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Inequality, Institutions and Economic Growth in Latin America*

  • JOHN H. COATSWORTH (a1)
Abstract

This essay examines three recent historical approaches to the political economy of Latin America's relative economic backwardness. All three locate the origins of contemporary underdevelopment in defective colonial institutions linked to inequality. The contrasting view offered here affirms the significance of institutional constraints, but argues that they did not arise from colonial inequalities, but from the adaptation of Iberian practices to the American colonies under conditions of imperial weakness. Colonial inequality varied across the Americas; while it was not correlated with colonial economic performance, it mattered because it determined the extent of elite resistance to institutional modernisation after independence. The onset of economic growth in the mid to late nineteenth century brought economic elites to political power, but excluding majorities as inequality increased restrained the region's twentieth-century growth rates and prevented convergence.

Este ensayo examina tres enfoques históricos recientes en relación a la economía política de la relativamente atrasada economía de Latinoamérica. Los tres ubican los orígenes del actual subdesarrollo en instituciones coloniales defectuosas vinculadas a la desigualdad. La visión contrastante que se ofrece aquí señala el significado de las trabas institucionales, pero afirma que éstas no provienen de las desigualdades coloniales, sino que de la adaptación de prácticas ibéricas a las colonias americanas en condiciones de debilidad imperial. La desigualdad colonial varió a lo largo del continente y aunque no tenía correlación con el desempeño económico colonial, es importante porque determinó el grado de resistencia de las elites a la modernización institucional tras la independencia. El surgimiento de un crecimiento económico de mediados a finales del siglo XIX llevó a las elites económicas al poder político. Sin embargo, la exclusión de las mayorías mientras se incrementaba la desigualdad limitó las tasas de crecimiento de la región en el siglo XX y evitó una convergencia de proyectos.

Este ensaio examina três abordagens históricas recentes que tratam do relativo atraso da economia política da América Latina. Todas as três localizam as origens do sub-desenvolvimento contemporâneo nas instituições coloniais ligadas à desigualdade. A perspectiva contrastante fornecida aqui afirma a importância de restrições institucionais, porém argumenta que elas não surgiram à partir de desigualdades coloniais, mas da adaptação de práticas ibéricas às colônias americanas sob condições de fraqueza imperial. A desigualdade colonial variou pelas américas; mesmo ela não sendo correlacionada ao desempenho econômico colonial, isso foi importante, pois determinava a extensão da resistência das elites à modernização instituicional após a independência. O início do crescimento econômico do meio ao fim do século XIX levou as elites ao poder político, contudo a exclusão das maiorias à medida que a desigualdade aumentava restringiu as taxas de crescimento da região no século XX, impedindo a convergência dos projetos.

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1 Charles Tilly, Big Structures, Large Processes and Huge Comparisons (London 1984).

2 Note that most of the vast territories claimed by Spain and Portugal actually remained outside their control and isolated from direct contact with Europeans or their markets.

3 Until 1776 the Peruvian viceroyalty included Upper Peru, today's Bolivia, but it then became part of the new Viceroyalty of La Plata, with its capital in Buenos Aires.

4 Massimo Livi-Bacci, ‘The Depopulation of Hispanic America after the Conquest’, Population and Development Review, vol. 32, no. 2 (2006), pp. 199–232.

5 Herbert Klein and John TePaske, ‘The Seventeenth-Century Crisis In New Spain: Myth or Reality’, Past and Present, no. 90 (1981), pp. 116–36.

6 John H. Coatsworth, ‘The Decline of the Mexican Economy, 1800–1860’, in Reinhard Liehr (ed.), La formación de las economías latinoamericanas y los intereses económicos europeos en la época de Simón Bolívar (Berlin 1989), pp. 27–53.

7 David Eltis, ‘The Total Product of Barbados, 1664–1701’, Journal of Economic History, vol. 55, no. 2 (1995), pp. 321–38.

8 John H. Coatsworth, ‘Economic and Institutional Trajectories in Nineteenth-Century Latin America’, in John H. Coatsworth and Alan M. Taylor (eds.), Latin America and the World Economy since 1800 (Cambridge, Mass., 1998), pp. 23–54.

9 Clark S. Larson (ed.), Bioarchaeology of Spanish Florida: The Impact of Colonialism (Gainesville 2001).

10 Richard, Steckel and Joseph, Prince, ‘Tallest in the World: Native Americans of the Great Plains in the Nineteenth Century’, American Economic Review, vol. 91, no. 1 (2001), pp. 287–94.

11 This is not, of course, to deny the immense human cost, nor to exclude the possibility of comparable success by advanced indigenous societies had the Europeans not come or failed to conquer.

