LECTURE 12: LATIN AMERICA TO 1913
We need to begin with some very obvious points. We know comparatively little about output,
employment, population and any other economic or social variable for any of the individual nations
covered in this second semester before about 1950. Naturally, we know even less about the main
regions (Latin America and the Middle East). I work on the basis that it is far better to have some data,
whose reliability can be estimated and whose strengths and weakness can be recorded, than to have no
data at all. The brief overview of the Latin American economies in the twentieth is based on figures
from just 6 of the 20 mainland Central and Southern American nations. These are Argentina, Brazil,
Chile, Colombia, Mexico and Venezuela. But these are the biggest, most economically and politically
important countries and so should capture the broad picture of the continent as a whole. Or at least,
these are the six most important economies when measured at the end of the 20 th century. Uruguay
would have been included, and Venezuela excluded, if we had taken the six biggest economies of the
late 19th century.
Statistical Overview
We have a number of tables that show the development of Latin America during the twentieth century.
The most obvious place to begin is with population, and a broad picture of relatively rapid population
growth since 1900. The simple graph of population for the six countries plus Colombia illustrates very
well the rapid rise in population during the century, from just under 50 million in 1900 to in excess of
350 millions at the end of the century. The rate of population growth has been very fast, at
approximately 2 per cent per annum over the period as a whole. But we need to be aware that there
have been very different stimuli to growth. In the period up to 1913, not only were birth rates relatively
high but also many Latin American countries gained population by migration from Europe. The phase
of most rapid population growth in Argentina, for example came in the years of migration to 1913.
Mexico, on the other hand, was stagnating demographically for most of the first three decades of the
present century, but experienced pretty rapid acceleration thereafter. Brazil is the most populous
country on the continent and its growth rate has mirrored that of the Latin American group as a whole.
Figure 12.1: Population Growth in Latin America, 1900-94
180,000
160,000
140,000
120,000
100,000
80,000
60,000
40,000
20,000
19
00
19
04
19
08
19
12
19
16
19
20
19
24
19
28
19
32
19
36
19
40
19
44
19
48
19
52
19
56
19
60
19
64
19
68
19
72
19
76
19
80
19
84
19
88
19
92
0
Argentina
Brazil
Chile
Colombia
Mexico
Peru
Venezuela
When we look at economic change it is useful to be aware of turning points in the historical
pattern and to adopt a comparative framework, to try to set Latin America into some sort of context.
There are three main phases of Latin American development. The first phase takes us broadly up to the
First World War and encompasses the very end of the period of export led growth in an integrated
international economy. The next two phases embrace the very difficult period of depression and the
Second World War, which is perhaps best sub-divided into two at the onset of the world slump of
1929. The final period embraces the second half of the century and takes in both the golden age of the
world economy, the long boom between 1950 and roughly 1973, and the slower more disturbed period
of growth that followed. The comparative dimension is covered by including Spain and Portugal,
countries that share obvious cultural affinities with Latin America, and the USA, as the standard setter
in the developed world. We can look at this in two ways. The first is simply to compare growth rates
for the various periods and sub-periods. We are using GDP, adjusted by PPPs, as outlined in an early
lecture in the previous semester. The figures in Table 1 show pretty clearly that Latin American
performance was pretty good in the first half of the century, but during the second half performance has
been generally disappointing. There is no simple explanation for the change in relative pace. In the
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period 1900-13 Latin America was an export economy in a period of substantial international economic
growth and increasing international integration. From 1913 to 1929, the large Latin America economies
were being driven forward both by exports, but in a more troubled international economy, and the
growing signs of domestic industrialisation, which were certainly evident in Brazil, Argentina and
Mexico. The first real phase of ISI took place between 1929 and 1950, when the international economy
slumped and the domestic industrial centres expanded more purposively.
