The Mexican Economy, 1870-1930: Essays on the Economic History of Institutions, Revolution, and Growth (review)

The conventional wisdom of economic development in Mexico holds that after decades of economic stagnation and political instability during the Porfiriato, the economy experienced a surge in growth that accelerated in the 1890s and 1900s. Railroad construction, foreign investment, and a growing demand for primary products in the North Atlantic economies have been singled out as key factors in the economic expansion of the Porfiriato. But lack of attention to institutional change has impeded our understanding of the resulting industrial and financial structure, the embedded limits to economic expansion, and the role of economic policy in accelerating or retarding growth. Furthermore, while most analyses of the Mexican Revolution focus on the political gains of the contending parties, few studies have examined the economic dimension of the institutional changes brought about by the revolution.

In The Mexican Economy, 1870-1930, historians and economists reinterpret this crucial period of Mexican history through the lens of institutional change. The editors' introduction and Haber's concluding chapter draw together the advances made by each chapter and outline a research agenda. Each of the eight essays offer an innovative and original account on how institutional change affected the actions of economic agents and created a peculiar long-run growth pattern. The interaction of financiers, industrialists, and workers with governmental policies shaped the pace of economic change between 1870 and 1930.

Four of the essays focus on the financial sector. Did bank credit efficiently finance manufactures? According to Steve Haber and Noel Maurer, the highly concentrated structure of the banking sector and the formation of limited-liability joint stock companies created an inefficient allocation of credit in the textile sector. By rewarding insiders, and not winners, bank credit lowered the rate of growth in the textile sector and perpetuated its concentrated industrial structure. Similarly, Paolo Riguzzi argues that mortgage banks were inadequate in financing haciendas and ranches; the long-term credit market still depended on private lenders and ill-defined operations with banks of issue. Despite legal changes that reduced the risks of mortgage contracts, the primary concern of the Banco Hipotecario was the preservation of its monopoly while channeling funds to the federal government. Competitors' challenges to this monopoly eventually enabled long-term credit to grow, but the lack of specialized long-term credit banks retarded economic growth in the rural sector during the late Porfiriato.

Did competitive structures in the financial sector attract capital and support waves of economic expansion? Noel Maurer demonstrates that competition was severely restricted by the privileges conferred to Banamex, which consistently appropriated monopolistic rents. He further argues that Banamex fully exploited these rents without performing the "central bank" role that contemporaries and historians have attributed it. In contrast, Marichal contends that the success of the foreign-debt renegotiations of the 1880s depended more on Banamex's intervention as "unofficial government bank" than on budgetary policies or fiscal reforms pursued by the government. Because it combined domestic and foreign interests, Banamex was instrumental in ending the long record of default and mistrust.

Was there a deliberate policy of industrial promotion in Porfirian Mexico? Sandra Kuntz argues that industrial promotion took place in a context of trade liberalization and customs deregulation. Despite declining levels of tariff protection, Porfirian authorities designed policies conducive to import substitution. Beatty finds that the structure of protection was consistent with policies aimed at promoting investment in manufacturing activities. Institutional change in tariff and nontariff barriers induced industrial growth, but it did not transform the industrial sector into an engine of growth.

Did changes in labor laws promote economic growth? Jeffrey Bortz shows that labor laws after 1910 undermined the right of owners over fundamental issues of factory life. Through collective contracts, unions acquired...