The entrepreneurial elites of Latin America

The Entrepreneurial Elites of Latin America

FERNANDO HENRIQUE CARDOSO

Latin American Faculty of the Social Sciences (FLACSO)

I. I N T R O D U C T I O N

M EN OF ENTERPRISE were the basis of Latin America's colonization. This colonization by

Spain and Portugal had economic objectives, occurring as it did within the general framework of the expanding movement of European capitalism. Entrepreneurial elites refers to small select groups recruited not by virtue of their lineage but of their abilities. The general problem of the entrepreneurial elites in Latin America thus entails an analysis of the origins, functions, and types of social integration governing their actions in relation to landowning, slave trading, and commercial activities of the colonial epoch.

The concepts of elite and enterprise can be ap- proached from another, more general perspective. From a Weberian point of view economic"enterprise" implies the adoption of systematic practices in order to achieve an orderly accumulation of profit and the subsequent expansion of activities. Elite would describe not merely a small, select group but a basic concept relating to a special type of social stratification: the elitist societies. In such societies, the existence of the masses, which are by definition unable to express their interests for themselves, is complemented by other social strata based on the relations between the competent few. In such a framework, the domination exerted by the elites is independent of the system of property distribution. Thus, elites refer to political rather than economic class relations.

In Weberian terms the entrepreneurial elites constitute structured or semi-structured control groups formed within the group of individuals who direct modern economic organizations. Such for- mations have special importance in the elitist societies which took shape in Latin America. The entrepreneurs constituted an important part of the new decision-making system. The elites of that region do not necessarily constitute the organized expression of mass sectors of society. Rather, they often have ambitions that link up to the oligarchies which control property.

It is an error to assume that the generalized process of social transformation in Latin America has given rise to an entrepreneurial elite which opposes the traditional elites, or oligarchies. On the contrary, the reorganization of Latin American societies reaches a new synthesis through a system of alliances among social groups which insures the pivotal importance of the elite in the form of the amalgama- tion of a traditional oligarchy with an entrepreneurial s e c t o r . 1

These preliminary remarks have indicated the complexity of the concept. With these complexities in mind, this analysis of the entrepreneurial elites in Latin America will define the concept ambiguously. At times the concept will refer to the formation of new groups within the producing classes. At other times it will refer to the transformation of the structural pattern of Latin American societies themselves. In the latter case, the existence of entrepreneurial elites in the modern sense will be an indication of the type of social transformation such societies are undergoing. In the former case, it will indicate the heterogeneity of the class system and the leadership certain subgroups can exercise for their objectives and policies within the same class.

In order to historically define the problems involved, the entrepreneurial elites will be considered in connection with the formation of national markets. The elites of the colonial period are therefore excluded from this analysis, but those connected with what economists call outward development are included insofar as, in this process, the elites consolidated the basis of a national organization. The entrepreneurial elites of both periods could be included in the analysis of the origins, formation, functions, and objectives of those elites which evolved during the domestic market 's inward development period. However, this study will be limited to the outward development phase and to those which will follow, only because they are more directly linked with industrialization.

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Historically, the entrepreneurial elites will be considered here from the point at which the shaping of a domestic market for national production occurs; that is, ever since the incipient industrialization complementing the exporting economy achieves autonomy in the national productive system.

Sociologically, the entrepreneurial elites will be considered here from the time when the traditional meaning of elite, an aristocratic group presupposing the exclusion of the masses from the political process, begins to be displaced by the new meaning of elite. This displacement occurs because the creation of domestic markets, even though in support of an exporting economy, generates a mass of consumers. However, because the local social conditions vary and have been cast in an agricultural-exporting framework, the patterns of the aristocratic "excluding" societies seem to persist to some degree '~.

The assumption here will be that the entrepreneurial elites appear within the productive classes as a sub-group with sufficient leadership abilities to cause a reorientation of economic activity.

II. T H E E N T R E P R E N E U R I A L E L I T E S

D U R I N G T H E F O R M A T I V E PERIOD

OF T H E N A T I O N A L STATES

The national constitutions in Latin America did not disrupt the links between the local economies and the world market. Such a disruption would have meant chaos in the domestic economy, and a loss of effective power by the economic elites which assumed the political functions in the different countries. To avoid these dilemmas it was necessary to guarantee the continuity of exports. But the formation of national states did bring about two significant changes in the selection, orientation, and functions of the national elites.