Table 12.1: Growth of GDP per capita, 1900-89, various countries (average annual compound
rates)
1900-13
1913-29
1929-50
1950-73
1973-80
1980-9
Argentina
2.5
0.9
0.6
2.3
1.4
-2.5
Brazil
2.3
2.5
2.6
3.9
4.7
0.2
Mexico
1.9
0.1
1.6
3.3
3.5
-0.8
Latin American 6
2.2
2.4
1.8
2.6
2.3
-0.5
Spain & Portugal
1.3
0.7
0.4
5.3
1.2
2.5
However, the golden age of the world economy, when trade grew rapidly among the richer
nations, seems to have had only muted impact on Latin America. Growth rates certainly accelerated,
and the Brazilian and Mexican economies clearly strengthened their relative positions, but the other
economies did much less well and were in part held back by Argentina, where growth was relatively
disappointing. However, the overall performance was much less good than that of Spain and Portugal,
included here as the most useful European comparators, for much of the period since 1945. Table 1
also shows that the 1980s were pretty dire in Latin America. The countries for which we have figures
experienced net contraction through the 1980s, and Latin American living standards fell back very
significantly indeed relative to the developed countries. So, at the level of the continent as a whole, or
at least that part for which we have figures, there was relatively encouraging progress before 1950 and
relative disappointment thereafter, with particular difficulties in the 1980s. Within the continent, there
have been three main changes of note. The Argentine economy has relatively weakened, particularly
after 1929 and again more dramatically in the 1980s. Brazil’s star on the other hand has waxed,
especially in the period 1929-80, but it too had problems there after. Finally, Mexico’s ride has been
more uneven, with real problems during the second phase, 1913-50, followed by a fairly stunning
recovery during the long boom, and an equally substantial check in the 1980s. That really is the big
picture. It is rather mixed, but there are discernible patterns that require explanation both for the whole
continent and within it.
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The Export Age
The period of export-led growth that culminates in 1914 really began with the expansion of the world
economy from 1850 onwards as Europe began to industrialise. You should be aware that the dominant
interpretation of this period from the 1950s onwards came from within the dependency school. They
saw the connections with the old colonial powers as conditioning the path of subsequent development.
In more recent terminology, Latin America was path dependent. Structures were established early on,
which offered few alternatives to economic agents that followed. The colonial pattern of exploitation of
the periphery led to the transfer of capital from the periphery to the centre and resulted in the failure of
the periphery, Latin America, to develop in the sense of broadening its economic structures and
fundamentally strengthening its economic system. When these countries gained their independence
from the colonial powers in the early 19th century, they were compelled to continue with the path of
export-led development. By the Singer-Prebisch mechanism of deteriorating terms of trade for primary
producers, the mechanisms of transferring capital from the periphery to the centre continued, and the
control of the individual Latin American economies remained in the hand of the large-scale
landowners, whose interests were furthered by keeping the economy open and avoiding any measures
to ensure the development of local industry. If Latin America continued to import British textiles, Latin
American primary producers would not only retain free access to British markets but also be able to
import capital from London to extend the scope of the export economy. The big landowners also had
large-scale agricultural holdings that might have been modernised to produce food for domestic
consumption more efficiently, but instead were held as stores of wealth and emblems of social prestige.
Thus Latin American domestic agriculture remained underdeveloped, manufacturing industry had only
the most tenuous foothold, and the economy as a whole remained underdeveloped.
This dependency approach came under increasing criticism in the last two decades of the
twentieth century, not least because the Latin American economy performed reasonably well between
1870 and 1939, as Table 12.2 illustrates.
