The Porfirian era, or Porfiriato, spans a 35-year period in Mexican history (1876–1911), dominated by the presidential figure of Porfirio Díaz, and roughly coinciding with what is known as the first ‘modern’ globalisation of the international economy.Footnote 1 As in other Latin American countries, this stage was characterised by a process of trade liberalisation and economic growth. For Mexico, its distinguishing features include its incipient integration into the US market, largely as a result of railway construction, and the fact that it saw the first Latin American social uprising, the Mexican Revolution. The chronological coincidence between the long re-electionist regime of Díaz and the rise in the free movement of capital in the international economy has led to simplistic comparisons based on scant historical evidence.Footnote 2 A succession of political events created the stereotype of the Díaz regime as one of authoritarian modernisation subordinated to the demands of the international division of labour or to imperialism, and the post-revolutionary state sponsored the effective reproduction of such a stereotype. It was a truth that had been proved by the Revolution, and should not be questioned.Footnote 3 For a long time there seemed to be a clear pattern to defining the economic and social structure of Mexico before the Revolution: outward-looking development based on the external sector; the search for foreign capital at any cost; the preference given to the latter over national actors; a monopolistic concentration of investments; foreign debts; and extremely high costs in terms of economic sovereignty. This view of a growth model that was reproduced for over thirty years and cemented by the president's autocratic continuity has persisted in most historical studies from the 1920s and the 1930s until recently. This was due to explanations of the Revolution based on the idea of a ‘pressure cooker’, whereby, between 1880 and 1910, economic and social conditions progressively and systematically deteriorated until, finding no outlet, an explosion eventually occurred. This is not an appropriate means of recording the historical processes and actors involved, nor does it identify the possible ‘economic causes’ of the Mexican Revolution.
The study of the economy of the Porfiriato based on scientific criteria is actually fairly recent.Footnote 4 After the publication of the Historia Moderna de México, coordinated by Daniel Cosío Villegas, on the Porfirian period, several chapters of which were devoted to various aspects of its economy, no new knowledge emerged for a number of years. The political passion for revolutionary phenomena in Latin Americanist historiography tended to reduce over three decades of Mexican history to the condition of a preparatory context for the Revolution. Moreover, the subjection of part of historiography to the state-administered revolutionary heritage led to the caricature of Porfirian economy and society.Footnote 5 This combination of intellectual trends and state interests encouraged the removal of the Mexican case from historical comparison with respect to its political regime, its economic structures, and levels of well-being. What standards should be used to gauge the degree of authoritarianism, the concentration of wealth, and economic performance in pre-Revolutionary Mexico, and to determine whether it was an extreme outlier or in fact shared some of the features and patterns of other countries in the late nineteenth and early twentieth centuries? The issue seemed irrelevant, even if in many parts of the contemporary western world democracy and development were certainly not universal currency.Footnote 6 But the engagement of historians with somewhat tautological issues such as how dependent Porfirian dependency was or how revolutionary the Revolution was took centre stage in the debate.
Since then, a wealth of research and good literature has significantly expanded the knowledge available, opened up new channels of research, and enabled the various results to be systematised.Footnote 7 The purpose of this essay is to describe these advances, discuss the results, and outline some of the elements for a research agenda. To this end it examines four aspects which may be regarded as crucial to an assessment of the political economy of the Porfiriato: economic growth and its dimensions; the state, finance and economic strategies; the construction and functioning of the internal market; and the international economic relations of Mexico during the first period of globalisation.Footnote 8 The purpose is to understand, on the basis of the recent literature, what kind of economic order emerged and where its weakest features lay.
Growth (and Backwardness)
A major obstacle to assessing the growth of the Mexican economy before (and during) the Revolution is the lack of reliable GDP measurements, meaning that there is no general frame that enables one to generalise and compare the experience of the Porfiriato. During the 1960s, analysts at the Bank of Mexico constructed a product series beginning in 1940 and extrapolated backwards from this, publishing their calculations in current and constant pesos. Their figures, for which they hardly provided any explanation, were projected as far back as 1895.Footnote 9 It should be added that these figures in no way constitute a GDP series. However, in a curious cliometric/relativist drift, a growing number of scholars have used them without reservation in order to make calculations and construct arguments about both general and sectoral economic performance, particularly for banking and industry, and also about conjunctures.Footnote 10 This has been done lightly, and it has had unfavourable consequences: it has not contributed to available knowledge and it has masked the urgency of reconstructing historical GDP series, in which Mexico lags behind other Latin American countries.Footnote 11
The lack of aggregate measurements of economic activity means, for example, that there is no overview of the trajectory of the Mexican economy before the Revolution. Did it experience high, destabilising growth due to the speed of its rates or to the concentration of resources and income it caused? Or did it involve rather weak long-term growth, distorted by large flows of foreign investment, or restricted to a few years of expansion (1896–1905) which could not be reproduced? The problem with the common estimate of an average nominal growth rate of 6 per cent during the Porfiriato, which would undeniably put Mexico into the ‘sustained growth’ club, is the reliance on the output performance of the modern manufacturing sector. In spite of its expansion and its greater productivity it still represented a small fraction of the Mexican economy that does not account for an overall trend.Footnote 12
The lack of GDP figures, however, contrasts with the abundance of long series for various sectors of the economy. Together with those reconstructed in Estadísticas económicas del Porfiriato in the 1960s, successive works have reviewed and perfected those for railways (Coatsworth, Kuntz Ficker), industrial production (Haber), and fiscal series on revenue, expenditure and their composition (Carmagnani, Pérez Siller).Footnote 13 The reconstruction of data on prices and salaries lags further behind, reflecting the acute market segmentation of the Porfirian economy, although it has been improved by the construction of a price index for Mexico City which suggests significant differences in relation to previous indices.Footnote 14 The large-scale reconstruction of foreign trade figures (1870–1929) undertaken by Sandra Kuntz Ficker, which is based on the statistics of the countries with which Mexico traded, warrants special mention.Footnote 15
Taken as a whole, these efforts have permitted the compilation of a corpus of data of significant quality and scope, whose use by scholars guarantees high yields. The main disadvantage is the great inaccuracy of data on the volume and monetary value of agricultural production. This statistical flaw, which was in fact of concern to Porfirian officials, has its origins in information costs and the traditional practice of concealment in the Mexican rural world. However, it poses a serious problem for the analysis of an economy in which the majority of the labour force was associated with the primary sector. Coatsworth's 1976 overview of the relationship between staple foodstuffs and population showed that, contrary to the usual argument that commercial crops encroached on food production, per capita food levels were in fact improving. Regrettably, no further development has taken place since then.Footnote 16
At the same time there are incipient studies on measurements of well-being, which will hopefully enable records on human growth to be linked to their quality of life.Footnote 17 However, the impact on living conditions of the huge public works undertaken in urban centres, such as the provision of drainage, drinking water, street lighting and markets, has only barely been explored.Footnote 18
State, Finance, Economic Policy
The very inclusion of a section with this title questions the stereotyped views of Porfirian Mexico as the realm of an extreme version of economic liberalism associated with social Darwinism, in which the only determinants were market movements and forces.Footnote 19 The consolidation of the state, its strengthening and expanding activities, as we shall see later have been the subject of major studies which stress the importance of government in the political economy of pre-revolutionary Mexico. However, in a recent interpretation, Stephen Haber, Armando Razo and Noel Maurer suggest that the Díaz regime was characterised not by laissez faire and market rules, but rather by a politicisation based on an extensive crony system, a network of privileged contracts between the president and selected groups of asset holders. In fact, they consider Porfirian Mexico an ‘archetypal case of a crony system’.Footnote 20 In their model, vertical political integration (VPI), a system that enforced property rights as private goods and blurred the lines between those asset holders and the government, was the governance mechanism used in Porfirian Mexico. They use their VPI model to explain the political stability, economic growth and the high levels of market and resource concentration that occurred during the period, as well as its demise and the subsequent revolutionary cycle.Footnote 21 Their model is powerful, in that it provides a systematic explanation of the link between power and wealth and its effects on growth in both politically stable and unstable regimes.Footnote 22
What this author does not find convincing in this work is the virtual exclusion of the state from the scene, as well as an insensitivity to the dramatic changes in its role: the VPI model ‘takes the state out’, replacing it with coalitions between the dictator and groups of asset holders in order to share rents, in a balance that does not account for historical evolution.Footnote 23 Public finances, Congress, economic policies, and the production of public goods are not included in the analysis. Nevertheless, what we do know points to a significant change in the state's presence and capacities, at least in the context of the nineteenth century. During the five or six decades that followed independence the inability to turn the idea of the Mexican nation into a form of state that would create institutional stability was reflected in the chronic precariousness of public finances and tax collection. A combination of coercive and arbitrary measures (confiscations, forced loans, discretionary spending, and the repudiation of financial commitments) was the principal means of appropriating, handling, and distributing fiscal resources, as a result of which neither the state nor its representatives were trusted by the public. In this respect, the work of fiscal reorganisation and ordering of federal finances that was undertaken in the late 1870s and continued for two decades (and which led eventually to constitutional budgeting practices), constituted a crucial instrument in state building and legitimacy.Footnote 24 The fact that it was both a function and a consequence of the pacification of the country contributed significantly to the decrease in military spending, which had absorbed most of the budget, freeing up resources for public spending and providing services, at least to certain sectors of the population.Footnote 25 Secondly, the fiscal reforms reduced the dependence of public finances on customs duties, which had constituted the tax base of the federal state throughout most of the nineteenth century, thereby reducing the vulnerability of the latter to international fluctuations. From 1893–1894 the stamp tax, linked to domestic transactions, constituted an equivalent or higher portion of federal revenues than customs duties. At the same time, although it may have given some interest groups easier access to resources, the increase in federal budgets and their management also permitted Congress an important role in their formation and discussion.
