Efforts to extract wealth from the subsoil began with the earliest colonization of Brazil by Portugal, but they achieved success only in the middle of the twentieth century, with the massive exploitation of iron ore. As entrepreneurs experimented with a range of approaches, they faced shifting definitions of ‘success’. Finally emerging as a mineral producer required significant transformation in Brazilian economic governance. Leveraging extremely rich iron ore deposits into wider economic benefit had unexpected and fundamentally important impact on the Brazilian economy. Mineral extraction is a relatively neglected area of historiography, despite its centrality in production and in the institutions of political economy. Scholarship by Gavin Wright demonstrates the very tight connection between industrialization and mineral endowment in the US. This book, using different methods, a longer time frame and a focus on political economic institutions, examines this connection as it unfolded in Brazil. The book places iron ore mining at the centre of the story, because iron ore is the mineral that brought success. This chapter offers the relevant historical background. In focusing on the general features of Brazilian political and economic structures that have been relevant to the institutional developments necessary for iron ore mining and metallurgy, the chapter gives short shrift to the broader range of individuals, conflict, contention, nuance and non-linearity of Brazilian history.

The newly accumulated empirical data for this book come from a wide variety of sources. The sources and treatment for these variables merit detailed explanation.

Laws and Decrees

In commemoration of its fiftieth anniversary (1992), the Companhia Vale do Rio Doce commissioned a five-volume history of mining in Brazil. The Coletânea da Legislação, from this collection, offers identifying information and the ementa (brief abstract) of federal legislation affecting mining. This publication has served to identify national-level legislation from 1891 to 1946. When consulting the full text of legislation, I have relied on the official Brazilian government website. Accumulating the appropriate legislation from the pre-Republican era and for the state of Minas Gerais required other sources. The comprehensive guide to the legislation of imperial Brazil provided the finding aid to identify legislation by its subject. The official website provides identifying data, ementa and when necessary the text of the legislation. For the legislation from Minas Gerais (Chapter 4 and Appendix Table A.1B), I have relied on the indexation that the library of the state assembly is compiling (as of 2007, which they kindly shared with me). Laws passed but not enabled through subsequent legislation are not included. (However, Appendix Table A.1A, with the most important legislation that fundamentally shaped mining, identifies important laws that were passed, but did not take effect.) I have also excluded legislation that re-authorized, without change, existing provisions.

In the middle of the twentieth century, increasingly influential political and business interest groups invoked long-entrenched traditional practices in order to pursue dynamic industrial policies. This chapter explores the formation of a state-owned enterprise (SOE) for iron ore mining in the context of coordinating complex institutional and material requirements. The Brazilian government reverted to earlier property definitions that established its sovereignty over the subsoil and mineral resources, and it used the global strategic circumstances of World War II to great advantage. As a result, the state promoted large-scale industrial development in the twentieth century by consolidating a strong entrepreneurial role for itself within the productive sectors of the economy. Much historiography addresses the early formation of the capital-goods industries. The National Steel Company (Companhia Siderúrgica Nacional, CSN) was the lynchpin of that effort. The iron ore story is less well known; but its institutional implications were as profound as the efforts to produce steel. The transformation of the British-owned Itabira Iron Ore Company into Companhia Vale do Rio Doce (Vale), an SOE, demonstrates the expansion of the concept of the public domain that was crucial to institution-building of the period.

Defining the domestic iron ore mining and steel manufacture as strategic industries hinged on the large important externalities of enhancing both national military security and rapid, broad-based industrialization.

Outlining the pertinent trajectory, characteristics and debates of subsoil property law throughout Brazilian history since European colonization is the purpose of this chapter. It considers intersections of the subsoil with other forms of property, with legal regulation and with political-economic ideology. Brazilian policymakers have continually faced the challenge of balancing ideological commitments to legal theory with the more pragmatic concerns of economic development. In the middle of the twentieth century, the state reintroduced principles of mineral law that originated from early colonial rule, but vastly transformed their scope and intent in order to accommodate the exigencies of modern economic and political reality. By doing so, the format of legal theory had proven sufficiently flexible to allow the predominance of economic goals over ideological commitments.

