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Inequality, Institutions and Economic Growth in Latin America*

Published online by Cambridge University Press:  17 July 2008

JOHN H. COATSWORTH
JOHN H. COATSWORTH
Affiliation:
John H. Coatsworth is Professor of History and International and Public Affairs, and Dean of the School of International and Public Affairs, Columbia University. Email: jhc2125@columbia.edu
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Abstract

This essay examines three recent historical approaches to the political economy of Latin America's relative economic backwardness. All three locate the origins of contemporary underdevelopment in defective colonial institutions linked to inequality. The contrasting view offered here affirms the significance of institutional constraints, but argues that they did not arise from colonial inequalities, but from the adaptation of Iberian practices to the American colonies under conditions of imperial weakness. Colonial inequality varied across the Americas; while it was not correlated with colonial economic performance, it mattered because it determined the extent of elite resistance to institutional modernisation after independence. The onset of economic growth in the mid to late nineteenth century brought economic elites to political power, but excluding majorities as inequality increased restrained the region's twentieth-century growth rates and prevented convergence.

Resumen:

Este ensayo examina tres enfoques históricos recientes en relación a la economía política de la relativamente atrasada economía de Latinoamérica. Los tres ubican los orígenes del actual subdesarrollo en instituciones coloniales defectuosas vinculadas a la desigualdad. La visión contrastante que se ofrece aquí señala el significado de las trabas institucionales, pero afirma que éstas no provienen de las desigualdades coloniales, sino que de la adaptación de prácticas ibéricas a las colonias americanas en condiciones de debilidad imperial. La desigualdad colonial varió a lo largo del continente y aunque no tenía correlación con el desempeño económico colonial, es importante porque determinó el grado de resistencia de las elites a la modernización institucional tras la independencia. El surgimiento de un crecimiento económico de mediados a finales del siglo XIX llevó a las elites económicas al poder político. Sin embargo, la exclusión de las mayorías mientras se incrementaba la desigualdad limitó las tasas de crecimiento de la región en el siglo XX y evitó una convergencia de proyectos.

Resumo:

Este ensaio examina três abordagens históricas recentes que tratam do relativo atraso da economia política da América Latina. Todas as três localizam as origens do sub-desenvolvimento contemporâneo nas instituições coloniais ligadas à desigualdade. A perspectiva contrastante fornecida aqui afirma a importância de restrições institucionais, porém argumenta que elas não surgiram à partir de desigualdades coloniais, mas da adaptação de práticas ibéricas às colônias americanas sob condições de fraqueza imperial. A desigualdade colonial variou pelas américas; mesmo ela não sendo correlacionada ao desempenho econômico colonial, isso foi importante, pois determinava a extensão da resistência das elites à modernização instituicional após a independência. O início do crescimento econômico do meio ao fim do século XIX levou as elites ao poder político, contudo a exclusão das maiorias à medida que a desigualdade aumentava restringiu as taxas de crescimento da região no século XX, impedindo a convergência dos projetos.

Keywords

political economycolonial institutionseconomic growthwealth inequality
Type
Commentary
Information
Journal of Latin American Studies , Volume 40 , Issue 3 , August 2008 , pp. 545 - 569
Copyright
Copyright © 2008 Cambridge University Press

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References

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12 But see Ward J. Barrett, The Sugar Hacienda of the Marqueses del Valle (Minneapolis, 1970) on the significance of ‘sub-innovation’.

13 Coatsworth, ‘Economic and Institutional Trajectories’; Eltis, ‘The Total Product of Barbados’.

14 Imperial efforts to modernise economic organisation in the late eighteenth century may have augmented economic growth, but served mainly to redistribute the burdens of colonial rule. The subsidy of mercury by the Crown helped eighteenth-century silver mining in Mexico: Rafael Dobado and Gustavo A. Marrero, ‘Mining-Led Growth in Bourbon Mexico, the Role of the State, and the Economic Cost of Independence’ (Cambridge, Mass., David Rockefeller Center for Latin American Studies, Working Paper 2006–07, No. 1, 2006). It has also been argued persuasively that other colonial policies added to modest Mexican growth, even if different policies might have added much more: see Leandro Prados de la Escosura, ‘The Economic Consequences of Independence in Latin America’, in Victor Bulmer-Thomas et al. (eds.), Cambridge Economic History of Latin America (Cambridge 2006), vol. 1, pp. 463–504.

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17 Though Leandro Prados de la Escosura, among others, does not think this a useful comparison: see his paper, ‘The Economic Consequences of Independence’. If Latin America is compared to western Europe as a whole (rather than Great Britain, the leading European economy until the late twentieth century), the performance of the Latin America economies looks relatively less anaemic. Prados argues that the European average should be taken as a better gauge of the potential for growth of the Latin American economies in the nineteenth century, but offers no evidence other than the comparison itself for this assumption. Since both Latin America and the laggard economies of western Europe did manage to achieve rates of growth comparable to the United States eventually, it seems to make more sense to use the United States as a yardstick for the growth potential of both.

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21 Engerman and Sokoloff, ‘Factor Endowments’, p. 275.

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25 Acemoglu et al., ‘Reversal of Fortune’, p. 13.

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30 It is a separate question whether Latin America could have succeeded by working to increase the exports that Europe was demanding. Argentina did well doing so despite (or because of) weak government.

31 John H. Coatsworth and Gabriel Tortella, ‘Institutions and Long-Run Economic Performance in Mexico and Spain, 1800–2000’ (Harvard University, David Rockefeller Center for Latin American Studies, Working Papers on Latin America, no. 02/03-1, 2002).

32 These authors argue that ‘mercantilist’ institutions in the colonies, such as merchant guilds (consulados), the lack of competition in the Peruvian mining industry, and public monopolies in Ecuadorian wool production inhibited capitalist development, even after the Bourbon reforms began to open up colonial economies from the 1760s. Neither in these cases nor in others that the authors cite, however, was productivity blocked by lack of market competition. External trade increased after the Bourbon ‘free trade’ decrees opened participation to merchants and traders who were not consulado members (though cause and effect is not so easy to prove as simultaneity); the Peruvian mining industry collapsed not because of excessive competition but because ore quality declined and the smelters ran out of tailings to process; and woollen production collapsed in many areas because fully taxed English cottons imported legally via Cadiz in ships sailing under the Spanish flag were cheaper and better.

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