A POLITICIZED ECONOMY: THE MEXICAN TOBACCO MONOPOLY

I. INTRODUCTION/THEME/THESIS

A. CHARLES RIVER BRIDGE CASE/MEXICAN TOBACCO CASE OF 1837:

1. JUSTICE MARSHALL RULES AGAINST MONOPOLY

2. MEXICAN TOBACCO CASE DID NOT CHALLENGE PRINCIPLE OF MONOPOLY, ONLY WHO SHOULD CONTROL MONOPOLY

B. THEME/SUBJECT

1. EMPRESA DEL TABACO

2. LARGEST, BEST-ORGANIZED OF SEVERAL JOINT-STOCK COMPANIES FORMED BY EMPRESARIOS TO PROFIT FROM RENTAL OF TOBACCO MONOPOLY RIGHTS, 1830-1856

C. THESIS

1. TOBACCO MONOPOLY PART OF COLONIAL LEGACY WHICH HINDERED ECO. GROWTH IN EARLY NATIONAL MEXICO

2. MONOPOLY OPERATIONS ALSO GENERATED DIVISIVE POLITICAL CONFLICTS

D. ORGANIZATION OF PRESENTATION

1. DESCRIBE INTEREST GROUPS INVOLVED WITH MONOPOLY/BASIS FOR INTER-GROUP CONFLICTS

2. PROBLEMS OF MARKETING & MANUFACTURING IN POLITICALLY-CHARGED ENVIRONMENT

3. ASSESS PROFITABILITY OF EMPRESA/ITS IMPACT ON MEXICO

II. CONTENDERS

A. PLANTERS

1. COLLECTIVE CONTRACTS FOR LEGAL GROWING DISTRICTS IN CORDOVA & ORIZABA, VERACRUZ AFTER 1765

2. CROWN PROBLEMS IN CONTAINING PLANTER DEMANDS/FREQUENT CONFLICTS

3. PLANTER INFLUENCE KEPT MONOPOLY INTACT AFTER 1821

4. BANKRUPTCY OF MONOPOLY BY 1828/PLANTERS UNPAID

5. INITIALLY, PLANTERS SUPPORTED ABOLITION OF MONOPOLY IN 1833/ASSUMED FREE TRADE WOULD BRING PROSPERITY

6. ECONOMIC DISASTER IN GROWING DISTRICTS BY 1835 BRINGS MOVEMENT TO RETURN TO COLONIAL MODEL

B. BUREAUCRATS

1. COLONIAL MONOPOLY HAD 10,000 EMPLOYEES

2. EMPLOYEES FARED BADLY IN FEDERAL MONOPOLY/ PRIVATE COMPANIES AFTER 1830

3. SHARED PLANTER INTEREST IN REVIVING COLONIAL INSTITUTION: MORE JOBS+HIGHER PAY+ SECURITY

C. EMPRESARIOS

1. EXCLUDED FROM SHARING IN COLONIAL MONOPOLY PROFITS ($120 M. IN NET REVENUES, 1776-1810)/ ANNUAL SALES OF $8 M.

2. NEED OUTLETS TO INVEST CAPITAL/SECURITY OF POLITICALLY-FIXED SUPPLY & DEMAND SCHEDULES

3. INVESTED IN PRIVATE COMPANY OF 1830 WITH MIXED RESULTS/CONFLICT WITH PLANTERS/ BUREAUCRATS

4. AFTER SANTA ANNA DISCREDITED, EMPRESARIOS HAVE CONSIDERABLE INFLUENCE IN BUSTAMANTE GOVT./ MONOPOLY REESTAB. IN 1837 FAVORS EMPRESARIOS/ADMIN. BY BANCO DE AMORTIZACION

5. EMPRESARIOS DEFEAT PLANTERS IN COMPETITIVE BIDDING FOR DEPARTMENTAL CONTRACTS IN OCT. 1837: LEGAL CHALLENGE/POLITICAL THREATS FROM PLANTERS PRESSURE BUSTAMANTE INTO CONCESSIONS

6. BUSTAMANTE INCREASES PRICES EMPRESARIOS MUST PAY PLANTERS FOR TOBACCO, BUT REDUCES RENT FOR MONOPOLY RIGHTS ($225,000 OVER 5YRS.)

