The Politics of Property Rights: Political Instability, Credible Commitments, and Economic Growth in Mexico, 1876-1929 (review)

This volume addresses an important question: Why, given the political instability in Mexico during the years in question, and particularly during the revolutionary decade 1910–1920, did certain key sectors of the economy continue to grow and attract foreign investment? The authors' focus is on the issue of property rights, which would have seemed to be imperiled by the political climate. Unfortunately, as they move across sectors, their answers are not uniformly successful. At times, their analyses seem idiosyncratic. Consider their discussions of the petroleum industry and of mining.

In the successful chapter on mining, the authors point out that in the prerevolutionary period, mining interests had been able to persuade the government of Porfirio Díaz to amend the legal codes in ways that favored them. They correct the impression that these codes provided fee-simple subsoil rights; rather, rights to a claim could be re-taken by the government and reassigned to another miner without compensation if it were not worked. However, with the exception of petroleum, water, and materials suitable for building, the Mexican government became the residual claimant to the subsoil, which, in effect, gave miners the rights to access minerals through expropriation of surface owners. Furthermore, they not only gained rights to prospect and mine but also to establish rights of way through adjoining properties. Despite attempts by the Díaz government to require American companies to incorporate as Mexican companies, and the later implementation of such policies, the skill and capital requirements for successful exploitation of these resources simply did not exist in Mexico. Continued exploration and operation required the involvement of foreign interests, and investment persisted when prices of metals were favorable because the companies believed that they could mitigate any government efforts to limit their property rights.

The authors' discussion of petroleum is less successful. They argue that revolutionary and postrevolutionary attempts to secure additional revenues and controls over foreign oil companies were insignificant in the decline of investments during the 1920s and that the real (to them, the only) factor leading to this drop was geological (192). Although geological factors were not unimportant, oil production and investment stayed high through the revolution and during the early 1920s so long as the Mexican government was perceived as too economically weak to do without oil revenue, too politically unstable to withstand outside pressures, and too lacking in capital and know-how to produce the oil themselves. Only when the Mexican government began to make clear that new arrangements would not be beneficial to the companies, and other opportunities opened elsewhere, did investment decline. The authors' own tables show that the fixed assets of the major foreign oil companies in Mexico began to decline c. 1925 and 1926, just as the Mexican government's new resolve, along with its greater stability and control, made it less likely that the companies could expect its extraordinarily favorable circumstances to continue.

In fact, during the revolution, the enormous value of the Mexican oil resources, discovered at a time when petroleum demand was high, and the convenient geographical location of Mexican oil fields on the Gulf Coast made export easy regardless of the violence throughout the country. At the same time, the various Mexican factions had little ability to enforce any limits on the companies. Political stability, when it came, led to significantly less maneuvering room for the companies, which had been looking for resources in a better political climate for some time. But, as the authors show, exploration continued for a while longer. Oilmen still might have hoped for large strikes to change the stakes and alter the political situation.

Although the authors' data do not...