Institutions and Investment: The Political Basis of Industrialization in Mexico Before 1911 (review)

This important new monograph in Stanford's outstanding Social Science History series analyzes the precocious development of deliberate policies to foster import-substituting industrialization (ISI) in Mexico. Beatty shows that in the 1890s the government of Porfirio Díaz consciously manipulated tariff policies to protect and foster Mexican industry, reformed patent laws in an effort to promote the transfer of useful technologies to Mexico, and adopted a menu of tax exemptions and other aid to help new industries. Porfirian industrialization accelerated, Beatty argues, not as a mere side effect of successful export-led growth but as a consequence of active government intervention.

The first chapter introduces the analytical focus that structures the book's main arguments. Chapter 2 provides an overview of the institutional and policy reforms that shaped Mexico's economic growth from the 1870s to the Revolution of 1910. Beatty emphasizes the differences between the recovery and growth of "traditional" economic activities (silver mining, agriculture) from 1867 to 1890 and the development of a "host of new enterprises" (p. 32), including new industries as well as exports between 1890 and 1910. He argues that political stability and lower transport costs drove economic growth in the first period. In 1890s, however, the Mexican economy began to benefit from the institutional and legal reforms adopted in the 1880s while the government adopted a set of coherent trade, patent, and tax policies (of varying effectiveness) that worked to channel investment toward industrial projects up to and beyond 1910.

Most of the book is thus devoted to analyzing the tariff, patent, and tax policies of the Díaz regime from roughly 1890 to 1910. Chapter 3 analyzes tariff and exchange rate policies. Mexico's silver-based currency suffered a 50 percent devaluation from the 1890s to the adoption of the gold standard in the Monetary Reform of 1905. As the price of silver and the Mexican peso fell, the peso price of imported products rose steadily, providing extra protection for Mexican producers. Brady shows how the silver decline allowed the government to reduce ad valorem tariff rates without reducing protection. He also analyzes the level of effective protection (a measure that looks at tariffs on an industry's inputs as well as competing goods) for a sample of manufactured products in 1890 and 1905 with similar results. "On average," he shows, "Mexican industries could charge prices for their finished products nearly 70 percent above the prices of foreign imports" (p. 79). Beatty refrains from endorsing Porfirian protectionism, noting that while it served to stimulate investment in industry, it may have done so at the expense of long-term productivity advances and faster growth.

Beatty's treatment of patent law reform (chapters 4 and 5) provides an excellent overview of patent legislation and its impact in the nineteenth century. It reaches conclusions, however, that depart from standard accounts and from Beatty's earlier views as well. The issue he raises is whether Mexico should have embraced an international patent regime that protected the rights of foreign patentees even when they failed to put their technology to productive use within the country or exacted monopoly rents that made the technology more costly in Mexico. Porfirian policymakers believed that this protection provided vital incentives; without them, foreign technology would not have come to Mexico. By contrast, Beatty argues that in a (counterfactual) world without such protections, which Mexico adopted only in 1890, technology would still have flowed to Mexico. He shows that the new law did not inspire a wave of patenting and new technology transfers, which would have occurred if the prior lack of protection had actually discouraged such activity. Beatty argues that the new patent legislation tended to discourage invention in Mexico and retard the diffusion of new technologies in the country.

The "new industries" program launched by legislation...