First, trade relationships in the world market became oriented toward the ruling economy of the capitalist system, which was obviously the English. This merely accelerated a process already under way, expressed in the colonial regulations guaranteeing preferential tariffs to England at the end of the eighteenth and early in the nineteenth centuries. This power, because it guaranteed the Spanish colonies' independence, gave Latin American farmers and traders their first incentive to efficiency. This impulse is clearly illustrated in the pressure to enforce the use of a free labor force in Latin American economies. However, the real significance of this

new attitude was that it led to the establishment among the local productive classes of a trading sector closely connected with them. This sector, the beginning of an elite class, served as an impetus for the shaping of a financing system linked to the parent companies in London.

Second, the political functions of the national elites (the establishment of alliances among the recently formed countries, for example) were expressions of the economic interests established during the colonial period. But these interests were no longer exclusively tied to urban centers. Econo- mic power now lay with the farmers, livestock owners, and, to a lesser extent, miners.

To ensure the continuity of exports meant the reorganization of political power, in order to allow for the transfer of the foundation of the national economy from the Iberian countries to England. Two fundamental variables determined the success of this reorganization: the importance of the local economy's agricultural sector in the world market during the colonial period; and the marketing sector's capacity for renewal. These two conditions provide a way of understanding how new nations are integrated into the world economic system. They also provide a way of understanding the functions of national elites.

Some countries inherited from the colonial period a stable exporting activity; others had not reached the stage of typical colonial exploitation, but were trading centers and transit stations. Still others, like the mining countries, had seen their exporting activity considerably decline. In countries where it was not possible to maintain a strong exporting sector, the trading sector assumed the role of the economic elites, in inverse proportion to the importance of local agricultural products on the foreign market. The other countries also had strong trading sectors, but their economic elites grew as well from the alliances established between the agricultural and the trading sectors. The latter were financially diversified, becoming a money-lending sector as well.

The agricultural and livestock owning groups were locally controlled by the Creoles who achieved independence, while the trading sectors were under the control of the metropolis, the Creoles, and representatives of European enterprises. For this reason, the struggle for independence against the "Portuguese" or the "Spaniards" took the form of internal struggles against the traders. This con-

T H E E N T R E P R E N E U R I A L E L I T E S OF L A T I N A M E R I C A 149

tlnued until the agricultural-exporting system was altered through agreements between those who controlled the ports, trade routes, financing and production. The consolidation of this system of alliances allowed for the outward development pattern on which the subsequent formation of a domestic market for locally produced goods would be based.

III. T H E E N T R E P R E N E U R I A L E L I T E S

A N D T H E D O M E S T I C M A R K E T I N

T H E O U T W A R D D E V E L O P M E N T

P E R I O D

It follows that the scope of economic and political change during this period is different for the entrepreneurial elites in the two types of countries mentioned. The social recruitment, functions, and orientations of the entrepreneurial elites in either case all assume different characteristics.

1. Ent repreneur ia l elites of rural origin and

non-elitist industrial groups.

In the agricultural exporting economies, as the countries on the Atlantic coast typically were, the economic and political system presupposed control of the productive system and of the mechanisms of political decision by the large landowning groups. An abundant supply of land provided the economic conditions for this process. Basically, the entrepreneurial function was to ensure a satisfactory supply of hand labor and the consolidation of a legal system of property. Both processes demanded immediate control of the State by the large landowners. In the case of Brazil, this meant a guarantee of the right of ownership over the slaves to ensure the continuity of the slave trade. In the cases of Argentina and Uruguay, it meant the expansion of the land available for possession (through wars against the Indians in the former) and the facilitation of immigration. With British opposition to slave trade as of 1850, and the abolition of slavery in Brazil in 1888, immigration also became the great entrepreneurial challenge for this country.

Capitalization in these economies did not depend so much on the "decision for saving" of the capitalist class as on the appropriation of agricultural surplus. 3 While there was land, capitalization was a direct function of the availability of labor. This is why the economy of those countries is characterized by

extensive production or extensive labor and not intensive capital.

