of wombs" (libertad
de vientres) was declared in the first few decades following independence in the
vast majority of the countries. These two measures were the beginning of the end
for slavery: but, a~ t~e same time, they helped defer the fiscal cost of paying
compensatiOn. This Is perhaps why, in most countries, abolition did not come
until the middle of the nineteenth century.
. The process moved ahead more rapidly in countries where slavery was less
Important to the economy and much more slowly in those where it was more
sig~~ficant-exc~pt in the D~minican Republic, where it was abolished by the
Haitian occupation. The contmuation of colonial patterns was also an important
factor. In fact, one of the last two countries to abolish slavery remained a colony
Table 2.6. Abolition of slave trade, Free Wombs laws, and slavery in Latin America, 1810-88
Dominican Republic Abolition of slave trade Free Wombs laws Abolition of slavery
Chile
Central America 1822 1811 1822
Mexico 1811 1823
Uruguay 1824 1825 1824
Ecuador 1824 1821 1829
Colombia 1825 (1838) 1821 1842
Argentina 1821 1813 1851
Peru 1821 1821 1852
1813 (1838) 1821 1853
Venezuela 1821 1831 1854
Bolivia 1821 1842 1854
Paraguay 1840 1870 1861
Puerto Rico 1842 1870 1869
Cuba 1820, 1835 (1842) 1871 1873
Brazil 1820, 1835 (1866) 1886
1830, 1850 (1852) 1888
Note: Each _rear refers to th.e date in which slave trade and slavery were legally abolished.
The years m parentheses mdtcate the end of slave trade, in those cases in which it happened after legal
suspension.
Source: Andrews (2004: table 2.1)
2
For a comparative analysis of slavery and its abolition in the nineteenth century, see Andrews
(2004: chs 2 and 3) and Klein and Vinson (2007: chs 5, 6, 9, and 11).
The Economic History of the Young Independent Republics 75
(Cuba), while in the other (Brazil), its continuation wa~ made possibl.e by :he
particular path taken by this country on its way toward mdepen~ence, m which
the son of the Portuguese king became the first Emperor of Brazil. In every case
where independence was won through an armed struggle, abolition came sooner.
One of the reasons for this was that both sides sought to mobilize the slaves to
fight with them by promising them freedom. Another was the economic disarray
that followed in the war's wake.
In Cuba and Brazil, abolition was the end result of a long process whereby
slavery became less and less important economically before it was. forma~y
eliminated. Something along the same lines had occured much earher on m
Colombia, where the importation of slaves had all but petered out by the end of
the colonial era. This loss of economic significance notwithstanding, there is no
case in which abolition came without the help of a political movement advocating
its termination: in Cuba, this took the form of the first war of independence (the
Ten-Year War of 1868-78) and, in Brazil, it was the outgrowth of a large-scale
social mobilization.
The economic ramifications of the abolition of slavery and the changes that it
triggered in the labor market will be explored in greater detail in the following
chapter.
GEOGRAPHY, TECHNOLOGY, AND COMMERCE
Geography, resource endowments, the distances between markets and shipping
routes, together with the way that these factors were linked to the technologies
that existed at different points in time, were very influential in determining the
possible economic responses of the different regions of Latin America.
In the economy of the central regions of the colonial system, mining was a
major industry and, given the high value-to-weight ratio of precious metals, it was
profitable to transport them over long distances and difficult terrain. The ot.her
prosperous economies were those along the coast, such as those of Buenos Aires
and later Entre Rios and Uruguay (frontier economies that attracted large flows of
immigrants), Cuba, and Brazil.
In addition, although technological advances certainly did underlie the wave of
globalization associated with the conquest of the Americas and ~~e installation
of colonial regimes in the new continent, this was more of a geopolitiCal process of
violent conquest (Findlay and O'Rourke 2007: 378-9). By contrast, the globaliza-
tion process that has ebbed and flowed since the early nineteenth cent~ry,
although not entirely divorced from violence and conquest, has been more solidly
based on the major technological developments that have so greatly reduced the
"economic distance" between one region and another, if we define this expression
in terms of the time and expense involved in transporting goods, people, or even
services and knowledge, from one place to another.