The financial strengthening of the state meant that for the first time different pieces of economic legislation could be combined in a national strategy. Attempts were made to create a new structure of incentives that would encourage the expansion of economic activities, on various scales, and contribute to the broadening of the sphere of exchange. Within this context, the sequence of institutional innovation focused on the following aspects: (1) reorganising property rights and attempting to make them more secure and more uniform across the nation; (2) formalising economic transactions and publicising information on them; (3) liberalising and opening up spaces for economic activity and lifting legal and informal restrictions. But liberalising was not equal to unilateral deregulation. An abundant production of formal rules was set in motion by the creation of the Civil and Commercial Codes (1870–1879 and 1884–1889 respectively), which redefined two grey – and conflict-producing – legal areas: mortgage contracts and limited liability. Alongside legislation on mining, vacant land and water rights, these two areas constituted the vehicles for this modernising effort, together with the attempt to produce and circulate economic information, which ranged from the creation of a statistics apparatus through to the collection of prices to supporting the emergence of a financial press and financing a substantial enlargement of the postal service.Footnote 26
In view of the high transaction costs that existed in the Mexican context, the initial conditions of backwardness, the capacity for resistance by privileged groups, and the autonomy of states and state governors, the results of this programme of institutional change were partial and extremely unequal.Footnote 27 Alongside this, the inability to give life to credible mechanisms of judicial regulation by the courts, especially at the state level, was one of the fundamental hindrances to the growth process and brought about a significant degree of political intervention. As in many more recent experiences in developing countries with low administrative capacity, the government thrust yielded unexpected results, generating rents, favouring insiders, and falling under the control of interest groups.Footnote 28 The split between the institutional changes which, albeit slowly, diversified the economy and opened up spaces for new social sectors on the one hand, and the obstinacy of the regime, which was unwilling to permit political change and political organisation, on the other, served as the backdrop to the failure or weakness of institutional innovations.
But the prevailing idea among the federal political elite was that private initiative did not have sufficient energy and that public efforts would have to create the conditions for the development of the private sector. Encouraging economic change was a significant part of the nation-building process, and this involved forging a society and nation-state based on a set of common legal, political and economic features. Patrias chicas, ethnic loyalties and religious allegiances were considered useless for this purpose. The expansion of the public sphere was therefore both an objective and an instrument of this design. Classifying this process as either of the two opposing concepts, deregulation and crony capitalism, one of which reduces the presence of the state while the other expands it for clientelist purposes, fails to explain historical reality. What the political elite sought, although in contradictory forms, was a way to combine the building of the nation-state and economic development. Are we in fact observing an exercise in ‘imagining development’, one which tries to connect a fragile path of expansion to more sustained development?Footnote 29
In this respect it is possible to identify the guiding principles of three public policies during the second part of the Porfirian period (1893–1910), based on general ideas regarding the desirable relationship between the state and the market. First, José Yves Limantour, the powerful Secretary of Finance, placed a great deal of importance on the development of a Mexican industrial base, to which end he promoted a reasonably coherent tariff policy to support and protect domestic producers in order to encourage investment in the manufacturing sector. This was also the goal of a prolonged effort to abolish internal customs and organise a legally unified economic sphere. Patent legislation underwent significant modernisation, and a relative efficient system of subsidies to new industries, not prone to privileges, was adopted.Footnote 30
Second, a railway policy was implemented, designed to regulate a system of nearly 20,000 kilometres, which was built in just over two decades as a result of massive foreign capital flows and to a lesser extent, federal subsidies. Its chief features were the Railway Law of 1899, the creating of a Tariff Commission and, finally, the measures that led to the creation of the enormous Ferrocarriles Nacionales enterprise (1908), in which the Mexican state was the main shareholder. All of these were significant expressions of a public policy, rather than empirical adjustments to specific conjunctures or expressions of cronyism.Footnote 31
Third, the policy of ‘defensive modernisation’, which will be analysed later, aimed at controlling and reducing the impact of the international on the domestic economy, which fed the roots of economic nationalism, and was a recognisable part of Porfirian economic strategy.Footnote 32 Behind all this were not only particular interests but broader ideas and visions of development, conceived of and promoted by an intelligentsia.Footnote 33
The Construction and Functioning of the Internal Market
The mushrooming of studies and knowledge on the relative importance and size of the internal market – and markets – contradicts the unilateral vision of the dependentista interpretation, which is interested solely in emphasising the overwhelming power of external forces over peripheral economies. In the late nineteenth century Mexico was the Latin American country with the largest and most extensive modern manufacturing base. It produced mainly consumer goods, primarily textiles, which played a significant role in the early import substitution process, together with a significant amount of agro-industrial production, including tobacco, beer, soap and flour. By the first decade of the twentieth century the industrial structure had been boosted by the addition of intermediate goods (such as glass, paper, cement and iron) and the first steel works in Latin America.Footnote 34 At the same time most production in the primary sector (agriculture and forestry) was aimed at the internal market: export crops never accounted for more than a third of the total value.Footnote 35 Following the introduction of the highly protectionist McKinley tariff in 1890, which imposed a barrier against the low-grade silver-lead ores produced in Mexico, the US groups interested in the smelting business negotiated with the Díaz government to establish smelting plants in the North of Mexico. This trans-border capital movement not only circumvented the tariff barrier; the new metallurgical industry induced a significant reorganisation and expansion in economic activity. Mineral freight contributed significantly to internal rail traffic, and smelting promoted a process of regional specialisation. Railway traffic and revenues therefore consisted mainly of domestic commodities, and, as the length of the average journeys shows, were directed at the main centres of the internal market. On the whole, the contribution of the railways to the Mexican economy was much more substantial than previously recognised.Footnote 36
What was the origin of these internal markets? The reception of New Institutional Economics in historical studies has enabled scholars to go beyond the neoclassical view of markets as ‘natural’ mechanisms that emerged outside historical time and existed in a social vacuum. Modern markets have required coordination, promotion, and the design and enforcement of rules and standards; in other words, they have required construction processes. In the case of Mexico the Porfirian state contributed an essential input to the construction of internal markets: the physical and legal unification of the country's economic space.Footnote 37 This was achieved through long-term actions, focusing on two aspects: (1) the subsidised construction of a railway network that connected most of the country together, making it possible to overcome the major constraints of Mexican geography; (2) the prolonged fight against the levying of internal customs tariffs (alcabalas) in states and municipalities, which, until their abolition in 1896, divided the country into a set of fiscal territories and hampered the circulation of merchandise. This unification, albeit late and incomplete, benefited domestic firms, traders and consumers.Footnote 38
The fact that the state promoted the construction of markets does not mean that this was done properly, and it failed, in fact, on criteria such as the rectification of spatial inequality and economic and distributive efficiency. On the first point, it is clear that the Porfirian economic spurt elicited very different responses from the various regions of the country, which in turn triggered regional disparities. The virtuous circle of the mining-metallurgical-railway integration in the North East, around the pole of Monterrey, for example, stimulated the development of a long-lasting business network, as did the rapid expansion of cotton cultivation in La Laguna and its urban centre, Torreón, which is analysed throughout Mario Cerutti's exhaustive work on the North.Footnote 39 On the other hand, many southern regions, such as Oaxaca, Chiapas, Guerrero, Tabasco, and parts of the states of México and Michoacán, remained in a state of stagnation: here the railways did not set in motion any significant upsurge in modernisation.
