Institutions and Investment: The Political Basis of Industrialization in Mexico before 1911

Beatty, Edward. Institutions and Investment: The Political Basis of Industrialization in Mexico before 1911. NC: Stanford: Stanford University Press, 2001. 296 pp.

Historians have categorically denied that Porfirio Diaz's government had an official policy to promote investment in domestic manufacturing. Noted historian Friedrich Katz claims that the Diaz regime had "no plans for developing particular industries, no programme to stimulate the import of technology, [and] no policies for protecting infant industries" (p. 10). Edward Beatty, however, contends that after 1890, investors-encouraged and systematically protected by the federal government-began to develop large-scale manufacturing facilities. Government policies-such as protective tariffs, patent registration, and tax-exemptions-were part of an effort to reform the economic environment in Mexico, attract investment to domestic manufacturing, support infant industries, and boost Mexico's industrialization process. The author argues that these policies were the basis of Mexico's early industrialization efforts. According to Beatty, a professor of history at the University of Notre Dame, by 1910 domestic industry had made a "profound and durable mark on the country's economic and social landscape" (p. 3). As a result, Mexico had a national economy significantly more diverse than the primary-product, export-driven stereotype prevalent in textbooks.

Prior to Beatty's well-researched study, historians have not offered a systematic explanation for the origins of Mexican industrialization before 1910. The author does, however, point out three flawed (as he sees it) schools of interpretation that attempt to explain Mexico's incipient industrialization efforts. The first interpretation posits that Mexico, by the 189Os, had become a raw material exporter to the United States and Europe. These export enclaves were dominated by foreign capital. The resulting monocultural economy was facilitated by the Porfiriato's ability to maintain order and stability. This school of thought holds that domestic manufacturing was stimulated by export-led growth, "which broadened consumer demand and increased the demand for certain industrial products" (p. 9). Historians supporting this interpretation claim that certain industrial concerns developed, without government involvement, to meet the demands of the export enclaves. Beatty, however, claims that this school of thought is flawed because it does not explain why the rising demand for manufactured goods was not satisfied through increased imports of low-cost, high-quality goods from the United States and Europe. The second interpretation, which is similar to the first school of thought, holds that the federal government was involved in the promotion of industrialization, but only in a limited, or ad hoc, manner. Historians supporting this viewpoint claim that the Porfiriato only encouraged new investments in manufacturing on "a case-by-case or accidental basis" to benefit cronies of the regime (p. 9). Unfortunately, this interpretation neglects the systematic implementation of government policies of protectionism highlighted by Beatty. The third school of interpretation ties Mexico's early industrialization to the depreciation of the silver currency during the 189Os, which made imports more expensive. According to the author, this view is also flawed in that it only offered protection "to those manufacturers whose businesses were not dependent on imported machines, semi-manufactures, and fuels-likely a small number indeed" (p. 10).

During the 189Os, private investors, encouraged and protected by the Porfirian government, established an incipient industrial base that survived the Mexican Revolution and the Great Depression. These Porfirian policies, initiated by the so-called Cientificos, provided a foundation for the import substitution industrialization (ISI) policies adopted in the 194Os. Although the ISI policies of the 1940s were more aggressive, interventionist, and comprehensive than those adopted during the Porfiriato, the Porfirian policies initiated the "transformation of the Mexican economy from primarily agricultural and extractive to predominantly urban and industrial" (p. 8). Without government-initiated protective tariffs, investors would have been foolish to invest in domestic manufacturing. Investment was most notable in three areas: lowcost consumer goods, such as cigarettes and beer; industries linked to the export sector, such as explosives and transportation; and fields supplying urban construction, such as cement. "Although this new manufacturing base contributed only 10-12 percent to the national economy and employed roughly 10 percent of the labor force in 1910, it provided a foundation for subsequent growth and marked a profound change from previous patterns of investment" (p. 4).

Although dozens of new factories were built during the 189Os, Beatty is quick to explain that these Porfirian development policies yielded mixed results. Although the import tariffs provided crucial protection and patent monopolies were of doubtful value, the author explains that the tax and tariff exemptions "were largely ineffectual" (p. 191). Because of conservative low-level government officials, of the large number of individuals and firms who sought tax exemptions, only a few succeeded in obtaining the tax concessions and becoming productive enterprises. Nevertheless, those industrialists, entrepreneurs, and manufacturers bequeathed to twentieth-century Mexico "an industrial foundation for the more aggressive import substitution policies of the 1940s and 1950s" (p. 192). Hopefully, Beatty's study will cause scholars and students alike to rethink their understanding of Latin American economic history during the period dominated by the liberal-export led pattern of economic development.