The Industrial Revolution set a succession of technological changes into motion
that were to have a radical effect on transportation. The two developments that
had the farthest-reaching impact both had to do with the introduction of the
steam engine. The first was the invention of steamboats, which were used to ply
76 Economic Development of Latin America
rivers and internal seas, and later, well in to the nineteenth century, of steamships
capable of traveling long distances and of crossing entire oceans. The other was
the railroad. These two technologies are associated with what we might call the
"second industrial revolution," which began in the early decades of the nineteenth
century and had become more widespread by the middle years of that century.
Earlier technologies, such as the construction of roads paved with macadam and
of canals in England, continental Europe and, especially, the United States, had
already had an impact on transportation. These technologies had, for example, cut
the time it took to transport goods between Manchester and London from four or
five days in 1780 to one and a half days in 1820 and had reduced the cost of
shipping goods between Buffalo and New York by 85 percent between 1817 and
1825 and the time needed to do so from twenty-one to eight days. Their effect was,
nonetheless, moderate when compared with the impact of the introduction of
the steam engine, which revolutionized long-haul transportation (Findlay and
O'Rourke 2007: 379).
In the first decades after the introduction of the steamboat, given its still
relatively high cost, its use for shipping was limited to products with a high
value-to-weight ratio, such as precious metals, oth~r luxury goods, passengers,
and correspondence. It was not until the 1870s that steamships were moving the
bulk of ocean freight.
As for the other great invention, the railroad, the Liverpool-Manchester line
was opened in 1830 and this technology then spread out through Europe and the
United States, where the famous transcontinental railroad was inaugurated in
1870. Canada's coast-to-coast railway line was opened in 1885 and the trans-
Siberian railway came in 1903. By 1850, some 23,000 miles of track had been laid,
and that was only in Europe and the United States. By 1870, the number had risen
to some 115,000 miles, with almost half of that located in the United States. It was
not until then that the railroads began to expand in Latin America, with 637 miles
of track in Argentina and just 215 in Mexico (equivalent to 0.5 percent of what
there was in the United States) (O'Rourke and Williamson 1999: 34, table 3.2).
The first Latin American country to use railroads on a larger scale was Cuba,
which inaugurated its first line in the 1840s and which, as of 1870, accounted for
more than one fourth of all the railroad track laid in Latin America (see Table 3.8).
Another country that was quicker than most to develop its railways was Panama,
which was then part of Colombia and which laid track joining its two coasts
shortly after 1850. This railway served as an extremely important transport link
between the eastern and western coasts of the United States during the California
gold rush.
In short, the second Industrial Revolution (and, in particular, innovations in
transportation technology and the opportunities that they opened up for increas-
ing the region's participation in the global economy) was extremely slow in
coming to Latin America, and its effects lagged far behind those seen in the
industrialized world of the time and especially the United States. Therefore,
what today we call the first wave of globalization, which took place, roughly
speaking, between 1870 and 1913 in Latin America, can be said to be the period
during which changes in transportation technology first had a truly significant
impact on Latin American production.
The Economic History of the Young Independent Republics 77
Even before the railroad revolutionized transportation, however, the intro-
duction of turnpikes represented an important innovation in road transport.
These roadways were widely used in the United States, but were completely
unknown in Latin America (Summerhill 2006: 297-8). The lack of invest-
ment in infrastructure, taken in conjunction with the region's very rough
terrain, made for an exceedingly slow pace of progress in the development of
communications.
Meanwhile, as we have seen, the expansion of the frontier was driven by the
desire to settle land to produce goods for on-farm and local consumption or to sell
on other export markets, in which case they had to be located near the coast, have
access to very cheap labor, or produce high value-to-weight goods. Geography and
the "commodity lottery," as in the very special case of guano, were to continue to
have a huge impact. And the effect of South America's harsh terrain must not be
forgotten, since this greatly hindered the integration of large markets and commu-
nications within the continent. By way of example, in 1842, a man named Belford
Hinton Wilson calculated that shipping a ton of merchandise from England to the
capital cities of the different Latin American countries cost the following amounts in
pounds sterling: Buenos Aires and Montevideo, £2; Lima, £5.12; Santiago, £6.58;
Caracas, £7.76; Mexico City, £17.9; Quito, £21.3; Sucre and Chuquisaca, £25.6; and
Bogota, £52.9 (Bertola and Williamson 2006: 14-15). This provides a clear illustra-
tion of the enormous difficulties involved in transporting goods to inland areas of
Latin America and shows why, once the mining industry had declined and the
colonial powers were on their way out, the center of economic activity in Latin
America shifted to the Atlantic coast.