With regard to efficiency it is easy to show that the most modern sectors of the economy, those of industry and banking, experienced extremely high levels of concentration, entry barriers and privileged concessions.Footnote 40 An examination of the way the main factor markets operated reveals the existence of considerable obstacles and inefficiencies that constrained the possibilities of growth. In order to assess the extent of these problems, we shall consider the land, capital and labour markets.
The land market was certainly less advanced, and dominated by continuities from the ancien régime. The sale of public lands and the division of communal and collective property, the two innovations implemented by the Liberals to modernise Mexican agriculture, failed to yield significant results. The period between 1878 and 1908 saw the extensive privatisation of vacant public lands (baldíos) involving 43.7 million hectares; these were assigned to those that claimed them, granted to the survey companies, and auctioned by federal government.Footnote 41 This massive transfer was a failed experiment in terms of the government's objectives. The results, modest in most cases, negative in some, have contributed to an unsubstantiated ‘black legend’ with respect to this process and its main actors, the survey companies. On the basis of Robert Holden's rigorous, well-documented study, it can be said that: (1) this was a process that was largely concentrated in a small group of states; (2) most of the lands were of very poor quality, desert or semi-desert, and unsuitable for commercial exploitation; (3) the activities of the survey companies elicited an enormous number of challenges, lawsuits, annulments and adverse decisions by the courts and the bureaucracy. When the procedures for measuring or selling land threatened to disturb social stability, government preferred to freeze or annul them. The division of community lands proved to be a much more uncertain, contradictory process than is usually stated, and although this type of property was reduced, it certainly did not disappear. Difficulties in measurement, flaws in property deeds, resistance, disguised forms of ownership (the condueñazgos or joint ownership), and prolonged lawsuits hampered the individual assignation of these properties. The interpretation of this process as an analogous phenomenon to that of the English enclosures (in Marx's version), with the integral loss of land, the proletarianisation of peasants, and the displacement of traditional agriculture by commercial agriculture has an extremely flimsy empirical basis.Footnote 42
Given the structure of the economy and the centrality of the primary sector, the labour market reflected the characteristics of Mexican agriculture with regard to decentralisation, differentiation and lack of formalisation. Contrary to the thesis of the control of peasants by the hacienda, which for many years was accepted without reservations, if we assume that the hacienda system absorbed between 10 and 20 per cent of the rural population, it is clear that these productive units did not control enough labour for the crucial stages of the agricultural cycle, planting and harvesting.Footnote 43 Thus, the engine for the agricultural labour market lay in certain forms of contractual relations between haciendas and villages, which were seasonal but repeated. These relations, about which little is known, tended to be based on territorial/informal rather than individual/formal pacts, and were often mediated by cacique networks. As for the workforce living in the haciendas and ranches, the literature has identified two sets of informal institutions to explain how labour relations worked: those involving moral economy, focusing on the guarantee of subsistence, which were more widespread, and debt peonage, focusing on the coercive retention of workers, which was typical of plantation agriculture in south and south-eastern Mexico. These are opposite types of relations – one paternalistic, the other coercive – yet they share the fact that the salary dimension was not predominant. While forms of debt peonage, rooted at the state level and weakly challenged by sporadic legal reforms before 1910, disappeared as a result of the revolutionary political processes, the forms of hacienda-peasant relations based on moral economy were only gradually eroded as a result of the extremely unequal commercialisation of Mexican agriculture which displaced traditional relations.Footnote 44 What similarities were there between the agricultural labour market and others such as those in manufacturing and mining? Did they comprise separate or inter-related socio-economic and spatial domains? A systematic evaluation of this subject has yet to be undertaken. It should be noted, however, that an informal, non-market institution, the company store (tienda de raya), which could constitute a disadvantageous mechanism for hacienda workers, assumed very different features and meanings in manufacturing complexes.Footnote 45
The capital market focused on the relatively late growth of the banking system, dominated by the issuing banks in the capital. Before 1880 the only existing bank of any importance was the branch of a small British multinational venture, the London Bank of Mexico and South America, and there was a legal vacuum surrounding everything related to the financial sector. By 1910, there were some forty banks operating within a federal concession system while the sector was regulated by general legislation. The copious literature that has analysed these topics over the past two decades has revealed the following features of the banking system: its oligopolistic nature, due to the existence of high barriers to entry, with two firms holding over 50 per cent of assets and evidence of credit rationing; the centrality of one firm, Banamex, due to its role as the government bank; extremely close links between banking credit and the firms in which directors and shareholders invested; and the acute weakness of financial organisations dedicated to medium- and long-term credit, particularly agricultural credit. The demand for long-term credit remained outside financial intermediation or distorted the credit structure of issuing banks, thereby immobilising capital.Footnote 46 Although the volume of available credit was below what banks could have generated, it is quite clear that their presence contributed to the monetisation of significant parts of the Mexican economy. Later their net benefits were partly offset by the experience of the Revolution, of which banks and credit were one of the prime victims.Footnote 47 In short, an exhaustive balance of the modernisation of credit systems and their contribution to pre-revolutionary growth has yet to be undertaken.
Globalisation and International Economic Relations
What has been labelled as the ‘first globalisation’ of the international economy in the decades before the First World War was based on an extensive network of relatively free movements of global factors: people, merchandise, information, direct investments and financial flows. How was Mexico inserted into this scenario? What results did it achieve? Understanding this requires grasping the fact that, like other medium-sized countries, the insertion of Mexico into these processes was not governed only by automatic features of markets and their comparative advantages. Even if it was a price-taker, several levels of interconnected negotiations between the government and foreign investors, bankers, organisations and other governments underpinned and shaped the Mexican position within this globalising economy. From this point of view, the ‘defensive modernisation’ of the Porfiriato represented an effort to take advantage of, measure out, and regulate interactions with the world market so that they did not prove disruptive or excessively destabilising. A set of principles belonging to liberal economic nationalism, which were relatively widespread in the nineteenth century and became increasingly intense, guided the preferences, strategies and adjustments of the Mexican government.Footnote 48
Although immigration was acknowledged as necessary in official rhetoric and colonising projects, labour was not imported into Mexico: in 1900 foreigners accounted for a mere 0.4 per cent of the total population of approximately 14 million.Footnote 49 Mexico's location next to the largest international recipient of immigrants, the United States, which had a far superior capacity to attract them, may explain its own weak capacity to recruit such labour.
