THE TROUBLE WITH TEXTILES: ABORTED INDUSTRIALIZATION 1821-67

I. THE PROBLEM

A. WHY MEXICO FAILED TO INDUSTRIALIZE?--I.E. TEXTILES

1. 1830-1850S CAMPAIGN TO CREATE MODERN TEXTILE INDUSTRY IN MEXICO

a. GOVT. SUBSIDIES (BANCO DE AVIO)

b. PROTECTIONISM (TARIFF OF 1837)

2. EXPERIMENT ENDED IN FAILURE:

a. REPEATED BANKRUPTCIES

b. INABILITY TO COMPETE WITH CHEAP FOREIGN

3. USUAL EXPLANATIONS FOR FAILURE:

a. MATERIAL DEFICIENCIES: LACK OF CAPITAL, INEFFICIENT TECHNOLOGY, ETC. (KEREMITSIS)

b. MANAGEMENT DEFICIENCIES: INEXPERIENCE

c. CULTURAL DEFICIENCIES: LACK OF SPIRIT OF ENTERPRISE/ABSENCE OF ENTREPRENEURIAL DIRECTION

d. UNDERDEVELOPMENT: UNFAIR FOREIGN COMPETITION/FOREIGN PRESSURES & INTRIGUES (TENENBAUM)

4. A MORE USEFUL APPROACH: WHY WAS MEXICAN TEXTILE INDUSTRY SO NON-COMPETITIVE

a. MEXICAN MANUFACTURERS HAD:

(1) NEW MACHINES/LATEST TECHNOLOGY

(2) MORE CAPITAL THAN OPPORTUNITIES

(3) EQUIVALENT LABOR COSTS

b. DOMESTIC MANUFACTURERS/FOREIGN IMPORTERS FACE SAME HOSTILE MARKET CONDITIONS

c. MEXICO CLOSE TO CHEAP U.S. COTTON

d. NATIONALITY NOT DETERMINANT OF ATTITUDES TOWARDS INDUSTRIALIZATION: I.E. BRITISH, FRENCH, AMERICAN TEXTILE FACTORY OWNERS IN MEXICO

B. THE CASE STUDY: MIRAFLORES, 1840-61

1. BEGAN PRODUCTION DEC. 1840 NEAR CHALCO/LARGEST, MOST MODERN MILL IN MEXICO

2. OWNERS: MARTINEZ DEL RIO HERMANOS INITIAL INVESTMENT OF $250,000 INCREASED TO $1 MILLION BY 1860

3. ELUSIVE PROFITS:

a. REPORTED LOSSES MOST YEARS

b. PROFITS CLAIMED IN OTHER YEARS ARE SUSPECT: FINANCE, DEPRECIATION, SPECULATIONS

c. BANKRUPT BY 1861

4. MANAGEMENT & WORKFORCE:

a. JACOB H. ROBERTSON ($2,400 + COMM.)

b. 256 EMPLOYEES/$100,000 ANN. PAYROLL

5. PRODUCTION/OUTPUT:

a. 1841: 4,080 SPINDLES/159,159 LBS. YARN

b. 1854: 5556 SPINDLES/500,000 LBS. YARN/ 67,200 PIECES OF MANTA

6. PRODUCTION COSTS:

a. 1844:

(1) $0.299 COTTON + $0.144 SPINNING = $0.443 LB. TOT. COSTS FOR YARN

(2) $3.45 MANTA + $1.09 MANTA = $4.54 PIECE COST PER MANTA

b. VARIATIONS, 1840-46:

(1) YARN/LB = $0.484 - $0.624 LB.

(2) MANTA/LB =$4.440 - $4.770 PIECE

7. MARKETING:

a. TEXTILES EASY TO MAKE, HARD TO SELL

b. COSTLY & RISKY TO MARKET:

(1) DIRECT SALES/FACTORY FINANCE

(2) CONSIGNMENT

(3) PARTNERSHIPS

c. DETERIORATING MARKETS, 1840-60

(1) TERMS OF TRADE: DIRECT TO CONSIGNMENT

(2) GEOGRAPHIC MARKET: LOSS N/NW

(3) ERRATIC DEMAND

(4) FALLING PRICES: NO. 16 YARN

(a) 1840 = 7-1/2 R. PER LB.