Table 12.2: World Economic Growth, 1820-1929 (average annual growth rates)
1820-1870
1870-1913
Western Europe (GDP)
1.7
2.1
Latin America (GDP)
1.5
3.3
World (GDP)
1.0
2.1
World real exports
4.2
3.4
Latin America real exports
3.4
1913-1929
1.5
3.3
1.9
2.2
4.0
I want to spend the rest of this lecture exploring the new view of Latin American economic
development. The logical place to begin is with the export sector. Latin America had traditionally
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supplied precious metals to the colonial powers in Spain and Portugal, but after 1850 the continent
became a major supplier of all types of primary products to the developing industrial centres in the
European mainland. Some Latin American countries supplied industrial raw materials. Bolivia was a
major tin exporter, and both Mexico and Peru supplied copper. Many more provided food, especially
coffee (Brazil, Columbia, El Salvador, Guatemala, Haiti, Nicaragua, Venezuela) and sugar (Cuba,
Puerto Rico). One of the characteristics of the Latin American economies during the period to 1914
was their extreme dependence on a very narrow range of export goods. In almost all the coffee
exporters for example, that product comprised upwards of 50% of total export revenues, and in some
cases (Guatemala and El Salvador) almost 80% of export earnings were dependent on the single
product. There are 20 Latin American countries and none of them had a broadly based portfolio of
exports. The best, Argentina, received more than 40% of its 1913 export revenues from two products,
maize and wheat. Many of these countries recognised the vulnerabilities implied in heavy dependence
on one or two major exports and attempted to broaden the base of their export economies. They
naturally chose what was in demand in the major expanding markets of the industrialising economies,
basically foodstuffs and industrial raw materials, but as they developed new products, so their older
products seemed to go into decline and export vulnerability remained. In one sense, however,
vulnerability was limited. In 1850, the UK was by far the major market for Latin American exports, but
by 1913, the USA had become the main market, followed by Britain, but France and Germany also
took sizeable shares of Latin American exports. In all these respects, Argentina was the example of
best practice. It had far more success than most other countries in developing a range of export
products, and it certainly serviced many more markets than any other Latin American nation.
If the Latin America’s exports were dominated by primary products, its imports were
dominated by manufactures, but as with its export trade the reliance on Britain diminished over the
long period 1850-1913. Britain’s main export to Latin America had been cotton textiles and clothing in
1850 and remained so in 1913. The USA, however, came to dominate the supply of mining equipment,
which was especially important for the tin and copper exporters, and both French and German
manufactures found substantial markets in the main Latin American markets. There was, however,
great competition between the major industrial countries for markets in Latin America during the late
19th and early 20th centuries and there is no real suggestion that Singer-Prebisch condition of extreme
competitiveness in primary product exports, but monopoly supply in imports of manufactures was in
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any way established before 1913. Indeed, it is highly unlikely that the Singer-Prebisch condition of
adverse movements in the net barter terms of trade (the relation between the movement of prices in
imports and exports) applied in any real sense in the period before 1913. Attempts have been made to
calculate the NBTT for some of the Latin American republics, but they are extremely difficult to
produce and tend to show a tendency to fluctuate through very broad cycles rather than to show any
obvious trend towards decline. It seems unlikely, therefore, that the great bogey of dependency really
can be brought forward to explain the inadequate development of the Latin American economies to
press on towards full economic and social modernisation and become developed industrial economies
as has happened in parts of the Far East and to a lesser extent in the Middle East. Indeed, one of the
great advantages of participation in the integrated international economy of the late nineteenth and
early twentieth centuries is implicit in the diverse patterns of trade just discussed.
The global, even globalised, economy in which the Latin American nations participated in the
late nineteenth century was a multilateral international system. Countries participated in a sophisticated
network of international trade in which there was a common world money, gold (which was supported
by what we might now call reserve or trading currencies that were as good as gold – notably sterling,
but also the German Mark and the French franc) and a multilateral system of settlements.
Multilateralism is important. It allows trade to proceed much further than if trade is governed by
bilateral principles in which each country has to balance its imports from each individual country in the
system with exports to the same value. It should not take long to recognise that a bilateral world
discourages trade, and anything that discourages trade will discourage the growth of world income.
Latin American economies in the period up to 1913 not only experienced the vulnerabilities of the
global system of trade and payments, but also enjoyed the considerable benefits, as the table shows.
