Assessing the Obstacles to Industrialisation: The ... - Innovation

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Industrialisation in Mexico 2 7industrial plant, nor did it send the industrial barons of the Porjriato intoexile, never to return. Mexico's physical plant, especially the large firmsthat had the political and financial resources to protect themselves, camethrough the fighting in one piece. Thus, output quickly reached itsPorfirian levels once the fighting stopped in 1917. Mexico's industrialistswere also still present after the Revolution, and in fact were evenmobilising politically to defend their interests as early as I 9 I 7 against thenew state taking shapc6'The Revolution did, however, significantly affect the confidence ofhlexico's industrialists. It was not that the post-revolutionary governmentswere anti-industrial or anti-business - they were in fact made up ofbusinessmen - but rather that the rules of the game had been rewritten bythe Revolution. The industrialists no longer controlled the reins of powerthe way they had done during the Porjriato; urban labour, which hadplayed an important role in the defeat of the peasantry during the civil warof 1914-17, now played a much larger role within the state, extractingimportant concessions in the 1917 Constitution such as the right toorganise and strike, an eight-hour day, a six-day work week, and equal payfor equal work. The political climate was also unstable: it was not entirelyclear what direction Mexico would follow during the 1920s, whether therewould be a renewed round of violence moving the Revolution to the leftin an attack on private property or to the right against the progressivecompromises of the Constitution of I 9 I 7.The result was a marked deceleration in new capital spending byindustrialists, a dramatic fall in the value that financiers placed on theirassets, and a jump in financial rates of return as investors began to demandsizeable risk premiums to keep their money in Mexico. An analysis ofcapital spending by Mexico's major steel, cotton textile and cigarettemanufacturers, for example, reveals that firms began to run their alreadyestablished plants into the ground after the Revolution. The book valueof the physical plant of the country's major textile manufacturer (theCompadia Industrial de Orizaba) fell by I 6 % between I 920 and 1924, andof the major cigarette producer (El Buen Tono) by 21 % between 1918and 1924. Even in the steel industry, where there was considerable newinvestment between 1919 and 1921, the brakes were soon put on newcapital spending, resulting in a drop in book value of five per cent between1921 and 19.24. Data from the federal tax register of the cotton textileindustry, which covers all cotton spinning and weaving firms, indicate a'' Primer Congreso Nacional de Industriales, R~setia-r memoria delprimer congreso nactonalde industriales reunido en la Ciudad de ilfixico bqo ei patrocinio de /a Secretarrb de IndustriaComer~to-~ Trabajo (Mexico, 1918).
28 Stephen H. Habersimilar decline, with the value of capital in equipment and buildings per active mill falling by 13 % between 1922 and ~ ~ r ~ . ~ ~ The lack of capital spending was driven by the pessimism of investors,who were revaluing their assets downwards. An analysis of the ratio ofmarket-to-book values for the three firms discussed above indicates thatinvestors perceived that their assets were worth only yo % of what theyhad perceived them to be prior to the Revolution. Along with a declinein the value of assets came concomitant jumps in stock yields, as investorsbegan to demand a sizeable risk premium in order to stay in the Mexicanmarket. The average yield on common stock in Mexico's major industrialcompanies increased from 4.6% per annum during the period betweenI 896 and I 910 to 9.4% per annum between 1918 and 1925. Similarly, realfinancial returns to investors increased sixfold; jumping from 3 % perannum during the period I 90 1-1 o to I 8.7% during the period from 19I 8to 1925, the result of a dramatic fall in the real market values of stocksbetween 1910 and 1918, which produced sizeable capital gains for thosewilling to invest in the market afterward^.^' There is also evidence that the-1920s were a period of capital flight in hIexico, as investors began to keepmore of their cash assets abroad."The pessimism of the investment community in Mexico was borne outin the latter part of the 1920s as hIexico began to enter the GreatDepression. Beginning in 1926 the prices of Mexican exports went on adownhill roller coaster ride. Between 1926 and 1928 export revenues fellby ten per cent, from $3 34 million to $299 million. The drop acceleratedthereafter, with exports eventually falling to only $97 million in I 93L Thisdrop was not compensated for by a similar drop in import prices. Not onlydid the volume of exports decline by 37 % between 1929 and 1932, but theterms of trade deteriorated by 21 % as well. Thus, the purchasing powerof Mexican exports fell by over 50 % in just three years. The negativeeffects of the collapse of the export sector, which had significant effects onemployment and demand, were exacerbated by pro-cyclical monetary andfiscal policies.'1 Though the estimates are rough, the available dataindicate that real per capita Gross Domestic Product fell by 5 .g% in 13.27,0.9% in 1928, 5.4% in 1929, and 7.7% in 1930. In 1931 there was a slightrecovery, with an increase in GDP of I.j %, but it was not long-lasting.For a detailed discussed of the effects of the Revolution, as well as a discussion of houthesevalues were calculated, see Haber, Ind/is.fr, and Ynderdt-celopment, ch. 8.'' For a detailed discussion of the sources and methods employed in this analysis seeHaber, Industry and Cnderdetelopment, pp. 144-8'' Joseph Sterrett and Joseph Davis, Tile Fircal and Economic Condition oj .Ilexico (Nea-~.York, 1928), p. 190. " F.nrique Cardenas, La industriali?acion n/exicana d~rante la Gran Depresion (Mexico, 1987), chs. 3 and 4.
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