Once national political control was firmly in the hands of the landowning groups, the "enterprising spirit" of the landowners was tested in another field, the formation of adequate trade (including transportation) and banking systems. Thus, opportunities arose for the first dynamic elites to appear during the consolidation of national economies. The entrepreneurial vitality of the traditional classes in those sectors had to resist the domination of the trading groups linked to the exterior. This conflict resulted in the first modern division of labor between the strictly national sector of the economy and the domestic sector tied to foreign concerns. In general, the degree of national control of the banking system, even the success or failure of the establishment of central or state banks, and the expansion of the railroad system under national control are indi- cations of the strength of the large landowning groups. Through these means it was possible to limit economic dependence on the international market. In fact, trying to influence the price policy for export products was a fundamental task of the State, one of whose functions was to express the corporate interests of local producers.

In the case of Brazil and Argentina, the entrepreneurial elites which assumed these responsibilities were composed of "new men" usually recruited among traders who had become wealthy during the second half of the nineteenth century and who had opened up the agricultural frontiers. 4 In a way, they were as much the creators of the national banking system, transportation system, etc., as of the inward development ideologies. In Brazil the new elites were composed of federal republicans who challenged the power of the old oligarchy. In Argentina they were also federalists, but for a different reason: to organize the national economy under the protection of Buenos Aires, although tolerating the pressures of regional oligarchies. Nevertheless, in both cases these elites favored immigration, which was the basic condition for capital formation.

In Uruguay, as in Argentina, the economic recon- struction of the country about 1870 was based on the exports of livestock. Although individuals and families of the traditional high classes flourished under this change, the majority of the livestock owning elite was composed of new elements stem-

150 STUDIES IN COMPARATIVE IN TER N A TIO N A L DEVELOPMENT

ruing more directly from the immigrant masses. In Uruguay the power of national and regional oligarchies was relatively weak, s thus facilitating the rise of new social groups.

The reorganisation of the productive system and of political control in societies of this type was thus based on interests different from those of the tran- sitional groups which had brought about independence. A productive structure was organized which was more responsive to the rules of international capitalism. This new organization demanded modifications in the production methods and in the internal productive relations. The first of these changes was in the financial system. In fact, there was always some London banker willing to finance railway construction, port improvements, or speculations with export merchandise, especially if the State guaranteed the operations or guaranteed "captive" yields and returns through percentages of the customs duties or of similar revenues. The second of these changes became apparent in the spreading employment of free and salaried labor, in the farms' increasing dependence on accounting rules under a more rational management, and in the ap- pearance of technological innovations in rural areas : wiring to enclose pasture grounds, selection of livestock reproducers, utilization of machinery in coffee processing, etc.

These patterns usually led to the establishment of cities, with the economic possibility for early industrialization and the political setting for the formation of more stable systems of oligarchic domination.

The differentiation of the economic system, required for the new exporting phase and for the more rational employment of labor, meant a clearer separation between subsistence production and export production. This in turn led to more intensive marketing of consumer products and a ramifica- tion of the transportation network. In brief, a division of labor between the rural areas and the cities. Pioneer penetration into a new exporting economy left in its wake a network of urban centers such as Buenos Aires, Montevideo, Sao Paulo, and Rio de Janeiro, all of which exercised trading or port functions directly related to agricultural or livestock exports.

In these primary cities, and to some extent in those interior urban centers which were limited to the domestic market, the first significant consumer

oriented economies were established. This, and the modernization of exporting activity (cold storage plants, agricultural equipment, etc.), became the basis of an industrial function from the last quarter of the nineteenth century on.

The productive function then underwent a further differentiation. One aspect of production was devoted to local consumption, meeting the daily demand for food, other perishable goods, and also clothing. The other aspect of production met the demand for agricultural equipment. Both aspects benefited from the growth of the crafts system and small workshops which gradually became factories.

The industrial system of the nineteenth century and the first quarter of the twentieth century, with the consequent rise of entrepreneurial elites, was of two distinct types, On the one hand were the factories organized by agricultural producers with the surplus derived from their operations. On the other hand were the workshops set up by immigrants who had become wealthy, particularly by trading with rural areas. In many cases these workshops became real factories.

To what extent did this differentiation in productive activity influence the formation of new entrepreneurial elites? The significance of indus- trializing groups, as has been shown, remained limited to the markets of outward development. The productive function they exercised was subordinated to the expansion of agricultural exports. The division within that industrial stratum allowed corporate activities to be carried out within the same class association such as the Uruguayan Rural Asso- ciation or the Argentine Industrial Federation. This meant that the majority of industrialists were excluded from the ruling classes. These absorbed only those sectors from industry which had originated among them or were connected with them, as in the case of the owners and administrators of cold storage plants, wholesale grocers, and the large mills. The sectors most closely connected with industry for local consumption were excluded from participation.