Table 12.2: Latin America, Economic and Social Indicators, c. 1913
Exports per GDP per Railways % of labour Literacy
Life
capita
capita
per capita
in
expectancy
agriculture
Argentina
67
188
4.4
34.2
63
46
Bolivia
20
0.7
21
29
Brazil
13
44
1.0
66.7
35
31
Chile
75
140
2.3
37.7
56
30
Mexico
13
78
0.6
63.7
Uruguay
59
195
2.1
28.0
67
52
Venezuela
9
0.3
72.0
30
30
Exports per capita and GDP per capita in current US$
Railways measured in kilometres per thousand population
Literacy is the rate for those 15< years
Life expectancy is measured in years at birth
Source: Cardenas et al,, ‘Introduction’, in An Economic History of 20th Century Latin America, Tab. 1.4
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If they had rejected world trade before 1913, there is little doubt that their incomes would have been
lower, and probably by a considerable amount.
Constraints on Latin America Development
If the simple/simplistic dependency explanation of the failure to use this engagement in the
international system as a springboard for industrialisation and modernisation carries little weight, it
remains to be asked why they remain among the group of LDCs rather than can be counted in the DCs.
One potential answer could lie in the export economy itself. The big textbook on the Latin American
economy since the early nineteenth century, written by Bulmer-Thomas, suggests that very few of the
Latin American nations could generate a sufficiently rapid rate of export growth to produce economic
development of the wider economy. His argument has two parts. First, there were difficulties in getting
sufficiently fast export growth because of shortages of factors of production. Secondly, the non-export
sides of the Latin American economies were in many cases woefully inefficient and were resistant to
pressures for greater efficiency and so acted as a big drag on the wider national, and indeed continental,
economy.
This is quite a complex argument, so we will begin with the easier part, the difficulty in
channelling resources into the export sector to produce sufficiently rapid export growth. Any
productive economic activity requires the application of factors of production to that activity. The
factors of production are land, labour and capital. Land is sometimes omitted, especially when
considering the developed countries, but it was clearly of great importance in Latin America. None of
the Latin American countries was short of land in the period up to 1913, because in even the most
heavily populated the land-labour balance was very favourable. Getting access to this land was
however not always easy. There were two main obstacles. The first was the relatively underdeveloped
state of transport and communications, and was overcome, where it was overcome, by the introduction
of railways. The second problem was the systems of land ownership inherited from the colonial
systems of Spain and Portugal, with land ownership heavily concentrated in the hands of the ultrawealthy. The amount of land in private ownership in 1913 was much, much greater than the amount
privately owned in 1850, but the concentration of ownership had changed little. The wealthy also
dominated political and social power and used this domination to ensure that land was not distributed
more widely and also helped to ensure that the tax regime did not bear so heavily on landowners that
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the break-up of the great estates at death or to meet fiscal liabilities. Thus access to land, and especially
to fertile land, was a problem.
The development of a more dynamic export economy also required capital and labour. The
mobilisation of capital required potential borrowers, potential lenders and a financial system to bring
the two together. The obvious borrowers were those wishing to develop the export economy and indeed
governments ready to extend the infrastructure so that the export economy could move into new areas.
The financial intermediaries were also fairly obvious. A number of British finance houses established
commercial banking in a number of South American countries during the 19th century and helped
channel funds from lenders to borrowers. The real problem was however the lenders. Although these
banks tended to make good returns, they found it difficult to persuade those with the potential to save
to commit their potential savings to the banking sector. Landowners tended to put their money back
into land-ownership, indeed they needed to retain the concentration of land ownership already noted.
The absence of a fully developed banking system did not prevent either the British or American
industrial revolutions, and it was possible in Latin America to raise money from kinship or social
networks but the examples were comparatively rare.
