- "It's Not Personal. . . It's Strictly Business": The Operation of Economic Enterprise in Mexico, during the Nineteenth and Twentieth Centuries
- Latin American Research Review
- Latin American Studies Association
- Volume 40, Number 3, 2005
- pp. 335-345
- View Citation
- Additional Information
Latin American Research Review 40.3 (2005) 335-345
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"It's Not Personal . . . It's Strictly Business"1
The Operation of Economic Enterprise in Mexico during the Nineteenth and Twentieth Centuries
E. Alexander Powell in 1910 summed up the feelings of many foreigners who conducted business in Mexico during the regime of Porfirio Díaz:
All the great financial deals in which the government is interested pass through their [científicos] hands and are molded by them. . . . Among them [científicos] numbered the presidents of the leading banks of the republic and the foremost corporation lawyers; between them they control the national finances and the avenues of trade. . . ."2
This tight-knit inner circle that greatly influenced the dictator comprised José Yves Limantour (the group's leader), Ramón Corral, Enrique C. Creel, Guillermo Landa y Escandón, Joaquín Casasús, Fernando [End Page 335] Pimentel y Fagoaga, Pablo Macedo, Rosendo Piñeda, and Hugo Scherer. Powell pointed particular venom at the Compañía Bancaria de Obras y Bienes Raíces, the Bancaria, which he called "a very convenient cloak for the grafters."3 Until recently, the general historiography has not only concurred with this assessment, but it has extended the interpretation to the revolutionary and post-revolutionary period (1910–1940).4
The three studies under review go a long way towards correcting the historical stereotype of Mexican enterprise as corrupt and inefficient, operating through personal relations rather than through the functions of bureaucracy and marketplace. Together they mark a breakthrough by applying social science theory and methods to history. They provide an enormous amount of data on many sectors of the Mexican economy during both the era of Porfirio Díaz and the Revolution. This essay, however, will focus on the four authors' explorations of the political economy of the period, especially their concepts of "credible commitment" and "vertical political integration" (VPI).
Stephen Haber, Noel Maurer, and Armando Razo in their provocative The Politics of Property Rights set out to explain that political instability did not cause economic stagnation in Mexico. Both theoretical and common sense understandings of political economy (the two not being necessarily the same) would imply that political instability would adversely affect economic growth. The empirical data, however, do not support this hypothesis. Haber, Razo, and Maurer discover that a paradox lies in the so-called "commitment problem":
any government strong enough to define and arbitrate property rights is also strong enough to abrogate them for its own benefit. Unless the government can give the population strong reason to believe that it will not act in its own short-run interest (by seizing property or taxing away all of the income it produces), the population will not invest.
As such, no investment results in limited economic activity and insufficient tax revenues for the government. The government, it follows, must limit its actions in order to assure its own long-term survival. The solution to this dilemma, according to Haber, Razo, and Maurer, lies in the fact that investors care above all for the sanctity of their property rights. They do not require that government protect property rights as a public good. Based on this, the Porfirian government was able to set up [End Page 336] mechanisms for credible commitments to selected...