The alliance between the dominant groups in Latin American countries whose evolution followed this pattern was politically expressed by the term oligarchy. In this case, oligarchy does not mean the domination exercised by the slave masters or by the potentates of the interior. It refers to the basic political agreement of the export groups. These were the groups which

T H E ENTREPRENEURIAL ELITES OF LATIN AMERICA 151

assumed the new urban functions both in trade and in finance in the foreign sector. Between 1870 and 1930, outward development was internally guaranteed by this oligarchic alliance, the vitality of which, insured by the success of raw materials in foreign trade, was able in some countries to absorb the early pressure of the radical parties of the urban middle and lower classes. ~ To the extent that the export pattern allowed the oligarchies to accept a policy of redistribution to the middle classes, the entrepreneurial elites withdrew in the political sphere and the participation of the non-oligarchic groups expanded. However, the oligarchies maintained their control of the financial apparatus of exports, the finance minis- tries, the foreign exchange agencies, and the export boards2

In these countries, during the establishment of domestic markets based on exporting activities, the expression entrepreneurial elites merely indicates the political-economic dominance of the agricultural- exporting, agricultural-industrial, trading, and financial groups which were able to politically express themselves as the ruling class. They were willing to subordinate the economic organization of their respective countries to the success of the export system. The social groups based on other economic activities, particularly the industrial, settled in the urban centers and continued being non-elitist, since the control of decisions operated beyond their field of activity.

This type of elitist dominance by exclusive entrepreneurial groups, the typical features of which can be clearly seen in the Atlantic coast countries, was repeated under varying conditions and in different periods, in those Latin American countries where development was based on extensive production for the foreign market. Colombia offers an example of this model. In fact, the equilibrium between the big landowning and trading groups was disrupted in 1850 in favor of the latter, and their predominance was accentuated when they came to dominate the local financial system. The more distributive structure of agricultural property allotted to coffee- growing, a basic product of the export system, allowed the consolidation of the hegemony of the export trade group. This group was later organized into an association with the meaningful name of "National Federation of Colombian Coffee Growers." Until 1950, however, the incipient industrial groups only penetrated the prestige and power structures to the extent that they were connected by origin or

family alliances with the trading or big landowning groups. The industrial classes politically expressed themselves through the liberal party, which was traditionally linked to the export trade pattern. This pattern was followed earlier by the Atlantic coast countries, but was adapted to the different local production structures with regard to the formation of the export system and integration into the world market, s

2. Ent repreneur ia l elites of the trading and

m i n i n g sectors.

The attempts to organize a development scheme, and a power system allowing for it, were complex problems for the elites of countries which inherited no more than a mining trade from the Colony or in which export agriculture did not dominate other aspects of the trade pattern. To the basic problem of the whole region, the organization of the State, other problems of a more directly entrepreneurial character were added. I t was not enough to import labor and to connect production to a dynamic trade with links abroad; the search itself for a new sector of economic activity and the facing of technological problems arose, if not as obstacles, at least as challenges.

The best solution to this situation in Latin America during the nineteenth century was found in Chile. An analysis of its problem and solution illustrates the limits imposed by this country's growth model and the decisive role which can be played in these circumstances by the entrepreneurial elites. In this case, as in those described earlier, these latter day encomenderos* did not define the prospects of national integration in the world market. The new ruling groups of the national economy were certainly linked to them as they were to the aristocratic groups in general. But in this case the ruling groups were predominantly urban and therefore more commer- cially oriented and more concerned with customs as a means of financing the State and as an instrument for protectionist policies. This orientation was already something new to manorial groups. In Chile, under Portales and until the time of Montt, the new entrepreneurial elites showed, through some of their spokesmen, a surprising modernity. Lacking an agricultural basis comparable to that of the Atlantic coast countries, the ruling class built a political alliance between the reactionary nucleus of the agricultural class (the pelucones), the business sector, and a new industrial sector concentrated on

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maritime production. At the same time national enterprise with a typically pioneering spirit became engaged in the production of silver and copper; this ensured an exceptional economic upsurge for the country.