As pointed out by Findlay and O'Rourke (2007: 383, table 7.2), the best way ~o
measure the impact of the revolution in transportation is to look at the ratio
between shipping costs and a product's price. This ratio did not begin to fall
significantly until the 1870s.
Thus, even though world trade grew more sharply before 1870 than it did
between 1870 and 1913, it is not surprising that its expansion did not have as
much of an impact on Latin America as it did on other regions in which the
Industrial Revolution was more clearly in evidence.
The influence exerted by geography, resource endowments, trade opportun-
ities, and applied technologies cannot, however, be examined in isolation from
the social, political, and institutional environment. The obvious question is
why did it take so long for the second Industrial Revolution and, in particular,
the expansion of the railroads, to come about in Latin America? All the different
elements of the institutional framework that we have discussed earlier
no doubt had an impact in this connection. But it seems equally clear that
the spread of the second Industrial Revolution and its economic impacts on
transportation, the expansion of European demand, and the arrival of capital
flows acted as major incentives for the consolidation of liberal reforms and
nation states in the late nineteenth century, as we will see in the next chapter.
This set the stage for Latin America (despite its institutional weaknesses, which
vary from co11ntry to country) to embark upon a period of fairly rapid growth
led by commodity exports.
Gelman's theory, according to which the "commodity lottery" and geogra-
phy played a more influential role than institutional factors did, also merits
examination.
78 Economic Development of Latin America
It should be clarified at this point that when we talk about "institutions," we
are not referring only to the overall constitutional framework and the legal and
judicial system. When we refer to institutional factors, we are also talking about
the informal relationships and links that predominate in many cases and that
ultimately shape a country's formal institutions. As the frontier was pushed
back, as new lands were settled, as production activities along the Atlantic coast
expanded, new types of social relationships and new forms of property arose that
did not always fit in with the formal institutional structure-which was, in
addition, very weak during this period. Clearly, the institutional facets of the
types of societies that took shape in Argentina and Uruguay, for example, differed
from those of the Andean societies and from those of the slave-based economies of
tropical zones, which were in an equally good or better geographic position than
the former and which, nonetheless, exhibited a quite different development
potential and performance. It remains for us to look at how long-lasting the
implications of these different development paths turned out to be.
The biggest change seen during this time in Latin America's external relations had
to do with the changeover of control in its foreign trade: "In all of Spanish America,
from Mexico to Buenos Aires, the most profitable and most prestigious segments of
local trade were to remain in foreign hands ... " (Halperin 2008/1969: 149).
There were no major inflows of foreign investment, however. The first bond
issues carried out on behalf of Latin American governments by banks in London
were resounding failures: in some cases, they simply refinanced (at a high cost)
war debts and, in others, they failed to yield a significant amount of funding for
the Latin American governments, which used what little they did receive ineffi-
ciently and soon ceased to service those debts. The intermediaries reaped huge
profits and the European investors lost a great deal of money. As a result, this form
of financing was out of the reach of Latin American governments for a long time
thereafter. This situation was compounded by the fact that a large number of
mining companies were founded around this time that were never very profitable;
in fact, many of them never actually got off the ground (Marichal1989: ch. 1).
Thus, whereas capital inflows in 1822-5 totaled £21.1 million, they amounted
to just £18.4 million for the entire period from 1826 to 1850. This pattern is also
partially a reflection of the demand for financing generated by the nations of
Europe that were in the midst of their industrialization process. Europe viewed
Latin America more as a market than as a source of raw materials, goods, or even
metals, and this would not change substantially until the second half of the
century. It was not until 1850, when the international economy was marked by
a high degree of liquidity (partly because of the California gold rush) and when
Latin America's export performance had improved, that an upsurge in capital
inflows was seen (to £132.4 million in 1851-80) (ECLAC 1964: 2).