III. EMPRESA DEL TABACO

A. FORMALLY ORGANIZED IN 1839 WITH COMBINATION OF PRIVATE COMPANIES FOR NATIONAL MONOPOLY

B. COMBINATION:

1. CLOUT V. STATE/PLANTERS

2. ECONOMIES OF SCALE

C. ADMINISTRATION:

1. BOARD OF DIRECTORS (SHAREHOLDERS)

2. DIRECTOR (ELECTED SHAREHOLDER)

3. GENERAL SECRETARY (EMPLOYEE)

4. DIRECCION GENERAL (MEXICO CITY)

5. ADMINISTRACIONES/(PRIN. CITIES)

6. FIELATOS/ESTANQUILLOS (RETAIL OUTLETS) MARKET ON COMMISSION (8%-11%)

D. MARKETING

1. RETAIL PRODUCTS/PRICES SPECIFIED IN CONTRACT WITH GOVT.

2. SALES ONE-THIRD OF COLONIAL MONOPOLY

3. POOR QUALITY MERCHANDISE/NO LEGAL OPTIONS FOR CONSUMERS

IV. EMPRESA CONFLICT WITH INTEREST GROUPS

A. BUREAUCRATS

1. BASIS FOR CONFLICT:

a. TRADITIONAL V. MODERN MANAGEMENT PRACTICES

b. JOB INSECURITY/LOWER PAY/REDUCED STAFF

2. RESOURCES:

a. INFLUENCE WITH CIVIL SERVANTS/MILITARY

b. FACTORY WORKERS SHARE INSECURITY/ DISTRUST OF INNOVATIONS

c. NATURAL ALLIES OF PLANTERS

B. PLANTERS

1. BASIS FOR CONFLICT:

a. REDUCED VOLUME OF PURCHASES/FORCED REDUCTION IN PLANTINGS ALLOTTED

b. NO FINANCIAL AID FROM EMPRESA: EXPLOITED POVERTY OF SMALL PLANTERS BY REDEMMING PROMISSARY NOTES WITH DISCOUNTS

2. RESOURCES:

a. CONTROL LOCAL/DEPARTMENT GOVT. IN VERACRUZ

b. VERACRUZ CITIZENS PROMINENT IN MILITARY/HIGH POL. OFFICES--I.E. SANTA ANNA

V. EMPRESA AND THE STATE

A. NATIONAL GOVT.

1. FRIENDS IN HIGH OFFICES/BANCO DE AMORTIZACION & CONGRESSIONAL FINANCE COMMITTEES/MINISTERS/ ETC.

2. FINANCIAL DEPENDENCY OF GOVT.

a. BANCO DE AMORTIZACION NEEDS EMPRESA TO STAY SOLVENT

b. BUSTAMANTE REGIME: LOANS/POL. SUPPORT

B. LOCAL GOVT.

1. UNDECLARED WAR: DEMANDS FOR SPECIAL FAVORS/CASHBOXES TARGETS OF REBELS

2. LOCAL OFFICIALS DEFY GOVT. DECREES

3. NATIONAL GOVT. TOO WEAK TO ENFORCE MONOPOLY IN FACE OF LOCAL RESISTANCE:

a. ENORMOUS MARGIN BETWEEN FREE MARKET PRICE V. MONOPOLY PRICE ($3 ARROBA V. $20.3R./ARROBA

b. PEASANT REVOLTS WHEN FIELDS BURNED

c. REBELS & TOBACCO CONTRABANDERS

d. RESGUARDO EXPENSIVE/CONTROVERSIAL

VI. PROFITABILITY

A. HIGH OVERHEAD COSTS REDUCE PROFITS:

1. COLONIAL MONOPOLY HAD $0.32 IN COSTS PER $1.00 IN SALES

2. EMPRESA HAD $0.89 COSTS PER $1.00 SALES

B. OTHER FACTORS REDUCE PROFITS

1. DEVALUATION OF COPPER CURRENCY

a. 35%---1837-41

b. ALL EMPRESA RECEIPTS IN COPPER/MOST DEBTS REPAYABLE IN SILVER