The most powerful link between Mexico and international economy was the flow of foreign capital. Although the quantity of investments has been inflated, between 1880 and 1914 Mexico was one of the primary recipients of direct investment in Latin America, second only to Argentina and perhaps on a similar level to Brazil.Footnote 50 The main interpretations of this phenomenon proceed from the family of theories of imperialism, albeit not explicitly. There is a persistent, unfounded belief that the insertion of foreign investment into the Mexican economic sphere was the result of an ‘open door’ offered by the Porfirian regime through privileges and concessions, to the detriment of Mexican entrepreneurs. Complementing this is belief in the organic fusion of capitalism, diplomacy and foreign firms under the sign of the empire, against the countries on the periphery. Thus, somewhat paradoxically, there are recent studies that refer to the (very unlikely) informal British empire in Mexico with reference to the early twentieth century, or to US imperial control over its southern neighbour, halted only by the Revolution which, in these terms, amounted to a struggle for national liberation.Footnote 51
The persistence of such received wisdom has prevented the analysis of the pattern and impact of foreign investments in Mexico. There is a lack of solid data on the effective dimensions of investment and its rhythms, its place in capital formation, and its effects on the balance of payments, productive structures, and growth.Footnote 52 What has yet to reach critical mass is the literature that would enable researchers to measure the forms and dimensions of capital transfer and the sectoral impact of investments, and make generalisations on this basis.Footnote 53 This is an intermediate dimension that goes beyond micro-studies of a firm or region, while at the same time allowing one to verify the macro calculations undertaken on the basis of long chains of unproved assumptions.Footnote 54
What must be accounted for is the fact that Mexico's geographical and political position served as a factor endowment which facilitated access to the two main capital markets in Britain and the United States, a unique case in Latin America before 1914, and comparable to that of Canada. If this is true, it is essential to explain how the strategy for economic modernisation undertaken by Porfirian governments was able to take advantage of this endowment for the purposes of diversification and autonomy. The counterpoint between various sources of financing, with which Mexico sought to balance the spillover of US investments with Anglo-European funds, shows sectoral variations and differences by period. When, during the first decade of the twentieth century, fears about dominance by US trusts (over)alarmed the Mexican government, the instruments adopted were the Mexicanisation of railways, a preference given to the British group headed by Weetman Pearson in the development of oil resources, and efforts to attract funds in the French market.Footnote 55 The point is to go beyond the foreign investment aggregates to identify the different typologies of capital investments according to their source and the form of transfer.
The second connection, in terms of importance, which linked Mexico to the world economy was foreign trade, although it was more a case of the regionalisation within the North American sphere than of a multilateral commercial regime. The growth of Mexico's exports, its ability to take advantage of the opportunities offered by international demand, in other words, was striking, particularly between 1890 and 1911.Footnote 56 Despite this extraordinary growth rate, the value of foreign trade, which had started at very low levels at the beginning of the Porfiriato, remained significantly below those of the largest Latin American exporters in both absolute and per capita terms.Footnote 57
What was the significance and economic impact of foreign trade? Kuntz Ficker's study, based on an impressive international, national, regional and sectoral analysis until the 1929 crisis, shows the following. First, trade expansion during the period was due to a change in the composition of exports, encouraged by changes in relative prices, yet promoted by government policies. Mexico thus escaped from the traditionally poor pattern of resource allocation, which had been linked to the exchange of silver and two or three other products (such as timber and cochineal) for textiles and sumptuary goods. Second, her study convincingly debunks the idea of the enclave as the framework of export-led growth. For many years, the enclave was regarded as the dominant modality of Latin American exports, forming a geographical, economic and social cage that restricted the economic benefits they provided. Through a rigorous analysis of the linkages of the main export activities, Kuntz Ficker provides a very different overview that identifies multiple linkages to the returned value of exports, depending on their rating by periods and regions. In particular, the mining-metallurgical complex established in the North generated important spurts of export-led industrialisation and spread local engines for growth across the region.Footnote 58
The little-known, recurrent negotiations between Mexico and the United States to establish a preferential framework for trade, through diplomatic agreements or treaties, presented a dilemma for commercial regionalism, given the huge difference in size of the partners. Within this set of interactions, Mexican positions were active and reflected in autonomous behaviours.Footnote 59 Despite the dependence of Mexican foreign trade on the US market, it did not behave passively with regard to its neighbour's preferences nor did it comply with its decisions. Keeping the US market open for the Mexican products, avoiding either being abused in negotiations or permanently bound to cooperate in order to prevent conflicts that would have an impact on other aspects of their relations, were the elements that inspired the Porfirian stance, in a changing order and through diversified strategies. In most trade games the result was favourable and reasonably close to Mexican preferences. Economic asymmetry did not unilaterally condition commercial relations nor did it translate into a stable mechanism of power that would shape the terrain in which they occurred.
An analysis of the Mexican experience as a debtor country is crucial to completing the landscape of its relations with the world economy of the Gold Standard era. Despite the existence of a group of studies on the history of Mexican foreign debt, we appear to lack an analytical reconstruction of Mexico's debt and credit performance that would place its experience on the map of international financial relations.Footnote 60 Mexico was a latecomer to the arena of capital seekers, due to its prolonged insolvency, and its first public loan was issued in 1888, over twenty years after the modern international financial operations of the major South American countries commenced. It was a moderate debtor throughout this period: a comparative exercise indicates that in absolute terms the level of the Mexican foreign debt was considerably lower than those of Argentina and Brazil and, in per capita terms, lower than Chile also.Footnote 61 In relative terms, Mexico resorted to issuing public debt on international capital markets in a moderate fashion and tended to concentrate this resource in large-scale financial operations such as those of 1888, 1889 and 1910. The depreciation of silver, from 1873 onwards, which raised the cost of debt to be paid in gold, certainly functioned as an implicit restraint on over-borrowing, but it is possible to argue that debt moderation belonged to a set of government preferences. On the one hand, this immunised the country to periods of instability caused by debt crises such as those faced by Peru in 1876 or the Baring crisis that hit Argentina in the 1890s. On the other, it gave Mexico a certain degree of bargaining power and autonomy in relation to international bankers.
Final Remarks
Porfirian Mexico did not constitute a case of savage capitalism in which unfettered economic forces freely imposed their laws on a traditional, recalcitrant society. Nor was it an economy subjugated by the imperatives of international finances or any other external economic power. In fact, the state's action, its economic policies, and its diversification strategies increased the country's ability to cushion external shocks and reinforced various sectors of the Mexican economy. What we do know is that Mexico was a late entrant into the arena of the first economic globalisation but a pioneer in experiencing a social revolution. The current state of knowledge, however, makes it difficult to establish a causal link between the two phenomena. What emerges is the fact that economic growth was insufficient and below the frontier of possibility, and it was also affected by severe distortions, as revealed by studies of the various goods and factor markets. There were industries but no industrialisation; a banking system but little long-term credit; and salaried labour that coexisted with coercive mechanisms. And in the primary sector, there were no substantial improvements in the efficient allocation of resources, meaning that as far as the internal market was concerned, Mexican agriculture remained far below international yields.Footnote 62 This meant that links among the various markets were usually scarce, as borne out by the fact that interior customs houses were not abolished until the very late nineteenth century. Within this context, however, highly significant processes of regional specialisation were activated that were destined to last in the long term, such as that in the Monterrey region.
Did these elements of economic backwardness, inefficient institutional arrangements, and imperfect markets make the Mexican economy an extremely fragile structure, inevitably destined to succumb to the weight of its contradictions? Or one destined to experience external shock beyond a certain level of intensity? In the search for the economic causes of the Revolution, the number of usual suspects has increased to include the inflationary process and the deterioration of real wages, the contractionary policy of the form of Gold Exchange Standard adopted after 1905, the concentration of public expenditure in the capital, and fiscal pressure.Footnote 63 There is still little evidence to assess their role, while the transmission mechanisms from the economic to the political cycle are unclear, and based largely on circumstantial evidence. It is, however, possible to note how the country was able to absorb the extremely strong impact of the US 1907 crisis, which affected the Mexican economy through the fall of minerals prices and the dearth of investments, albeit at a high cost, particularly in northern Mexico.Footnote 64
What distinguished Mexico from the rest of Latin America was not the excessive weakness of its economy or social inequality, but rather a frozen political regime, incapable of allowing political development to take place. The 80-year old president who continued to try to play the role of indispensable caudillo was only a reflection of that failed development. The issue did not boil down to the intransigence of the autocrat, but to the fact that the institutional links between voice (in Hirschman's meaning) and growth scarcely evolved during that period, and did not find outlets, in the form of parties or political movements.Footnote 65 If the official discourse that hailed the growth of the middle classes in Mexico is to be taken seriously, it is possible to understand how, in a conjuncture of economic distress, the social bases of support for those who challenged political monopoly were established. At the same time, the historical weakness of Mexican political development, rather than economic circumstances, might contribute to an explanation of the subsequent rapid demise of the democratic maderista experience.