(b) 1845 = 4-1/2 R. PER LB.

(c) 1853 = 3-1/2 R. PER LB.

II. POLITICAL ECONOMY OF TEXTILE MANUFACTURING/MARKETING

A. PROFITS FUNCTION OF POLITICAL VARIABLES:

1. STATE SUBSIDIES

2. STATE PROTECTIONISM

3. STATE TAX POLICIES

B. SUBSIDIES:

1. DEVELOPMENT BANK -- BANCO DE AVIO TO FINANCE MACHINERY PURCHASES

2. IMPACT: UNEVEN, SOME BENEFIT, OTHERS DO NOT/LITTLE CAPITAL/FRAUD & CORRUPTION

3. BANKRUPT AFTER MID-1830S

C. TAX POLICY:

1. EXEMPTIONS THROUGH 1840S

2. NEW TAXES ON EQUIPMENT AFTER 1850

3. ALCABALAS DISCOURAGE DEVELOPMENT OF NATIONAL MARKET

D. PROTECTIONISM:

1. ALL GOVERNMENTS SHARE POST-1829 PROTECTIONIST ATTITUDES THROUGH MID-1840S

2. 1837 TARIFF PRINCIPAL INCENTIVE FOR INVESTORS

3. WANING PUBLIC SUPPORT AFTER 1841:

(a) PRESSURE FROM TEXTILE EXPORTING COUNTRIES, I.E. GREAT BRITAIN

(b) BANKRUPT TREASURY: LOSSES FROM PROHIBITIONS ON TEXTILE IMPORTS

(c) UNLIKELY PROSPECT FOR SUCCESSFUL NATIONAL TEXTILE INDUSTRY

4. CHANGING PUBLIC POLICY:

(a) GEN. ARISTA PERMITS FOR COTTON YARN IMPORTS IN 1840

(b) SANTA ANNA 1842 TARIFF MORE LIBERAL THAN 1837 TARIFF

(c) SANTA ANNA IMPORT LICENSE SCHEMES

5. INCIDENTAL PROTECTION CONTINUED THROUGHOUT ENTIRE PERIOD: HIGH TARIFFS

6. CONTRABAND:

(a) MEXICAN STATE LACKED CAPACITY TO IMPLEMENT PROTECTION EFFECTIVELY

(b) MEXICAN MANUFACTURERS NOT REMOTELY COMPETITIVE:

(1) MIRAFLORES AV. COST PER LB. OF YARN = $0.40/LB.

(2) ENGLISH YARN DELIVERED TO PORT OF VERACRUZ AT $0.30/LB.

(c) CONTRABAND TAKES PROGRESSIVELY LARGER SHARE OF MARKET THROUGH 1860S/BLAMED

BY MANUFACTURERS FOR FAILURE

III. POLITICAL ECONOMY OF COTTON CULTIVATION

A. MANUFACTURERS DID NOT DISCUSS WHY PRODUCT SO COSTLY: RAW COTTON PRICES HIGH

1. RAW COTTON IN FINISHED COTTON PRODUCTS COST $0.30/LB.

2. RAW COTTON ACCOUNTED FOR 3/4-4/5S OF PRODUCTION COSTS FOR TEXTILES

B. WHY HIGH COSTS FOR RAW COTTON?--I.E. VERACRUZ COTTON COST $30 QUINTAL V. $12 QUINTAL FOR NEW ORLEANS COTTON

1. CULTIVATORS ENJOY PROTECTIONISM

2. MEXICAN CULTIVATION COSTS HIGH/SUPPLIES LOW

C. WHY MEXICAN COTTON WAS PROTECTED?

1. PRACTICAL POLITICAL CONSIDERATIONS

a. MONOPOLIZATION OF ANY COMMODITY CONSISTENT WITH TRADITIONAL ORGANIZATION OF MEXICAN ECONOMY/NONE CHALLENGE BASIC PREMISE

b. COTTON PLANTERS POWERFUL POLITICIANS/SANTA ANNA IS ALLY

c. MANUFACTURERS NEED COOPERATION OF PLANTERS FOR TEXTILE PROTECTIONISM

2. PRACTICAL ECONOMIC CONSIDERATIONS: SUDDEN FALL OF COTTON PRICES DISASTROUS TO THOSE WITH LARGE EXPENSIVE INVENTORY OF UNSOLD COTTON TEXTILES