2. COST OF BORROWING: 15% ANN. MINIMUM

VII. LIQUIDATION OF EMPRESA DEL TABACO

A. EMPRESARIOS INTERESTS IN RETURNING MONOPOLY:

1. NO DIVIDENDS/CONT. DEMANDS FOR CAPITAL RUIN SOME PARTNERS BY 1840

2. PROPOSAL TO FORM NEW COMPANY WITH GOVT. IN 1841:

a. SELL INVENTORY TO GOVT. AT HIGH PRICE

b. PAY NO RENT

c. GOVT. PROVIDES FINANCING WITH BONDS

d. GOVT. ASSUMES ENFORCEMENT COSTS

e. EMPRESARIOS PROFIT FROM AMORTIZING COPPER

B. PROJECT VETOED BY AGIOTISTAS/BANCO DE AMORTIZACION/ PLANTERS/ BUREAUCRATS

C. PARTNERS ABANDON SUPPORT OF BUSTAMANTE/CONSPIRACY WITH SANTA ANNA/TIP POLITICAL BALANCE OF POWER

VIII. REALIGNING THE POLITICAL ECONOMY OF TOBACCO

A. PLANTERS:

1. GOVT. MONOPOLY TO PURCHASE MORE TOBACCO

2. FORMAL CORPORATE STATUS FOR COMUN DE COSECHEROS

B. BUREAUCRATS:

1. CIVIL SERVANTS/MILITARY EMPLOYMENT PREFERENCE WHILE EMPRESA APPOINTEES FIRED

2. MORE ADMINISTRATORS/HIGHER SALARIES

C. EMPRESARIOS:

1. CONVERT EMPRESA INTO PROFITABLE ENTERPRISE

2. RECEIVE $6 MILLION IN BONDS FOR INVENTORY + AGGREGATED CLAIMS

3. COMPANY LOANS/ACCOUNTS REPAID WITH GOVT. MINING SHARES/VALUABLE HACIENDAS

4. BY 1844 INVESTORS MAKE $2.25 MILLION ON $1 MILLION INVESTED (25% RETURN OVER 6YRS/ 10% INCLUDING FINANCE COSTS DEDUCTION)

IX. CONCLUSIONS

A. ECONOMIC COSTS

1. LOSS OF PRODUCTIVITY

a. INEFFICIENT PRODUCERS PROTECTED WITH ARTIFICIAL ADVANTAGES

b. MORE RESOURCES PRODUCE LESS TOBACCO

2. CONSUMERS/SMALL-SCALE PRODUCERS VICTIMIZED

a. HIGH PRICES FOR BAD TOBACCO

b. EXCLUSION FROM WORK IN TOBACCO TRADE

c. REDISTRIBUTED INCOME AWAY FROM PERIPHERY TOWARDS MEXICO CITY & VERACRUZ

3. NET REVENUE LOSS FOR STATE: INVESTORS TAP STATE RESOURCES TO MAKE ENTERPRISE PROFITABLE

B. POLITICAL COSTS:

1. LOSS OF INCOME MADE GOVT. VULNERABLE

2. RIVAL INTEREST GROUP CONFLICT:

a. THREAT OF PLANTERS TO REVOLT

b. RIOT BY TOBACCO FACTORY WORKERS

c. LINK BETWEEN SANTA ANNA 1841 REVOLT & PLANTERS & EMPRESARIOS

3. OTHER CONFLICTS:

a. NATIONAL GOVT. V. LOCAL GOVT. OVER ENFORCEMENT

b. PEASANT REVOLTS

c. LINKS BETWEEN INSURGENTS & SMUGGLERS

C. TOBACCO MONOPOLY ONLY ONE OF MANY POLITICIZED ECONOMIES:

1. TEXTILES, ARMAMENTS, MEAT, SALT, ROADS, MINTS, FINANCE, GUNPOWDER, MERCURY, ETC.

2. EVERY MOVEMENT OF ECONOMY SET OFF DIVISIVE CONFLICT