From the beginning of Portuguese rule, Roman law has formed the basis of the Brazilian legal system. Codification is one of the underpinnings of Roman law, rather than the accumulated and evolutionary fluidity of common law. The efficacy of Roman (or Napoleonic) legal systems for economic development is subject to debate. However, a codified legal system has the advantage for analysis of strictly delineating law, rather than relying on interpretations of ‘custom’. Codified law is important for three reasons. First, the legal system is an important institution that provides for the regulation of other institutions.

During the second half of the twentieth century, the industrial base of the Brazilian economy both deepened and broadened. At the same time, the nation's presence in the global trade of commodities and manufactured goods took on new dimensions, and economic governance evolved to promote industrial growth. This book has demonstrated both the interrelationships of these three developments and the very long-term trajectory that culminated in these outcomes. Minerals, more specifically iron ore, have been an ever-present nexus throughout the history. Furthermore, the impact of iron ore development has extended into a wide venue of activities.

Understanding how Brazil initiated the path by which it emerged as one of the world's major producers of iron ore supports two fundamental conclusions. First, in the case of minerals – with high risk, long time-horizons, asymmetric information, capital intensity and large but subtle externalities – development efforts required the confluence of circumstances and the shifting weight of important interest groups. Successfully mediating these complications required centuries, important shifts of economic and political structure, and new arrangements with respect to the institutions of property, capital markets and economic governance. Secondly, a substantial expansion in the economic role of the state conciliated new with entrenched interests. The process of reaching these conclusions complicates the understanding of institutional change, emphasizing interactions among a variety of institutions and between resources and institutions.

This book is about attempts in Brazil to use its endowment of minerals as a tool for creating wealth and the evolution of the economic role of the Brazilian state. These topics are surprisingly intertwined. The focus is on political economy, rather than the extraction of minerals from the ground, because political economy impeded extraction. Substantive change in the political-economic institutions related to mineral extraction initiated Brazil's emergence as an industrial economy and as a global powerhouse in supplying iron ore in the second half of the twentieth century. These outcomes occurred nearly four and a half centuries after the first attempts of Europeans to realize wealth from the land's minerals. As one result of this process, the Brazilian state became the nation's largest industrial producer and commercial agent, as well as one of the world's prime examples of state-capitalism.

The questions framing this study are: How did political-economic institutions shape efforts to exploit mineral resources within Brazil, and reciprocally, how did these efforts shape political-economic institutions? The interactions between the rules and practices governing property, business enterprise, capital markets and the state reveal themselves to be as important to mineral development as the structure of the individual institutions and as important as the presence of minerals.

This chapter explores two distinct efforts to develop mining from the end of the eighteenth century and through the nineteenth century. Prior to the onset of industrialization, miners concentrated on the search for gold and precious stones. Nevertheless, provisioning plantations and mines with expensive and scarce iron tools was one of the enduring bottlenecks of the colonial period. Iron ore, forged into implements and machinery, was essential to support the perceived sources of Brazilian wealth: gold, precious stones and sugar. In the twenty-five years prior to independence, the Portuguese Crown attempted to implement Brazil's first industrial policy in order to advance iron mining and forging. This proto-import-substituting-industrialization policy aimed to produce domestically the tools and machinery needed for precious mineral mining and sugar production.

With the return of the Portuguese Crown to Lisbon in 1821, this strategy was abandoned in favour of creating attractive conditions for foreign miners to invest their capital and technology in the search for precious minerals. In response, the St John d'el Rey Mining Company formed in London for the purpose of mining for gold in Minas Gerais. The company's charter dates to 1830, and its mine in Sabará opened in 1834. The unique experience and archival records of this company provide a valuable window into the conflicts and constraints that private enterprise faced in Brazilian mining.