3. MANUFACTURERS AS SPECULATORS:

a. IMPORT LICENSES--"A VAST FIELD FOR SPECULATION" ($4-$18/QUINTAL--1843-47)

b. ADVANTAGES OVER COMPETITORS: SHUT DOWN PRODUCTION OR INCREASE COSTS

c. EXAMPLE OF MR HERM SPECULATIONS:

(1) ACQUIRED PERMISOS CHEAPLY IN 1847

(2) FORMED SYNDICATE, 1849-51--BOUGHT UP DOMESTIC SOURCES OF SUPPLY

(3) 1851--BUY CHEAP, SELL COSTLY:

(A) MIRAFLORES COTTON COST $12/Q./COMPETITORS PAY $25/Q.

(B) GENERATED $247,000 PROFIT/BUT RESULT OF SPECULATION, NOT PRODUCTIVITY

d. MANUFACTURERS WERE MAJOR BLOCK TO INSTITUTIONAL MODERNIZATION (ELIMINATION OF COTTON IMPORT PROHIBITIONS) NEEDED TO MAKE INDUSTRY AS WHOLE PROFITABLE & COMPETITIVE

IV. CONCLUSIONS:

A. MANUFACTURE & SALE OF TEXTILES IN MEXICO WAS OVERTLY POLITICIZED ACTIVITY--MARKET WAS DEFINED BY STATE INTERVENTIONISM

B. PROSPERITY FOR PROTECTED INDUSTRY DEPENDENT UPON EFFECTIVE STATE PROTECTION/ CAPACITY OF STATE TO POLICE MARKETPLACE

C. 19TH CENTURY MEXICAN TEXTILE INDUSTRY HAD MORE IN COMMON WITH MONOPOLISTIC PRACTICES OF COLONIAL SPANISH COMMERCE THAN WITH INDUSTRIAL ESTABLISHMENTS IN GREAT BRITAIN & U.S. -- ALTHOUGH ALL WERE PHYSICALLY IDENTICAL

D. POLITICAL IMPLICATIONS:

1. FAILURE OF TEXTILE INDUSTRY OWED PRIMARILY TO PERSISTENCE OF STRUCTURAL OBSTACLES (COATSWORTH THESIS)

(a) MEXICAN INDUSTRY NEVER COMPETITIVE BECAUSE OF HIGH COST OF RAW COTTON

(b) INDIVIDUAL MANUFACTURERS REAPED REWARDS OF SPECULATIONS WITH COTTON PROHIBITIONS SO MANUFACTURERS NOT FORCE FOR LIBERALIZATION OF MARKETPLACE EVEN THOUGH CHANGE IN BEST INTERESTS OF GROUP AS WHOLE

2. LARGER IMPLICATIONS OF FAILURE:

(a) NO INDUSTRIAL REVOLUTION IN MEXICO

(b) NO DYNAMIC ENTREPRENEURIAL CLASS EMERGED TO TRANSFORM ECONOMY & POLITY

(c) NO MEXICAN BOURGEOISIE/NO LAISSEZ-FAIRE STATE

(d) ORIGINS OF MEXICAN ECONOMIC DEPENDENCY

(1) MODERN TEXTILE INDUSTRY FOREIGN INVESTMENT AFTER 1880S

(2) BEGINNING OF FOREIGN ECONOMIC DOMINATION: CAPITAL, TECHNOLOGY, MARKETS/HUGE FOREIGN DEBT