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How Latin America Fell Behind: Essays on the Economic Histories of Brazil and Mexico, 1800-1941.

Edited by Stephen Haber. Stanford, Calif.: Stanford University Press, 1997. xiii + 316 pp. Tables, figures, notes, references, and index. Cloth, $59.00. ISBN 0804727376; paper, $18.95. ISBN 0804727384.

Reviewed by Colin M. Lewis

In this ambitious book, Haber wishes to shift the focus of research on Latin America. For too long the economic historiography of Latin America has lacked a systematic, cohesive methodology. Haber hopes to counter the pernicious heritage of dependency, an approach that vaunted the ad hoe, rejected scientific evaluation, and often disparaged empiricism. In its place, he advocates a neoclassical reasoning tempered by institutional analysis. Most chapters share an interest in the role of technology and institutions, and in the use of economic theory to understand processes of institutional change. Rejecting dependista assertions that Latin American economies were held back by unequal exchange, this book argues that factor endowment, lack of transport, and inefficient institutions explain why the continent fell behind the North Atlantic economies.

The book makes several excellent - and original - contributions. There are sectoral chapters on Mexican financial markets and manufacturing (by Carlos Marichal and Haber respectively), Mexican and Brazilian railways (Williams Summerhill), and Mexican agriculture (Margaret Chowning). Richard J. Salvucci, Haber, and Herbert S. Klein confront a key contention in the dependency literature, namely that underdevelopment increased with independence in both countries. Enrique Cardenas provides a nuanced, institutionalist synthesis of existing debates about macroeconomic growth in Mexico, while Nathaniel H. Left re-works some of his earlier publications on growth in Brazil. A concluding chapter by Stanley L. Engerman and Kenneth L. Sokoloff on factor endowment and institutions examines Latin America from the perspective of the U.S. literature. They caution that further research is needed to sustain the hypothesis that other New World economies might have emulated the U.S. had their government policies more closely approximated those applied in the north.

All the contributions on Mexico point to the generalized, disruptive impact of independence, particularly on the mining sector. Precious metal production was critical, providing exports, fiscal receipts, currency, and a base for credit. But, as Salvucci indicates, economic downturn predates the outbreak of insurgency and recovery must have occurred earlier than is sometimes assumed. Despite the continuing threat of disorder, Chowning makes effective use of a circumscribed body of empirical data to show that in Michoacan, at least, rural investment and production for the market picked up relatively rapidly. Cardenas also points to investment and output expansion which occurred elsewhere after the mid-1830s, even in advance of the modernization of transport and a securing of property rights.

Many of the book's contributors emphasize the importance of effective regulation. Marchial and Haber acknowledge that capital market development is predicated upon reliable government paper. Domestic circulation of public bonds, honored by the state, creates confidence in paper securities and favors the consolidation of impersonal forms of finance, a basic, but not always sufficient, pre-requisite for the consolidation of an efficient capital market. Hence, excessive regulation in Mexico induced financial repression, limiting the effectiveness of the stock market as a generator of private sector finance. By contrast, financial and banking liberalization in Brazil towards the end of the nineteenth century, coupled with a requirement that companies disclose information, stimulated the market for corporate paper, thereby yielding a more competitive, less oligopolistic, industrial environment. Summerhill is persuasive when pointing to the massive social savings produced by railways in Brazil and Mexico.

Perhaps the key question, though, is located not in the macroeconomic argument that infrastructural modernization reduced costs, releasing resources for other sectors and therefore "growing" the economy, but at the firm level: Could companies have been more efficient?

Much of this volume is imbued with a neo-classical zeal, though even some of the contributors are cautious. Cardena and Leff acknowledge the limits of international insertion and export-led growth. Even the most doubting critic, however, could not fail to be impressed by the cares with which the contributors apply statistical evidence and rich qualitative data to their arguments.

Colin M. Lewis is associate professor of Latin American economic history at the London School of Economics and Political Science. He has published works on the history of railways in Latin America, business history, and industrial growth, including Public Policy and Private Initiative: Railway Building in Sao Paolo, 1860-1889 (1991). With John Harris and Janet Hunter, he edited The New Institutional Economic and Third World Development (1997). He is currently working on the history of Argentinian social policy.
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Title Annotation:Review
Author:Lewis, Colin M.
Publication:Business History Review
Article Type:Book Review
Date:Jun 22, 1999
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