A SURVEY OF THE MEXICAN ECONOMY, 1821-1867

I. THE ECONOMIC DISASTER

A. DEPRESSION, STAGNATION, DECLINE

B. MINING PRODUCTION FALLS SHARPLY, AGRICULTURE DEPRESSED, COMMERCE IRREGULAR, MANUFACTURING FAILURES

C. WIDENING GAP BETWEEN U.S. & MEXICAN PRODUCTIVITY:

1. MEXICO GDP IN 1800 = 1/2 OF U.S. GDP

2. U.S. ECONOMY GROWS 1.3% ANN. 1800-1860/MEXICAN ECONOMY DECREASED -0.5% ANN. 1800-1860

3. MEXICO GDP IN 1860 = 1/8 OF U.S. GDP

4. "GAP" BETWEEN DEVELOPED & UNDEVELOPED ECONOMIES HAS REMAINED SAME DESPITE RAPID MEXICAN GROWTH LATE IN 19TH CENTURY

5. TO GROW QUICKLY LATE, MEXICO NEEDED FOREIGN INPUTS/RESULT WAS ECONOMIC DEPENDENCY LASTING UNTIL PRESENT DAY

II. CAUSES OF THE ECONOMIC DISASTER

A. SOME COMMON CAUSES CITED/NOT SATISFACTORY EXPLANATIONS

1. NO SPIRIT OF ENTERPRISE: PRE-CAPITALIST VALUES

a. RESEARCH SHOWS MEXICO HAD ENTREPRENEURS

b. SAME ATTITUDES/VALUES AS COUNTER-PARTS IN U.S.

2. INEFFICIENT AGRICULTURE: LATIFUNDIA SYSTEM

a. HACIENDA OWNERS EFFICIENT, CAPITALIST MANAGERS

b. "OPTIMAL MIX" OF LARGE-SMALL HOLDINGS

3. CHURCH PROPERTY-HOLDING/FINANCIAL ACTIVITIES

a. CHURCH EFFICIENT PROPERTY MANAGER

b. CHURCH AS 'DEVELOPMENT BANK'--CHEAP LOANS

c. INCOME SUPPORTED CHARITABLE ACTIVITIES

4. MATERIAL DEFICIENCIES: LACK OF CAPITAL, ETC.

5. DEPENDENCY/UNDERDEVELOPMENT: UNFAIR FOREIGN COMPETITION/FOREIGN PRESSURES & INTRIGUES

a. WHY WERE MEXICAN INDUSTRIES NON-COMPETITIVE?

b. WERE MEXICANS SO/PASSIVE & SO DEFENSELESS?

B. MORE PLAUSIBLE EXPLANATIONS

1. GEOGRAPHY/HIGH TRANSPORT COSTS

2. INHERITED BACKWARD ECONOMIC INSTITUTIONS:

a. STATE INTERVENTIONISM, MONOPOLIES, CORPORATE PRIVILEGES

(1) CONSTRAINTS ON MOBILITY LABOR/CAPITAL

(2) COST OF DETAILED REGULATIONS

(3) NO CLEAR PROPERTY RIGHTS

(4) NO SUPPORT INFRASTRUCTURE--PHYSICAL OR INSTITUTIONAL-- I.E. ROADS TO COMMERCIAL CODES

(5) SPECIAL PRIVILEGES FOR FAVORED INDIVIDUALS, CORPORATIONS AT EXPENSE OF REST

(6) SUCCESS OR FAILURE OF ENTERPRISE CONSEQUENCE OF POLITICAL RELATIONSHIPS

b. DISCOURAGE ECONOMIC GROWTH/PROMOTE CONFLICT

III. A MODEL OF THE MEXICAN ECONOMY

A. ROLE OF THE ENTREPRENEUR IN ECONOMIC GROWTH

1. DYNAMIC ELEMENT IN CAPITALIST ECONOMY

2. INTRODUCES EFFICIENCY, PRODUCTIVITY, SAVINGS IN PRODUCTION OF GOODS & SERVICES--MAKES PROFITS--REINVESTS PROFITS IN NEW PRODUCTION