At this point, protectionism made its debut in Latin America, partly as a result
of certain industrial ventures (e.g., the industrialization of textile production in
Puebla, Mexico) and, much more importantly, as a consequence of the fiscal
considerations referred to earlier. At the international level, this was tolerated,
but the erection of trade barriers between one Latin American republic and
another, which had been unheard-of during the colonial period, had an extremely
negative impact and essentially destroyed the prospects for a genuine customs
union in Spanish America. This "balkanization" made it very difficult to take
The Economic History of the Young Independent Republics 79
advantage of economies of scale. In 1820, the two largest Spanish American
economies were, on average, one fourth as large as the major European economies
(measured in terms of GDP), and the same was true of Brazil. In 1870, the
economies of Argentina, Chile, and Mexico, taken together, were equivalent to
less than half the average size of those European economies and Brazil, which was
the biggest of all, was less than 30 percent of their size (Bates, Coatsworth, and
Williamson, 2007: table 4). In addition, even though customs duties were high,
international competition had a devastating effect on local crafts and trade indus-
tries owing to the steep decline in the prices of textiles, especially cotton, triggered
by the Industrial Revolution.
SUMMING UP
In the first few decades following independence, Latin America's economic
performance was relatively poor compared with the more advanced countries
of that era and, especially, with the former colonies of North America. It was
also disappointing relative to the expectations that existed at the start of the
revolution.
There were many reasons for this. One had to do with the difficulties involved
in building and consolidating the new nation states. And this, in turn, had a
great deal to do with the weakness of the local elites, which was one of the
legacies of the colonial regime. Another was the difficulties that hindered
attempts to introduce liberal reforms, including the abolition of slavery in
areas where it was economically important. The legacy of the colonial era was
also an important factor in this regard, as it stymied to a significant extent the
reforms that are generally identified with bourgeois revolutions. The areas in
which these reforms made the greatest inroads were also the areas that grew the
most. A case in point was the expansion of the frontier, where social relations
based on servitude, slavery, and campesino labor were weaker and where wage
labor and land markets gained ground more quickly. The structure of these new
nation states remained weak throughout the region, however, and it was not
until the final quarter of the nineteenth century that state structures were to gain
a clearly more solid form.
This slow start was not unrelated to the process of technological change. Latin
America is a place of widely varying conditions and geographical obstacles that
hindered its integration into the world economy. Initially, the areas located along
the Atlantic, Pacific, and Caribbean coasts were the ones that developed the most.
When these conditions were combined with more enabling institutional environ-
ments, the rate of growth became much more rapid, as in the cases of Chile and
the areas around the River Plate. The slow pace of technological change was not
unrelated to the predominance of social and institutional structures and value
systems inherited from the colonial period that were manifested in a caste system,
the lack of political participation, and the meager development of human capital.
Major changes in trade flows and activity in Latin America were not to occur
until the advent of decisive technological changes. Railroads, steel-reinforced
ships, and the engineering expertise required to build tunnels, roadways, and
80 Economic Development of Latin America
canals became widespread only in the last decades of the nineteenth century. And
these changes, in their turn, reinforced the nation states' ability to concentrate
and monopolize political and economic power. Meanwhile, the geography of
the region continued to be a very important factor, and growth was extremely
segmented. Given the structure of Latin America's population and its regional
distribution, it continued to lag behind. The sectors that were growing were not
big enough to change the overall picture and they, too, were confronted with
formidable constraints.
3
Globalization, Institution-building,
and Commodity-export-led
Growth, c.1870-1929
INTRODUCTION
In the last third of the nineteenth century, Latin America embarked on a period of
relatively rapid economic growth thanks to its capacity to integrate itself dynam-
ically into the international economy.
It is difficult to pinpoint the exact starting point of this stage, since, as always,
the process was not a uniform one. Some countries began this growth spurt earlier
on by capitalizing on the forward momentum of processes that had been taking
shape in the decades following independence; others were slower to join in this
wave of growth. Some grew swiftly, others more slowly.
This process was the outgrowth of the confluence of two sets of factors, some
external and others internal. These factors combined in different ways and had
different impacts from one country and region to the next.