The Porfirian era, or Porfiriato, spans a 35-year period in Mexican history (1876–1911), dominated by the presidential figure of Porfirio Díaz, and roughly coinciding with what is known as the first ‘modern’ globalisation of the international economy.Footnote 1 As in other Latin American countries, this stage was characterised by a process of trade liberalisation and economic growth. For Mexico, its distinguishing features include its incipient integration into the US market, largely as a result of railway construction, and the fact that it saw the first Latin American social uprising, the Mexican Revolution. The chronological coincidence between the long re-electionist regime of Díaz and the rise in the free movement of capital in the international economy has led to simplistic comparisons based on scant historical evidence.Footnote 2 A succession of political events created the stereotype of the Díaz regime as one of authoritarian modernisation subordinated to the demands of the international division of labour or to imperialism, and the post-revolutionary state sponsored the effective reproduction of such a stereotype. It was a truth that had been proved by the Revolution, and should not be questioned.Footnote 3 For a long time there seemed to be a clear pattern to defining the economic and social structure of Mexico before the Revolution: outward-looking development based on the external sector; the search for foreign capital at any cost; the preference given to the latter over national actors; a monopolistic concentration of investments; foreign debts; and extremely high costs in terms of economic sovereignty. This view of a growth model that was reproduced for over thirty years and cemented by the president's autocratic continuity has persisted in most historical studies from the 1920s and the 1930s until recently. This was due to explanations of the Revolution based on the idea of a ‘pressure cooker’, whereby, between 1880 and 1910, economic and social conditions progressively and systematically deteriorated until, finding no outlet, an explosion eventually occurred. This is not an appropriate means of recording the historical processes and actors involved, nor does it identify the possible ‘economic causes’ of the Mexican Revolution.
The study of the economy of the Porfiriato based on scientific criteria is actually fairly recent.Footnote 4 After the publication of the Historia Moderna de México, coordinated by Daniel Cosío Villegas, on the Porfirian period, several chapters of which were devoted to various aspects of its economy, no new knowledge emerged for a number of years. The political passion for revolutionary phenomena in Latin Americanist historiography tended to reduce over three decades of Mexican history to the condition of a preparatory context for the Revolution. Moreover, the subjection of part of historiography to the state-administered revolutionary heritage led to the caricature of Porfirian economy and society.Footnote 5 This combination of intellectual trends and state interests encouraged the removal of the Mexican case from historical comparison with respect to its political regime, its economic structures, and levels of well-being. What standards should be used to gauge the degree of authoritarianism, the concentration of wealth, and economic performance in pre-Revolutionary Mexico, and to determine whether it was an extreme outlier or in fact shared some of the features and patterns of other countries in the late nineteenth and early twentieth centuries? The issue seemed irrelevant, even if in many parts of the contemporary western world democracy and development were certainly not universal currency.Footnote 6 But the engagement of historians with somewhat tautological issues such as how dependent Porfirian dependency was or how revolutionary the Revolution was took centre stage in the debate.
Since then, a wealth of research and good literature has significantly expanded the knowledge available, opened up new channels of research, and enabled the various results to be systematised.Footnote 7 The purpose of this essay is to describe these advances, discuss the results, and outline some of the elements for a research agenda. To this end it examines four aspects which may be regarded as crucial to an assessment of the political economy of the Porfiriato: economic growth and its dimensions; the state, finance and economic strategies; the construction and functioning of the internal market; and the international economic relations of Mexico during the first period of globalisation.Footnote 8 The purpose is to understand, on the basis of the recent literature, what kind of economic order emerged and where its weakest features lay.
Growth (and Backwardness)
A major obstacle to assessing the growth of the Mexican economy before (and during) the Revolution is the lack of reliable GDP measurements, meaning that there is no general frame that enables one to generalise and compare the experience of the Porfiriato. During the 1960s, analysts at the Bank of Mexico constructed a product series beginning in 1940 and extrapolated backwards from this, publishing their calculations in current and constant pesos. Their figures, for which they hardly provided any explanation, were projected as far back as 1895.Footnote 9 It should be added that these figures in no way constitute a GDP series. However, in a curious cliometric/relativist drift, a growing number of scholars have used them without reservation in order to make calculations and construct arguments about both general and sectoral economic performance, particularly for banking and industry, and also about conjunctures.Footnote 10 This has been done lightly, and it has had unfavourable consequences: it has not contributed to available knowledge and it has masked the urgency of reconstructing historical GDP series, in which Mexico lags behind other Latin American countries.Footnote 11
The lack of aggregate measurements of economic activity means, for example, that there is no overview of the trajectory of the Mexican economy before the Revolution. Did it experience high, destabilising growth due to the speed of its rates or to the concentration of resources and income it caused? Or did it involve rather weak long-term growth, distorted by large flows of foreign investment, or restricted to a few years of expansion (1896–1905) which could not be reproduced? The problem with the common estimate of an average nominal growth rate of 6 per cent during the Porfiriato, which would undeniably put Mexico into the ‘sustained growth’ club, is the reliance on the output performance of the modern manufacturing sector. In spite of its expansion and its greater productivity it still represented a small fraction of the Mexican economy that does not account for an overall trend.Footnote 12
The lack of GDP figures, however, contrasts with the abundance of long series for various sectors of the economy. Together with those reconstructed in Estadísticas económicas del Porfiriato in the 1960s, successive works have reviewed and perfected those for railways (Coatsworth, Kuntz Ficker), industrial production (Haber), and fiscal series on revenue, expenditure and their composition (Carmagnani, Pérez Siller).Footnote 13 The reconstruction of data on prices and salaries lags further behind, reflecting the acute market segmentation of the Porfirian economy, although it has been improved by the construction of a price index for Mexico City which suggests significant differences in relation to previous indices.Footnote 14 The large-scale reconstruction of foreign trade figures (1870–1929) undertaken by Sandra Kuntz Ficker, which is based on the statistics of the countries with which Mexico traded, warrants special mention.Footnote 15
Taken as a whole, these efforts have permitted the compilation of a corpus of data of significant quality and scope, whose use by scholars guarantees high yields. The main disadvantage is the great inaccuracy of data on the volume and monetary value of agricultural production. This statistical flaw, which was in fact of concern to Porfirian officials, has its origins in information costs and the traditional practice of concealment in the Mexican rural world. However, it poses a serious problem for the analysis of an economy in which the majority of the labour force was associated with the primary sector. Coatsworth's 1976 overview of the relationship between staple foodstuffs and population showed that, contrary to the usual argument that commercial crops encroached on food production, per capita food levels were in fact improving. Regrettably, no further development has taken place since then.Footnote 16
At the same time there are incipient studies on measurements of well-being, which will hopefully enable records on human growth to be linked to their quality of life.Footnote 17 However, the impact on living conditions of the huge public works undertaken in urban centres, such as the provision of drainage, drinking water, street lighting and markets, has only barely been explored.Footnote 18
State, Finance, Economic Policy
The very inclusion of a section with this title questions the stereotyped views of Porfirian Mexico as the realm of an extreme version of economic liberalism associated with social Darwinism, in which the only determinants were market movements and forces.Footnote 19 The consolidation of the state, its strengthening and expanding activities, as we shall see later have been the subject of major studies which stress the importance of government in the political economy of pre-revolutionary Mexico. However, in a recent interpretation, Stephen Haber, Armando Razo and Noel Maurer suggest that the Díaz regime was characterised not by laissez faire and market rules, but rather by a politicisation based on an extensive crony system, a network of privileged contracts between the president and selected groups of asset holders. In fact, they consider Porfirian Mexico an ‘archetypal case of a crony system’.Footnote 20 In their model, vertical political integration (VPI), a system that enforced property rights as private goods and blurred the lines between those asset holders and the government, was the governance mechanism used in Porfirian Mexico. They use their VPI model to explain the political stability, economic growth and the high levels of market and resource concentration that occurred during the period, as well as its demise and the subsequent revolutionary cycle.Footnote 21 Their model is powerful, in that it provides a systematic explanation of the link between power and wealth and its effects on growth in both politically stable and unstable regimes.Footnote 22
What this author does not find convincing in this work is the virtual exclusion of the state from the scene, as well as an insensitivity to the dramatic changes in its role: the VPI model ‘takes the state out’, replacing it with coalitions between the dictator and groups of asset holders in order to share rents, in a balance that does not account for historical evolution.Footnote 23 Public finances, Congress, economic policies, and the production of public goods are not included in the analysis. Nevertheless, what we do know points to a significant change in the state's presence and capacities, at least in the context of the nineteenth century. During the five or six decades that followed independence the inability to turn the idea of the Mexican nation into a form of state that would create institutional stability was reflected in the chronic precariousness of public finances and tax collection. A combination of coercive and arbitrary measures (confiscations, forced loans, discretionary spending, and the repudiation of financial commitments) was the principal means of appropriating, handling, and distributing fiscal resources, as a result of which neither the state nor its representatives were trusted by the public. In this respect, the work of fiscal reorganisation and ordering of federal finances that was undertaken in the late 1870s and continued for two decades (and which led eventually to constitutional budgeting practices), constituted a crucial instrument in state building and legitimacy.Footnote 24 The fact that it was both a function and a consequence of the pacification of the country contributed significantly to the decrease in military spending, which had absorbed most of the budget, freeing up resources for public spending and providing services, at least to certain sectors of the population.Footnote 25 Secondly, the fiscal reforms reduced the dependence of public finances on customs duties, which had constituted the tax base of the federal state throughout most of the nineteenth century, thereby reducing the vulnerability of the latter to international fluctuations. From 1893–1894 the stamp tax, linked to domestic transactions, constituted an equivalent or higher portion of federal revenues than customs duties. At the same time, although it may have given some interest groups easier access to resources, the increase in federal budgets and their management also permitted Congress an important role in their formation and discussion.