12 But see Ward J. Barrett, The Sugar Hacienda of the Marqueses del Valle (Minneapolis, 1970) on the significance of ‘sub-innovation’.

13 Coatsworth, ‘Economic and Institutional Trajectories’; Eltis, ‘The Total Product of Barbados’.

14 Imperial efforts to modernise economic organisation in the late eighteenth century may have augmented economic growth, but served mainly to redistribute the burdens of colonial rule. The subsidy of mercury by the Crown helped eighteenth-century silver mining in Mexico: Rafael Dobado and Gustavo A. Marrero, ‘Mining-Led Growth in Bourbon Mexico, the Role of the State, and the Economic Cost of Independence’ (Cambridge, Mass., David Rockefeller Center for Latin American Studies, Working Paper 2006–07, No. 1, 2006). It has also been argued persuasively that other colonial policies added to modest Mexican growth, even if different policies might have added much more: see Leandro Prados de la Escosura, ‘The Economic Consequences of Independence in Latin America’, in Victor Bulmer-Thomas et al. (eds.), Cambridge Economic History of Latin America (Cambridge 2006), vol. 1, pp. 463–504.

15 Douglass C. North and Robert Paul Thomas, The Rise of the Western World: A New Economic History (Cambridge 1973).

16 Angus Maddison, The World Economy: Historical Statistics (Paris 2003), pp. 142–4.

17 Though Leandro Prados de la Escosura, among others, does not think this a useful comparison: see his paper, ‘The Economic Consequences of Independence’. If Latin America is compared to western Europe as a whole (rather than Great Britain, the leading European economy until the late twentieth century), the performance of the Latin America economies looks relatively less anaemic. Prados argues that the European average should be taken as a better gauge of the potential for growth of the Latin American economies in the nineteenth century, but offers no evidence other than the comparison itself for this assumption. Since both Latin America and the laggard economies of western Europe did manage to achieve rates of growth comparable to the United States eventually, it seems to make more sense to use the United States as a yardstick for the growth potential of both.

18 Stanley L. Engerman and Kenneth L. Sokoloff, ‘Factor Endowments, Institutions, and Differential Paths of Growth Among New World Economies: A View from Economic Historians of the United States’, in Stephen Haber (ed.), How Latin America Fell Behind: Essays on the Economic History of Brazil and Mexico, 1800–1914 (Stanford 1997), pp. 260–304.

19 Daron Acemoglu, Simon Johnson and James A. Robinson, ‘The Colonial Origins of Comparative Development: An Empirical Investigation’, American Economic Review, vol. 91, no. 5 (2001), pp. 1369–401; Acemoglu, Johnson and Robinson, ‘Reversal of Fortune: Geography and Institutions in the Making of the Modern World Income Distribution’, Quarterly Journal of Economics, vol. 117, no. 4 (2002), pp. 1231–94.

20 Matthew Lange, James Mahoney and Matthias vom Hau, ‘Colonialism and Development: A Comparative Analysis of Spanish and British Colonies’, American Journal of Sociology, vol. 111, no. 5 (2006), pp. 1412–62; emphasis in the original.

21 Engerman and Sokoloff, ‘Factor Endowments’, p. 275.

22 Lyman, L. Johnson and Zephyr, Frank, ‘Cities and Wealth in the South Atlantic: Buenos Aires and Rio de Janeiro before 1860’, Comparative Studies in Society and History, vol. 48, no. 3 (2006), pp. 666.

23 Robert William Fogel, ‘Egalitarianism: The Economic Revolution of the Twentieth Century’ (unpublished manuscript, 1993), p. 29.

24 Moramay López Alonso, ‘An Anthropometric Approach to the Measurement of Living Standards, Mexico (1870–1950)’ (manuscript, 2000), and ‘Growth with Inequality: Living Standards in Mexico, 1850–1950’, Journal of Latin American Studies, vol. 39, no. 1 (2007), pp. 81–105; Adolfo Meisel and Margarita Vega, ‘A Tropical Success Story: A Century of Improvements in the Biological Standard of Living: Colombia, 1910–2002’ (Banco de la República: Centro de Estudios Económicos Regionales, working paper, 2004), and ‘The Stature of the Colombian Elite before the Onset of Industrialization, 1870–1919’ (Banco de la República: Centro de Estudios Económicos Regionales, working paper, 2005); Zephyr, Frank, ‘Stature in Nineteenth-Century Rio de Janeiro: Preliminary Evidence from Prison Records’, Revista de Historia Económica, vol. 24, no. 3 (2006), pp. 465–89.