For this reason, imports of capital were important. Britain remained the major supplier of
investment to Latin America throughout the period to 1913, but France, Germany and the USA also
became important inward investors by 1900. The governments of Latin American countries would
issue foreign bonds on the London or Paris stock market, and use the money raised for whatever
purpose it saw fit. But as Argentina has periodically demonstrated, these loans were not always used to
the maximum benefit, and the failure to meet interest payments on a loan could lead to lengthy
exclusion from the capital markets of developed market economies. The most famous is the collapse of
Argentine credit in what is called the Baring crisis, which virtually ensured that Argentina was
excluded from London money markets for a decade or so. The other main method of importing capital
was to rely on foreign direct investment, or the creation of firms or productive facilities by overseas
nationals. FDI tended to go into areas where there would be comparatively limited competition, so by
1913 Latin American railways, banks, public utilities, mining and shipping were dominated by
foreigners. In addition US companies owned sugar mills in the Caribbean and banana plantations in
Central America. Britain owned meat-packing plants in Argentina and Uruguay. Such companies
tended to exploit natural and technological monopolies and cases of unfair competition and abuse of
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power are not difficult to find. But this was mostly in the export sector. Domestic agriculture and
domestic manufacturing saw hardly any foreign investment. So the supply of capital was patchy.
A similar position can be found in respect of labour. Other New World countries acquired
their labour on the basis of mass immigration from the Old World, but comparatively few Latin
American were willing to adopt immigration on this pattern. Argentina was the main beneficiary, and
as we have seen Argentina was the most successful at developing a range of export staple sectors
throughout the century. Countries opted instead for selective immigration; Chinese coolies to work in
sugar and cotton industries, workers from the British West Indies in some of the major transport
projects etc., but most countries relied on the relatively high rate of natural increase and by transferring
labour from within the economy. The populations of most of the Latin American republics were
predominantly rural, with Argentina the main exception. The short-distance mobility from one rural
occupation, probably in subsistence agriculture to another in export-oriented agriculture ought to have
been relatively easy to organise, but the producers in the export sector were unwilling to raise wage
levels to attract new workers. The markets into which they sold in Europe and North America were
fiercely competitive and higher wage costs were definitely not on the agenda. A number of export
industries tended to rely therefore on compulsion of various sorts to get their labour, especially where
working conditions were arduous. Slavery was the pre-eminent form of compulsory labour service, and
slavery died away only relatively slowly from Brazil. The net effect of all this was that many exportoriented primary producing industries in Latin America were short of labour through much of the later
19th century. In other words, given more plentiful and mobile supplies of land labour and capital, the
export economies of Latin America would have grown faster than they did and might have provided a
more favourable foundation for faster economic growth and more substantial modernisation than
actually occurred, even in the relatively prosperous period before 1913.
The other, equally significant dimension of the problem facing the Latin American economy
in the years to 1913 was the difficulty in transforming the non-export side of the Latin American
economy. The classic pattern is for the relatively less developed economy to be partially overwhelmed
by imports from a more advanced neighbour, or equally to send exports to a more distant and more
advanced complementary economy, and then to use those proceeds to finance more advanced imports.
By these events, the domestic economy of the less developed country – and at this time the domestic
economy would consist mainly of handicrafts, like spinning and weaving, or production of agricultural
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products for domestic consumption – will be in some difficulty. The problem is to transform it and to
make it competitive in the face of these new imports, and that process usually involves investment and
some sort of technological adjustment or transformation. The classical example is the European
industrial revolution. It was stimulated by a flood of cheap British cotton textile exports from Britain.
Initially, continental industry was turned completely upside down by this influx. But those sections of
textiles or handicraft metal-working that managed to withstand the initial influx quickly transformed
their operations by using British methods, British capital and British skilled labour. At the same time
the agriculture of France, the Low Countries and the German states was transformed to earn export
revenues to pay for British cotton textile imports. The essence of the story is that modernisation spreads
out from the foreign trade sector into much of the rest of the economy. In the European case, this
process tended to take place without the positive assistance of governments, but rather as a result of
market pressures and stimuli. Why did similar patterns not reveal themselves in 19 th century Latin
America?