The first set of factors was associated with the huge impact that the revolution
in transport had on commerce, as it drove down maritime and overland shipping
costs and thus shortened the economic distances between regions. This effect was
bolstered by the steady expansion of industrialized countries' demand for raw
materials and foodstuffs.
The other set of factors stemmed from the political and institutional changes
that had been taking place in most Latin American countries. These factors, in
turn, were of two main types. First, significant inroads were being made by the so-
called liberal economic reforms, whose introduction continued to run its course.
These reforms included the definitive abolition of slavery, the increasing domestic
mobility oflabor, the development of a genuine land market, the abandonment of
many types of ownership structures that had hindered the commercial use and
sale of land, and the introduction of proper systems of taxation. Second, political
power structures were consolidated, giving rise to greater institutional stability
than in the preceding decades, although this did not occur in all the countries and,
in some, was fairly short-lived. Where it did occur, it was more often than not
accompanied by the arrival of authoritarian governments that placed greater
priority on maintaining the prerogatives of the elites and shielding them from
the masses than on protecting the masses and even protecting those same elites
from abuses by those who held the state's power in their hands. As a result of all
82 Economic Development ofLatin America
this, nation states became more firmly positioned. Although this did not entirely
do away with either domestic or international conflicts, it did diminish them a
great deal.
The combination of these two sets of factors triggered a rapid increase in Latin
American exports and, although the export sector was still fairly small, it engen-
dered backward linkages with the rest of the economy of varying strengths in the
different countries. Growth was also boosted by hefty capital inflows and mass
immigration from Europe and, to a lesser extent, Asia, although these flows were
very unevenly distributed.
This wave of economic growth was to some degree an extensive one, inasmuch
as it translated into a marked expansion of the agricultural frontier and the
settlement of new areas, especially in those parts of the region that were growing
the fastest.
Viewed from a social perspective, this was a time of rapid territorial and social
differentiation. As the gap between the richer and poorer countries widened,
inequalities within countries also increased considerably.
Increased export activity in some regions led to a greater diversification of the
production structure, which was manifested in the development of manufactur-
ing, of communications and transport infrastructure, and of financial services,
together with rapid urbanization.
. By the time that this period had come to an end, Latin America was a very
different place from what it had been in the mid-nineteenth century. The gap
between it and other undeveloped regions was much wider, and some Latin
American countries, such as Argentina and Uruguay, ranked among the nations
with the highest levels of per capita income in the world.
This period was cut short by a series of major changes in the world economy.
Predominantly among them was the worldwide financial crash of 1929 and the
Great Depression of the 1930s that followed in its wake, which were triggered by
sharp domestic imbalances in the developed economies and the international
system as a whole. Some of these disequilibria had already begun to become
apparent in the aftermath of the First World War. The resulting transformations
were to have a strong impact on some Latin American countries from that time on.
The way in which the Latin American economies reacted to this new inter-
national situation, which we will explore within the framework of the state-led
industrialization process to be discussed in the following chapter, was largely
shaped by the achievements, limitations, and characteristics of the export-led
growth process that we will examine in this chapter.
ECONOMIC PERFORMANCE: AN INITIAL OVERVIEW
As already pointed out in Chapter 1, in the final third of the nineteenth century,
Latin America embarked on a fairly rapid growth path that allowed it to distance
itself from Africa and Asia while more or less keeping up with developed nations.
At the same time, Latin America was becoming a region of greater inequalities
both between and within countries. Let us take a closer look at this process.
Commodity-export-led Growth, c.l870-1929 83
Demographics
The trends seen in the decades following independence deepene~ during this
eriod. This was also a time in which migration was to play a promment role. As
~hown in Table 3.1, Latin America's population grew at an annual rate of I?
percent in 1870-1929, which was above the world average. As a result, Latin
America's population climbed from 2.9 percent to 4.2 percent of the world
population. Even so, of course, it was. still a ~mall ~ontinent in demographic ten1_1s.