The financial strengthening of the state meant that for the first time different pieces of economic legislation could be combined in a national strategy. Attempts were made to create a new structure of incentives that would encourage the expansion of economic activities, on various scales, and contribute to the broadening of the sphere of exchange. Within this context, the sequence of institutional innovation focused on the following aspects: (1) reorganising property rights and attempting to make them more secure and more uniform across the nation; (2) formalising economic transactions and publicising information on them; (3) liberalising and opening up spaces for economic activity and lifting legal and informal restrictions. But liberalising was not equal to unilateral deregulation. An abundant production of formal rules was set in motion by the creation of the Civil and Commercial Codes (1870–1879 and 1884–1889 respectively), which redefined two grey – and conflict-producing – legal areas: mortgage contracts and limited liability. Alongside legislation on mining, vacant land and water rights, these two areas constituted the vehicles for this modernising effort, together with the attempt to produce and circulate economic information, which ranged from the creation of a statistics apparatus through to the collection of prices to supporting the emergence of a financial press and financing a substantial enlargement of the postal service.Footnote 26
In view of the high transaction costs that existed in the Mexican context, the initial conditions of backwardness, the capacity for resistance by privileged groups, and the autonomy of states and state governors, the results of this programme of institutional change were partial and extremely unequal.Footnote 27 Alongside this, the inability to give life to credible mechanisms of judicial regulation by the courts, especially at the state level, was one of the fundamental hindrances to the growth process and brought about a significant degree of political intervention. As in many more recent experiences in developing countries with low administrative capacity, the government thrust yielded unexpected results, generating rents, favouring insiders, and falling under the control of interest groups.Footnote 28 The split between the institutional changes which, albeit slowly, diversified the economy and opened up spaces for new social sectors on the one hand, and the obstinacy of the regime, which was unwilling to permit political change and political organisation, on the other, served as the backdrop to the failure or weakness of institutional innovations.
But the prevailing idea among the federal political elite was that private initiative did not have sufficient energy and that public efforts would have to create the conditions for the development of the private sector. Encouraging economic change was a significant part of the nation-building process, and this involved forging a society and nation-state based on a set of common legal, political and economic features. Patrias chicas, ethnic loyalties and religious allegiances were considered useless for this purpose. The expansion of the public sphere was therefore both an objective and an instrument of this design. Classifying this process as either of the two opposing concepts, deregulation and crony capitalism, one of which reduces the presence of the state while the other expands it for clientelist purposes, fails to explain historical reality. What the political elite sought, although in contradictory forms, was a way to combine the building of the nation-state and economic development. Are we in fact observing an exercise in ‘imagining development’, one which tries to connect a fragile path of expansion to more sustained development?Footnote 29
In this respect it is possible to identify the guiding principles of three public policies during the second part of the Porfirian period (1893–1910), based on general ideas regarding the desirable relationship between the state and the market. First, José Yves Limantour, the powerful Secretary of Finance, placed a great deal of importance on the development of a Mexican industrial base, to which end he promoted a reasonably coherent tariff policy to support and protect domestic producers in order to encourage investment in the manufacturing sector. This was also the goal of a prolonged effort to abolish internal customs and organise a legally unified economic sphere. Patent legislation underwent significant modernisation, and a relative efficient system of subsidies to new industries, not prone to privileges, was adopted.Footnote 30
Second, a railway policy was implemented, designed to regulate a system of nearly 20,000 kilometres, which was built in just over two decades as a result of massive foreign capital flows and to a lesser extent, federal subsidies. Its chief features were the Railway Law of 1899, the creating of a Tariff Commission and, finally, the measures that led to the creation of the enormous Ferrocarriles Nacionales enterprise (1908), in which the Mexican state was the main shareholder. All of these were significant expressions of a public policy, rather than empirical adjustments to specific conjunctures or expressions of cronyism.Footnote 31
Third, the policy of ‘defensive modernisation’, which will be analysed later, aimed at controlling and reducing the impact of the international on the domestic economy, which fed the roots of economic nationalism, and was a recognisable part of Porfirian economic strategy.Footnote 32 Behind all this were not only particular interests but broader ideas and visions of development, conceived of and promoted by an intelligentsia.Footnote 33
The Construction and Functioning of the Internal Market
The mushrooming of studies and knowledge on the relative importance and size of the internal market – and markets – contradicts the unilateral vision of the dependentista interpretation, which is interested solely in emphasising the overwhelming power of external forces over peripheral economies. In the late nineteenth century Mexico was the Latin American country with the largest and most extensive modern manufacturing base. It produced mainly consumer goods, primarily textiles, which played a significant role in the early import substitution process, together with a significant amount of agro-industrial production, including tobacco, beer, soap and flour. By the first decade of the twentieth century the industrial structure had been boosted by the addition of intermediate goods (such as glass, paper, cement and iron) and the first steel works in Latin America.Footnote 34 At the same time most production in the primary sector (agriculture and forestry) was aimed at the internal market: export crops never accounted for more than a third of the total value.Footnote 35 Following the introduction of the highly protectionist McKinley tariff in 1890, which imposed a barrier against the low-grade silver-lead ores produced in Mexico, the US groups interested in the smelting business negotiated with the Díaz government to establish smelting plants in the North of Mexico. This trans-border capital movement not only circumvented the tariff barrier; the new metallurgical industry induced a significant reorganisation and expansion in economic activity. Mineral freight contributed significantly to internal rail traffic, and smelting promoted a process of regional specialisation. Railway traffic and revenues therefore consisted mainly of domestic commodities, and, as the length of the average journeys shows, were directed at the main centres of the internal market. On the whole, the contribution of the railways to the Mexican economy was much more substantial than previously recognised.Footnote 36
What was the origin of these internal markets? The reception of New Institutional Economics in historical studies has enabled scholars to go beyond the neoclassical view of markets as ‘natural’ mechanisms that emerged outside historical time and existed in a social vacuum. Modern markets have required coordination, promotion, and the design and enforcement of rules and standards; in other words, they have required construction processes. In the case of Mexico the Porfirian state contributed an essential input to the construction of internal markets: the physical and legal unification of the country's economic space.Footnote 37 This was achieved through long-term actions, focusing on two aspects: (1) the subsidised construction of a railway network that connected most of the country together, making it possible to overcome the major constraints of Mexican geography; (2) the prolonged fight against the levying of internal customs tariffs (alcabalas) in states and municipalities, which, until their abolition in 1896, divided the country into a set of fiscal territories and hampered the circulation of merchandise. This unification, albeit late and incomplete, benefited domestic firms, traders and consumers.Footnote 38
The fact that the state promoted the construction of markets does not mean that this was done properly, and it failed, in fact, on criteria such as the rectification of spatial inequality and economic and distributive efficiency. On the first point, it is clear that the Porfirian economic spurt elicited very different responses from the various regions of the country, which in turn triggered regional disparities. The virtuous circle of the mining-metallurgical-railway integration in the North East, around the pole of Monterrey, for example, stimulated the development of a long-lasting business network, as did the rapid expansion of cotton cultivation in La Laguna and its urban centre, Torreón, which is analysed throughout Mario Cerutti's exhaustive work on the North.Footnote 39 On the other hand, many southern regions, such as Oaxaca, Chiapas, Guerrero, Tabasco, and parts of the states of México and Michoacán, remained in a state of stagnation: here the railways did not set in motion any significant upsurge in modernisation.