There were two main non-export sectors in the 19th century Latin American economy. The
first was what might be called ‘domestic’ agriculture and the second handicraft manufacturing, in other
words almost identical to the situation in Europe on the eve of its industrial revolution. If, for example,
the building of transport networks to service the export economy had also significantly widened the
market for domestic agriculture by reducing transport costs; it is very likely that domestic agriculture
would have been transformed. By and large, this transformation did not occur. Many Latin American
economies were not only big exporters of agricultural products for export but were also significant
importers of foodstuffs. The reasons why the agriculture of Latin America failed to respond to this
situation more positively are complex, and Bulmer-Thomas has not yet given a very persuasive answer.
At one level, the export-oriented agriculture created problems because it absorbed the best land and
drove that part of agriculture producing food for the domestic market into more marginal lands in some
of the republics. The further this sort of agriculture was pushed into the margins the more remote it was
from its potentially transforming markets. The general shortage of capital was also a great problem, as
was the cheapness of labour. The main point to emerge from Bulmer-Thomas’s account is that the
system of land tenure in Latin America, which has figured so prominently in the accounts of the
dependency school, seems to have relatively little impact. It is not really very realistic to compare the
agriculture of Europe on the eve of its industrial revolution with that of Latin America in 1900. In
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Europe agriculture had absorbed about 40% of the total population; in Latin America about 70%. This
difference implies a very significant difference in average productivity in the two areas. In Europe,
there was already a complex market system and reasonable infrastructure to foster commercial relations
in agriculture and production for towns and for cash. In Latin America, agriculture was essentially
providing subsistence for a poor rural population, kept poor by the comparative lack of infrastructural
and institutional development.
Almost exactly the same general framework of comparison will explain the failure of Latin
American handicraft industry to transform and modernise itself in the face of competition from US and
European manufactures. There were few major centres of urban population in Latin America outside a
handful of major cities, Rio, Sao Paulo, Montevideo, Lima and Buenos Aires to constitute a market
into which modernised Latin American manufacturing could sell. Power supplies were too unreliable to
build modern factories. Transport networks were so underdeveloped that transport costs were
potentially crippling. Three were very few modern factories in the whole of Latin America, and those
that did exist were by and large either at the coast to process primary products destined for exports or
servicing the handful of main markets. European handicraft industry had become quite sophisticated in
its organisation and control by the system usually called proto-industrialisation. It was not impossible
for such a system to produce an organised and strategic response to imports from a more modern
producer. Proto-industry had not reached Latin America, in large part because the low productivity in
Latin American agriculture left the market relatively small.
Does all this provide an alternative to the dependency analysis, or is it merely a more
sophisticated picture of the economics of Latin America before 1913 but which do not challenge the
fundamental belief of the dependency school that the colonial inheritance left Latin America incapable
of modernisation? The emphasis on the failure of export-oriented agriculture to develop sufficiently
and of the non-export sector of Latin American economies to transform themselves does rely heavily
on the unequal distribution of income flowing from colonially-based land-ownership patterns. There is
no doubt that the Latin American elite did use capital imports to extend their own interests, even if the
relationship between London and Buenos Aires, say, was far more fraught than the dependency school
allows. However, the destructive blows against dependency analysis seem to me to reside in the
problems of finding evidence for the Singer-Prebisch hypothesis before 1913 and the demonstration
that the Latin American economy was short of much more simply than capital. Given that multiple
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deficiency of factors of production and the knowledge that without the benefits that flowed from the
system of multilateral trade before 1913 Latin American incomes would have been much lower and the
problems of finding markets for domestic agriculture and industry would have been even more
entrenched. The dependency analysts have underestimated both the strengths and the weaknesses of the
Latin American economy of 1850-1913.
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