The growth of the population, as m earher penods, was uneven. The countnes
that witnessed the sharpest growth were, once again, those in Group 3 (recently
settled areas), whereas the Group 1 countries, the traditional centers of the
colonial economy and the regions where the economic activity of the haciendas,
Table 3.1. Latin America: Population, 1870-1929
Thousands Shares(%) Annual Growth (%)
1870 1913 1929 1870 1913 1929 1870- 1913- 1870-
1913 1929 1929
Group 1 1,495 1,881 2,370 4.1 2.5 2.4 0.54 1.45 0.78
Bolivia 2,392 5,195 7,821 6.5 6.9 7.9 1.82 2.59 2.03
Colombia 1,013 1,689 1,928 2.7 2.3 1.9 1.20 0.83 1.10
Ecuador 1,008 1,410 1.3 1.3 1.4 1.68 2.12 1.80
El Salvador 492 1,486 1,753 2.9 2.0 1.8 0.74 1.04 0.82
Guatemala 1,080 2.17 1.42
Honduras 660 930 1.1 0.9 0.9 1.15 0.75 1.03
Mexico 404 14,970 16,875 25.0 19.9 16.9 1.13 1.02 1.20
Nicaragua 9,219 2.34 1.38
Paraguay 578 680 0.9 0.8 0.7 1.26 1.44 1.24
Peru 337 594 860 1.0 0.8 0.9 1.02 1.34 1.23
Subtotal 384 4,295 5,396 7.1 5.7 5.4 1.17 1.30 1.28
Colombia, Mexico, 2,606 32,356 40,023 52.7 43.1 40.2 1.19
19,422 24,460 30,092 38.6 32.6 30.2 1.27 2.08 2.07
and Peru 14,217 1.74 2.18
2.73 1.77
Group 2 9,797 23,660 32,894 26.6 31.5 33.0 2.07 2.37 1.81
Brazil 137 372 490 0.4 0.5 0.5 2.35 3.05 2.77
Costa Rica
Cuba 1,331 2,431 3,742 3.6 3.2 3.8 1.41 0.79 1.16
Panama 176 348 506 0.5 0.5 0.5 1.60 2.05 1.97
Dominican 242 750 1,213 0.7 1.0 1.2 2.67 2.02 1.95
Republic
Venezuela 1,653 2,874 3,259 4.5 3.8 3.3 1.29 2.63 3.21
Subtotal 13,336 1.94 1.28 1.31
Brazil, Cuba, and 12,781 30,435 42,104 36.2 40.6 42.3 1.92 2.27 2.73
28,965 39,895 34.7 38.6 40.1 2.24 2.50
Venezuela 1.78 1.70
1,796 7,653 11,592 4.9 10.2 11.6 3.43
Group 3 1,945 3,431 4,202 5.3 4.6 4.2 1.33
Argentina 1,177 1,685 0.9 1.6 1.7 2.91
Chile 343 12,261 17,479 11.1 16.3 17.5 2.59
Uruguay 4,084
Subtotal 75,052 99,606 100.0 100.0 100.0 1.67
36,842 1,792,917 2.9 4.2
Total 1,275,737
World total
Source: Maddison (2007) and typology according to Table 1.2
84 Economic Development of Latin America
campesinos, and mining operations had held sway, experienced slower population
growth. Nonetheless, as of 1929 Group 1 countries still accounted for 40 percent
of Latin America's total population. The population in the Group 2 countries
expanded more rapidly and outnumbered the population of Group 1 by the end of
this period. In turn, while Group 3 had registered the highest growth rate for an
entire century, by 1929 it represented just 17.5 percent of the region's total
population.
As will be seen in this chapter, the trend of population growth changed around
the First World War, with overall population growth speeding up between 1913
and 1929. This general trend was reflected in Groups 1 and 2, but not in Group 3,
where the rate of population growth began to decline.
One of the reasons why population growth rates varied was that different
countries were more or less attractive to immigrants (see Table 3.2). Latin
America was the destination for nearly one fifth of the 62 million people who
emigrated from Europe and Asia between 1820 and 1930, with these flows being
concentrated in the half century that preceded the First World War (Hatton and
Williamson 1994 and 2005). Argentina and Brazil were the main destinations for
European labor. Entrepreneurs and technicians coming from Europe were also
important in countries that did not receive massive flows of migrants. Migrants
from Asia, and especially from China and India, also headed for the plantations of
Cuba and Peru, where they worked as indentured laborers. There were also
intraregional migration flows, which included the movement of black laborers
from the Antilles who went to work on the banana plantations of Central
America, the Cuban sugar cane plantations, and the construction of the Panama
Canal.