With regard to efficiency it is easy to show that the most modern sectors of the economy, those of industry and banking, experienced extremely high levels of concentration, entry barriers and privileged concessions.Footnote 40 An examination of the way the main factor markets operated reveals the existence of considerable obstacles and inefficiencies that constrained the possibilities of growth. In order to assess the extent of these problems, we shall consider the land, capital and labour markets.
The land market was certainly less advanced, and dominated by continuities from the ancien régime. The sale of public lands and the division of communal and collective property, the two innovations implemented by the Liberals to modernise Mexican agriculture, failed to yield significant results. The period between 1878 and 1908 saw the extensive privatisation of vacant public lands (baldíos) involving 43.7 million hectares; these were assigned to those that claimed them, granted to the survey companies, and auctioned by federal government.Footnote 41 This massive transfer was a failed experiment in terms of the government's objectives. The results, modest in most cases, negative in some, have contributed to an unsubstantiated ‘black legend’ with respect to this process and its main actors, the survey companies. On the basis of Robert Holden's rigorous, well-documented study, it can be said that: (1) this was a process that was largely concentrated in a small group of states; (2) most of the lands were of very poor quality, desert or semi-desert, and unsuitable for commercial exploitation; (3) the activities of the survey companies elicited an enormous number of challenges, lawsuits, annulments and adverse decisions by the courts and the bureaucracy. When the procedures for measuring or selling land threatened to disturb social stability, government preferred to freeze or annul them. The division of community lands proved to be a much more uncertain, contradictory process than is usually stated, and although this type of property was reduced, it certainly did not disappear. Difficulties in measurement, flaws in property deeds, resistance, disguised forms of ownership (the condueñazgos or joint ownership), and prolonged lawsuits hampered the individual assignation of these properties. The interpretation of this process as an analogous phenomenon to that of the English enclosures (in Marx's version), with the integral loss of land, the proletarianisation of peasants, and the displacement of traditional agriculture by commercial agriculture has an extremely flimsy empirical basis.Footnote 42
Given the structure of the economy and the centrality of the primary sector, the labour market reflected the characteristics of Mexican agriculture with regard to decentralisation, differentiation and lack of formalisation. Contrary to the thesis of the control of peasants by the hacienda, which for many years was accepted without reservations, if we assume that the hacienda system absorbed between 10 and 20 per cent of the rural population, it is clear that these productive units did not control enough labour for the crucial stages of the agricultural cycle, planting and harvesting.Footnote 43 Thus, the engine for the agricultural labour market lay in certain forms of contractual relations between haciendas and villages, which were seasonal but repeated. These relations, about which little is known, tended to be based on territorial/informal rather than individual/formal pacts, and were often mediated by cacique networks. As for the workforce living in the haciendas and ranches, the literature has identified two sets of informal institutions to explain how labour relations worked: those involving moral economy, focusing on the guarantee of subsistence, which were more widespread, and debt peonage, focusing on the coercive retention of workers, which was typical of plantation agriculture in south and south-eastern Mexico. These are opposite types of relations – one paternalistic, the other coercive – yet they share the fact that the salary dimension was not predominant. While forms of debt peonage, rooted at the state level and weakly challenged by sporadic legal reforms before 1910, disappeared as a result of the revolutionary political processes, the forms of hacienda-peasant relations based on moral economy were only gradually eroded as a result of the extremely unequal commercialisation of Mexican agriculture which displaced traditional relations.Footnote 44 What similarities were there between the agricultural labour market and others such as those in manufacturing and mining? Did they comprise separate or inter-related socio-economic and spatial domains? A systematic evaluation of this subject has yet to be undertaken. It should be noted, however, that an informal, non-market institution, the company store (tienda de raya), which could constitute a disadvantageous mechanism for hacienda workers, assumed very different features and meanings in manufacturing complexes.Footnote 45
The capital market focused on the relatively late growth of the banking system, dominated by the issuing banks in the capital. Before 1880 the only existing bank of any importance was the branch of a small British multinational venture, the London Bank of Mexico and South America, and there was a legal vacuum surrounding everything related to the financial sector. By 1910, there were some forty banks operating within a federal concession system while the sector was regulated by general legislation. The copious literature that has analysed these topics over the past two decades has revealed the following features of the banking system: its oligopolistic nature, due to the existence of high barriers to entry, with two firms holding over 50 per cent of assets and evidence of credit rationing; the centrality of one firm, Banamex, due to its role as the government bank; extremely close links between banking credit and the firms in which directors and shareholders invested; and the acute weakness of financial organisations dedicated to medium- and long-term credit, particularly agricultural credit. The demand for long-term credit remained outside financial intermediation or distorted the credit structure of issuing banks, thereby immobilising capital.Footnote 46 Although the volume of available credit was below what banks could have generated, it is quite clear that their presence contributed to the monetisation of significant parts of the Mexican economy. Later their net benefits were partly offset by the experience of the Revolution, of which banks and credit were one of the prime victims.Footnote 47 In short, an exhaustive balance of the modernisation of credit systems and their contribution to pre-revolutionary growth has yet to be undertaken.
Globalisation and International Economic Relations
What has been labelled as the ‘first globalisation’ of the international economy in the decades before the First World War was based on an extensive network of relatively free movements of global factors: people, merchandise, information, direct investments and financial flows. How was Mexico inserted into this scenario? What results did it achieve? Understanding this requires grasping the fact that, like other medium-sized countries, the insertion of Mexico into these processes was not governed only by automatic features of markets and their comparative advantages. Even if it was a price-taker, several levels of interconnected negotiations between the government and foreign investors, bankers, organisations and other governments underpinned and shaped the Mexican position within this globalising economy. From this point of view, the ‘defensive modernisation’ of the Porfiriato represented an effort to take advantage of, measure out, and regulate interactions with the world market so that they did not prove disruptive or excessively destabilising. A set of principles belonging to liberal economic nationalism, which were relatively widespread in the nineteenth century and became increasingly intense, guided the preferences, strategies and adjustments of the Mexican government.Footnote 48
Although immigration was acknowledged as necessary in official rhetoric and colonising projects, labour was not imported into Mexico: in 1900 foreigners accounted for a mere 0.4 per cent of the total population of approximately 14 million.Footnote 49 Mexico's location next to the largest international recipient of immigrants, the United States, which had a far superior capacity to attract them, may explain its own weak capacity to recruit such labour.