25 Acemoglu et al., ‘Reversal of Fortune’, p. 13.

26 Nils Jacobsen, Mirages of Transition: The Peruvian Altiplano, 1780–1930 (Berkeley 1993).

27 On Mexico, see Eric, Van Young, ‘Mexican Rural History since Chevalier: The Historiography of the Colonial Hacienda’, Latin American Research Review, vol. 18, no. 3 (1983), pp. 561.

28 David A. Brading, Miners and Merchants in Bourbon Mexico 1763–1810 (Cambridge 1971).

29 Jeffrey G. Williamson, ‘De-Industrialization and Underdevelopment: A Comparative Assessment Around the Periphery 1750–1939’ (manuscript, 2004).

30 It is a separate question whether Latin America could have succeeded by working to increase the exports that Europe was demanding. Argentina did well doing so despite (or because of) weak government.

31 John H. Coatsworth and Gabriel Tortella, ‘Institutions and Long-Run Economic Performance in Mexico and Spain, 1800–2000’ (Harvard University, David Rockefeller Center for Latin American Studies, Working Papers on Latin America, no. 02/03-1, 2002).

32 These authors argue that ‘mercantilist’ institutions in the colonies, such as merchant guilds (consulados), the lack of competition in the Peruvian mining industry, and public monopolies in Ecuadorian wool production inhibited capitalist development, even after the Bourbon reforms began to open up colonial economies from the 1760s. Neither in these cases nor in others that the authors cite, however, was productivity blocked by lack of market competition. External trade increased after the Bourbon ‘free trade’ decrees opened participation to merchants and traders who were not consulado members (though cause and effect is not so easy to prove as simultaneity); the Peruvian mining industry collapsed not because of excessive competition but because ore quality declined and the smelters ran out of tailings to process; and woollen production collapsed in many areas because fully taxed English cottons imported legally via Cadiz in ships sailing under the Spanish flag were cheaper and better.

33 John H. Coatsworth, ‘La independencia latinoamericana: hipótesis sobre los costos y beneficios’, in Leandro Prados de la Escosura and Samuel Amaral (eds.), La independencia americana: consecuencias económicas (Madrid 1993), pp. 17–27.

34 Ricardo D. Salvatore and Carlos Newland, ‘Between Independence and the Golden Age: The Early Argentine Economy’, in Gerardo della Paolera and Alan M. Taylor (eds.), A New Economic History of Argentina (Cambridge 2003), pp. 19–45; James Mahoney, The Legacies of Liberalism: Path Dependence and Political Regimes in Central America (Baltimore 2001).

35 See, for example, Victor Bulmer-Thomas, The Economic History of Latin America since Independence (2nd edition, Cambridge 2003), pp. 57–72.

36 Williamson, ‘De-Industrialization’.

37 Adam Przeworski and Carolina Curvale, ‘Does Politics Explain the Gap between the United States and Latin America?’ (manuscript, 2005); Douglass North, William J. Summerhill and Barry Weingast, ‘Order, Disorder, and Economic Change: Latin America vs. North America’, in Bruce Bueno de Mesquita and Hilton Root (eds.), Governing for Prosperity (New Haven 2000).

38 Stephen Haber, Armando Razo and Noel Maurer, The Politics of Property Rights: Political Instability, Credible Commitments, and Economic Growth in Mexico, 1876–1929 (Cambridge 2003).

39 Thomas, P. Passananti, ‘“¡Nada de Papeluchos!” Managing Globalization in Early Porfirian Mexico’, Latin American Research Review, vol. 42, no. 3 (101–28.

40 John, H. Coatsworth, ‘Railroads, Landholding and Agrarian Protest in the Early Porfiriato’, Hispanic American Historical Review, vol. 54, no. 1 (1974), pp. 4871.

41 Jeffrey, G. Williamson, ‘Real Wages, Inequality and Globalization in Latin America before 1940’, Revista de Historia Económica, vol. 17, no. 1 (1999), pp. 101–42.

42 Noel, Maurer and Andrei, Gomberg, ‘When the State Is Untrustworthy: Public Finance and Private Banking in Porfirian Mexico’, Journal of Economic History, vol. 64, no. 4 (2004), pp. 1087–107.

43 See the critique in the introduction to David Collier (ed.), The New Authoritarianism in Latin America (Princeton 1979).

* This paper was originally presented as the John Brooks Memorial Lecture at the Institute for the Study of the Americas, University of London, in December 2006.

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Journal of Latin American Studies
  • ISSN: 0022-216X
  • EISSN: 1469-767X
  • URL: /core/journals/journal-of-latin-american-studies
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