The countries where immigration had the strongest impact on the population
were Argentina throughout the period 1870-1929, Uruguay in the nineteenth
Table 3.2. Gross intercontinental immigration and immigration rates, 1871-1940
United States Canada Argentina Brazil Cuba Uruguay Chile
Gross intercontinental immigration 1871-1930 (thousands)
1871-1880 2,433 220 261 219 112
1881-1890 4,852 359 841 525 140 28
1891-1900 3,684 231 648 1,129 90 7
1901-1910 8,666 947 1,764 671 243 21 39
1911-1920 4,775 1,154 1,205 798 367 57 68
1921-1930 1,723 987 1,397 840 21 41
1931-1940 443 82 310 239 57
Accumulated 26,576 3,980 6,426 4,421 610 498 183
Rates of immigration (per 1000 inhabitants)
1871-1880 54 54 124 20 281
292 41 248
1881-1890 85 77 163 71 114 12
311 34 118 2
1891-1900 53 45 149 32 142 21 13
135 28 46 19
1901-1910 103 154 14 10
1911-1920 47 141
1921-1930 15 103
Source: Migration: Halton and Williamson (2005)
Immigration: Sanchez Alborn6z (1991: table 2) for Chile; Sanchez Alonso (2006: table 10.3) for others.
Commodity-export-led Growth, c.1870-1929 85
century, and Cuba in the early twentieth century. In these three cases, the
immigration rates actually surpassed those of the United States and Canada
during various portions of that period.
These migration flows were radically different from those involved in the
introduction of slave labor, which had such a powerful impact on population
growth in Group 2 throughout the eighteenth and nineteenth centuries, until the
slave trade was finally halted.
Exports
This period has been described as an export boom by numerous authors, who
refer to it as an "export era," a period of outward-looking development or
commodity export-led growth, and the first wave of globalization. There is no
question about the fact that the export sector set the pace and was the engine of
growth for the entire economy during this time. And it is also quite clear that this
export pattern was based on agricultural and mining products, with other manu-
facturing goods and services playing a negligible role.
Exports soared between 1870-4 and 1925-9 at an annual rate of 4.2 percent at
constant prices (see Table 3.3). And, as can be seen from Figure 1.4 in Chapter 1,
between 1880 and 1929, Latin America succeeded in increasing its share in world
trade. Between 1910-14 and 1925-9, however, even though export growth con-
tinued to surge, this was not reflected in an increase in the region's share of global
commerce. Thus, this forceful expansion of Latin American trade was part of a
powerful and more general increase in world trade in which, during certain
periods, Latin America was one of the winners.
The most striking upswing in exports was experienced in Argentina between
the 1870s and the start of the First World War (Gerchunoff and Llach 1998). As
time went by, however, all the countries benefitted from the region's increasing
integration into the world economy. Even so, the performance of the different
groups of countries was very uneven. Up to 1913, the Group 3 countries continued
to outpace the others.lfthe rates are calculated in per capita terms, however, then
Group 1 (whose population grew very slowly during those years) edged past it.
The growth of Group 2, dominated by Brazil and Venezuela, was more sluggish,
especially in per capita terms.
Between 1910-14 and 1925-9, when export growth was gathering momentum,
Groups 1 and 2 were more dynamic, whereas Group 3, and especially Argentina,
experienced a sharp slowdown. All the countries in Group 1 except Nicaragua,
Guatemala, and El Salvador saw burgeoning growth, while in Group 2 Brazil and
Venezuela were the ones that now led the way.
The ups and downs in these growth rates notwithstanding, the different groups'
actual per capita export levels differed enormously. The per capita export levels of
the Group 3 countries were three times as high as those of Group 2 in 1870-4 and
five times as high in 1910-14. The distance between Groups 3 and 1 was even
larger. In 1925-9, the gap between the groups was still very substantial, despite the
slowdown in Group 3. Thus, throughout this period the differentiating character-
istics and the strikingly different export capacities of these three groups remained
in evidence.
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