The most powerful link between Mexico and international economy was the flow of foreign capital. Although the quantity of investments has been inflated, between 1880 and 1914 Mexico was one of the primary recipients of direct investment in Latin America, second only to Argentina and perhaps on a similar level to Brazil.Footnote 50 The main interpretations of this phenomenon proceed from the family of theories of imperialism, albeit not explicitly. There is a persistent, unfounded belief that the insertion of foreign investment into the Mexican economic sphere was the result of an ‘open door’ offered by the Porfirian regime through privileges and concessions, to the detriment of Mexican entrepreneurs. Complementing this is belief in the organic fusion of capitalism, diplomacy and foreign firms under the sign of the empire, against the countries on the periphery. Thus, somewhat paradoxically, there are recent studies that refer to the (very unlikely) informal British empire in Mexico with reference to the early twentieth century, or to US imperial control over its southern neighbour, halted only by the Revolution which, in these terms, amounted to a struggle for national liberation.Footnote 51
The persistence of such received wisdom has prevented the analysis of the pattern and impact of foreign investments in Mexico. There is a lack of solid data on the effective dimensions of investment and its rhythms, its place in capital formation, and its effects on the balance of payments, productive structures, and growth.Footnote 52 What has yet to reach critical mass is the literature that would enable researchers to measure the forms and dimensions of capital transfer and the sectoral impact of investments, and make generalisations on this basis.Footnote 53 This is an intermediate dimension that goes beyond micro-studies of a firm or region, while at the same time allowing one to verify the macro calculations undertaken on the basis of long chains of unproved assumptions.Footnote 54
What must be accounted for is the fact that Mexico's geographical and political position served as a factor endowment which facilitated access to the two main capital markets in Britain and the United States, a unique case in Latin America before 1914, and comparable to that of Canada. If this is true, it is essential to explain how the strategy for economic modernisation undertaken by Porfirian governments was able to take advantage of this endowment for the purposes of diversification and autonomy. The counterpoint between various sources of financing, with which Mexico sought to balance the spillover of US investments with Anglo-European funds, shows sectoral variations and differences by period. When, during the first decade of the twentieth century, fears about dominance by US trusts (over)alarmed the Mexican government, the instruments adopted were the Mexicanisation of railways, a preference given to the British group headed by Weetman Pearson in the development of oil resources, and efforts to attract funds in the French market.Footnote 55 The point is to go beyond the foreign investment aggregates to identify the different typologies of capital investments according to their source and the form of transfer.
The second connection, in terms of importance, which linked Mexico to the world economy was foreign trade, although it was more a case of the regionalisation within the North American sphere than of a multilateral commercial regime. The growth of Mexico's exports, its ability to take advantage of the opportunities offered by international demand, in other words, was striking, particularly between 1890 and 1911.Footnote 56 Despite this extraordinary growth rate, the value of foreign trade, which had started at very low levels at the beginning of the Porfiriato, remained significantly below those of the largest Latin American exporters in both absolute and per capita terms.Footnote 57
What was the significance and economic impact of foreign trade? Kuntz Ficker's study, based on an impressive international, national, regional and sectoral analysis until the 1929 crisis, shows the following. First, trade expansion during the period was due to a change in the composition of exports, encouraged by changes in relative prices, yet promoted by government policies. Mexico thus escaped from the traditionally poor pattern of resource allocation, which had been linked to the exchange of silver and two or three other products (such as timber and cochineal) for textiles and sumptuary goods. Second, her study convincingly debunks the idea of the enclave as the framework of export-led growth. For many years, the enclave was regarded as the dominant modality of Latin American exports, forming a geographical, economic and social cage that restricted the economic benefits they provided. Through a rigorous analysis of the linkages of the main export activities, Kuntz Ficker provides a very different overview that identifies multiple linkages to the returned value of exports, depending on their rating by periods and regions. In particular, the mining-metallurgical complex established in the North generated important spurts of export-led industrialisation and spread local engines for growth across the region.Footnote 58
The little-known, recurrent negotiations between Mexico and the United States to establish a preferential framework for trade, through diplomatic agreements or treaties, presented a dilemma for commercial regionalism, given the huge difference in size of the partners. Within this set of interactions, Mexican positions were active and reflected in autonomous behaviours.Footnote 59 Despite the dependence of Mexican foreign trade on the US market, it did not behave passively with regard to its neighbour's preferences nor did it comply with its decisions. Keeping the US market open for the Mexican products, avoiding either being abused in negotiations or permanently bound to cooperate in order to prevent conflicts that would have an impact on other aspects of their relations, were the elements that inspired the Porfirian stance, in a changing order and through diversified strategies. In most trade games the result was favourable and reasonably close to Mexican preferences. Economic asymmetry did not unilaterally condition commercial relations nor did it translate into a stable mechanism of power that would shape the terrain in which they occurred.
An analysis of the Mexican experience as a debtor country is crucial to completing the landscape of its relations with the world economy of the Gold Standard era. Despite the existence of a group of studies on the history of Mexican foreign debt, we appear to lack an analytical reconstruction of Mexico's debt and credit performance that would place its experience on the map of international financial relations.Footnote 60 Mexico was a latecomer to the arena of capital seekers, due to its prolonged insolvency, and its first public loan was issued in 1888, over twenty years after the modern international financial operations of the major South American countries commenced. It was a moderate debtor throughout this period: a comparative exercise indicates that in absolute terms the level of the Mexican foreign debt was considerably lower than those of Argentina and Brazil and, in per capita terms, lower than Chile also.Footnote 61 In relative terms, Mexico resorted to issuing public debt on international capital markets in a moderate fashion and tended to concentrate this resource in large-scale financial operations such as those of 1888, 1889 and 1910. The depreciation of silver, from 1873 onwards, which raised the cost of debt to be paid in gold, certainly functioned as an implicit restraint on over-borrowing, but it is possible to argue that debt moderation belonged to a set of government preferences. On the one hand, this immunised the country to periods of instability caused by debt crises such as those faced by Peru in 1876 or the Baring crisis that hit Argentina in the 1890s. On the other, it gave Mexico a certain degree of bargaining power and autonomy in relation to international bankers.
Final Remarks
Porfirian Mexico did not constitute a case of savage capitalism in which unfettered economic forces freely imposed their laws on a traditional, recalcitrant society. Nor was it an economy subjugated by the imperatives of international finances or any other external economic power. In fact, the state's action, its economic policies, and its diversification strategies increased the country's ability to cushion external shocks and reinforced various sectors of the Mexican economy. What we do know is that Mexico was a late entrant into the arena of the first economic globalisation but a pioneer in experiencing a social revolution. The current state of knowledge, however, makes it difficult to establish a causal link between the two phenomena. What emerges is the fact that economic growth was insufficient and below the frontier of possibility, and it was also affected by severe distortions, as revealed by studies of the various goods and factor markets. There were industries but no industrialisation; a banking system but little long-term credit; and salaried labour that coexisted with coercive mechanisms. And in the primary sector, there were no substantial improvements in the efficient allocation of resources, meaning that as far as the internal market was concerned, Mexican agriculture remained far below international yields.Footnote 62 This meant that links among the various markets were usually scarce, as borne out by the fact that interior customs houses were not abolished until the very late nineteenth century. Within this context, however, highly significant processes of regional specialisation were activated that were destined to last in the long term, such as that in the Monterrey region.
Did these elements of economic backwardness, inefficient institutional arrangements, and imperfect markets make the Mexican economy an extremely fragile structure, inevitably destined to succumb to the weight of its contradictions? Or one destined to experience external shock beyond a certain level of intensity? In the search for the economic causes of the Revolution, the number of usual suspects has increased to include the inflationary process and the deterioration of real wages, the contractionary policy of the form of Gold Exchange Standard adopted after 1905, the concentration of public expenditure in the capital, and fiscal pressure.Footnote 63 There is still little evidence to assess their role, while the transmission mechanisms from the economic to the political cycle are unclear, and based largely on circumstantial evidence. It is, however, possible to note how the country was able to absorb the extremely strong impact of the US 1907 crisis, which affected the Mexican economy through the fall of minerals prices and the dearth of investments, albeit at a high cost, particularly in northern Mexico.Footnote 64
What distinguished Mexico from the rest of Latin America was not the excessive weakness of its economy or social inequality, but rather a frozen political regime, incapable of allowing political development to take place. The 80-year old president who continued to try to play the role of indispensable caudillo was only a reflection of that failed development. The issue did not boil down to the intransigence of the autocrat, but to the fact that the institutional links between voice (in Hirschman's meaning) and growth scarcely evolved during that period, and did not find outlets, in the form of parties or political movements.Footnote 65 If the official discourse that hailed the growth of the middle classes in Mexico is to be taken seriously, it is possible to understand how, in a conjuncture of economic distress, the social bases of support for those who challenged political monopoly were established. At the same time, the historical weakness of Mexican political development, rather than economic circumstances, might contribute to an explanation of the subsequent rapid demise of the democratic maderista experience.