3. AS ENTREPRENEUR PROSPERS, SO DOES SOCIETY

4. EXAMPLES OF ENTREPRENEURS IN 19TH CENTURY U.S.

B. ROLE OF THE EMPRESARIO IN MEXICAN ECONOMY

1. EMPRESARIOS MAKE FORTUNES/BUT ECONOMY DECLINES

2. SHARE SAME VALUES/ORIENTATIONS AS U.S./W. EUROPEAN COUNTERPARTS

3. EXAMPLES INCLUDE MANUEL ESCANDON WHO WAS WEALTHIEST BUSINESSMAN IN MEXICO BY 1856

4. MEXICAN EMPRESARIOS DO BUSINESS IN A DIFFERENT INSTITUTIONAL ENVIRONMENT/TRANSFORMS MEANING & CONSEQUENCES OF ENTREPRENEURSHIP/ ACCUMULATION OF WEALTH IN THIS CONTEXT NOT IDENTICAL WITH ENTREPRENEURIAL PROCESS

C. HOW DID THE EMPRESARIO MAKE HIS FORTUNE?

1. AGRICULTURE, COMMERCE DEPRESSED

2. MANUFACTURING EXPERIMENT ENDED IN BANKRUPTCIES--A SINKHOLE FOR CAPITAL

3. MINING WAS UNCERTAIN--A LOTTERY

4. PRIVATE FINANCE:

a. SHIFT RISKS OF DOING BUSINESS TO BORROWER

b. GIVE UP SHARE OF PROFITS FOR SECURITY

c. HOW COULD BORROWERS CONSISTENTLY REPAY COSTLY LOANS IN DECLINING ECONOMY?

d. BORROWERS ACQUIRE COLLATERAL PROPERTY AFTER DEFAULT

e. THEN LENDER MAY NEED TO BORROW, SINCE EXHAUSTS HIS OWN CASH SUPPLY WITH LOANS

f. SECOND LENDER MAY ACQUIRE PROPERTIES OF FIRST

g. WAS BASIC MECHANISM FOR ACCUMULATION OF WEALTH/ NOT ENTREPRENEURIAL PROCESS

h. BUT EVERY LENDER HAD FINITE CASH SUPPLY, SO PRIVATE FINANCE BY ITSELF COULD NOT BE SECURE & PROFITABLE ACTIVITY

5. PUBLIC FINANCE:

a. STATE CANNOT MAKE WEALTH, BUT CAN REDISTRIBUTE IT

b. STATE CAPACITY TO EXTRACT REVENUES DID NOT DECLINE

c. LOANS TO STATE GIVE HIGH RETURNS

d. SUCCESS REQUIRES ABILITY TO COMPEL STATE TO REPAY LOANS

6. PUBLIC ECONOMIES:

a. USE STATE POWER TO CREATE ARTIFICIAL ECONOMIES WHERE INEFFICIENT ENTERPRISES CAN BE MADE PROFITABLE

b. EXAMPLES: DE JURE MONOPOLY IN TOBACCO/DE FACTO MONOPOLY IN TEXTILE MANUFACTURING

c. POLITICALLY-STRUCTURED MARKETS: CONSUMERS OBLIGED TO BUY GOODS AT FIXED PRICES/NO FREE MARKET ALTERNATIVES

D. STATE FUNCTIONED AS GIGANTIC ENGINE OF INCOME REDISTRIBUTION

1. EMPRESARIOS WHO EXERCISE CONTROL FLOURISH

2. THOSE WITHOUT CONTROL OR WHO LOSE CONTROL ARE DEVOURED

3. TO MAKE HIS FORTUNE, EMPRESARIOS DID NOT RELY UPON INCOME FROM ECONOMIC GROWTH (WHICH WAS ABSENT)-- INSTEAD SUCCESSFUL BUSINESSMAN CHARACTERIZED BY INTIMATE ACCESS TO POLITICAL DECISION-MAKING PROCESS

E. PROBLEMS OF THIS ECONOMY:

1. ECONOMIC COSTS:

a. DISCOURAGED PRODUCTIVITY, INNOVATION, EFFICIENCY

b. REWARDED POLITICAL PROWNESS

2. POLITICAL COSTS:

a. ALL INTERESTS TO CONTROL STATE-- DESTABILIZED STATE/DRAINED OFF RESOURCES

b. COMPETITION FOR POLITICAL INFLUENCE ALSO PRODUCED INTRA-CLASS CONFLICTS--CIVIL WARS

3. DIFFICULT TO CHANGE SYSTEM:

a. IN U.S./W. EUROPE ENTREPRENEUR USED ECONOMIC POWER TO CAPTURE STATE/TRANSFORM INTO LIBERAL LAISSEZ-FAIRE STATE TO PROMOTE CLASS INTERESTS

b. IN MEXICO ENTREPRENEUR IS CONSERVATIVE/RELIES UPON & PROFITS FROM INTERVENTIONISM/DOES NOT PROVIDE SOCIAL BASE FOR POLITICAL MOVEMENT TO REFORM MEXICAN INSTITUTIONS