This orientation was basically fitted into the export pattern; it differed from that typical of the exclusively agricultural countries only in that the undertaking required more capital and technique. In this way the most daring attempts in the middle of the century toward industrial protectionism were lessened by an impulse more in accord with the general orientation of the economic activity of the country (which moved in the direction of free trade and monetary devalua- tion as a resource for increasing in national currency the income produced by exports. 9 On the other hand, competition in the international market curbed the possibilities of national control of copper mining. Chilean production, which between 1880 and 1881 supplied 45 per cent of the copper transacted at the London market, accounted for only 7 per cent in 1901. This decline indicated the exhaustion of easily exploitable deposits. The new deposits demanded modern technology and considerable amounts of capital. About 1910 North American capital took control of the most important mines in the country, as was previously done by the English with nitrate.

The dependence on foreign capital in this case extended to the very core of the productive system of the country. For the national entrepreneurial elites there remained the resource of reaching the outward development phase by attempting to organize agricultural production. The success of this venture was determined by the entrepreneurial initiative of the nationally dominant groups, and the availability of accessible land not requiring considerable capital. The first condition was more difficult to fulfil because the transformation of the State, under the control of local elites, into a mechanism to draw taxes from foreign exploitations was able to satisfy the ends of the dominant class without forcing it to adopt an entrepreneurial attitude. 1~ The second condition, which was rare in the case of Latin America, required a capitalism of some maturity in order to be successful. An im- mature capitalism would have discouraged the formation of a national entrepreneurial elite capable of dealing with a situation of this kind.

Less difficult is the problem of the rational use of

labor for agricultural exploitation. This labor could be obtained through immigration or by using local labor. In this case agricultural exploitation tended to be based on latifundium with its landlords and caciques, clearly pre-capitalistic and different from the exporting plantation. This was in general a characteristic of the complementary agriculture of the mining countries, with the exception of Chile. The big landowners of this type cannot be rated as entrepreneurs. They constituted the basis of local political power and at this level supported the national dominance of the exporting entrepreneurs both in the mining and agricultural countries, n

The enclave economy took eighty years to become established in Chile and in any case could not elimi- nate the economic and political results of the earlier action of the national elites. But this type of economy shows much more generalized effects in those countries in which the ruling classes did not establish a stable national economic system. There were extreme instances of countries which in the nineteenth century simply could not manage to bring about an economic class capable of political expression. In practice these countries continued as colonies of non-Spanish powers. There were even instances in which the effort toward national organization was made through agreements with the new leading powers, but these agreements brought about economic concessions that were disproportionate with respect to the political advantages achieved. The dominant class did not obtain for itself more than marginal profits through taxes, corruption, and the foreign sale of politically obtained concessions.

Mexico under Ju~irez and Porfirio Diaz provides a good illustration of the difficulties of forming a national economic elite capable of integrating this type of country into the world market and securing control of at least part of the productive process. Once the period of anarchy was ended, only at the end of the century was it possible to organize the National Bank, but with French capital. The redistribution of land to maintain the political alliances supporting Porfirism led to speculation in mining deposits for foreign sale, since the law declared tha~ possession of land included the subsoil. During this period the country's economy remained under the control of foreign capital, particularly North American. Only in the regional sphere, for instance in Monterrey or in Puebla, and of course in Mexico City, was an active entrepreneurial elite's presence felt.

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Even in intermediate situations, in which the countries benefited from the international market both for agricultural and mining products, the lack of a solid colonial agricultural basis, necessary to create a local entrepreneurial elite, was apparent during the period of outward development.

Peru is a better illustration of this sort of situation. The upsurge of guano and nitrate exports resulted in a reduction of agricultural activity. The new productive sector made possible the creation of a typically speculative group, the plutocracy, within the ruling classes. In order to control this activity in accordance with speculative interests, a corrupt government apparatus was set up and a political alliance was formed between the landlords who controlled the large farms of the interior, the military, and the coastal landowners, closely linked to speculation. The new commercial interests experienced difficulty in becoming the dominant elite due to the influence of militarism, and the fact that the traditional civilian sectors representing the elite had to compromise with this militarism.

The War of the Pacific was lost, and the plutocracy left almost nothing else to the nation but a considerable debt owed to European financiers. There was no alternative but to adjust to the enclave economy situation, which in Peru reorganized both mining and agriculture on the basis of sugar and cotton. In Peru, therefore, a real entrepreneurial elite never took shape. Instead, what developed was an oligarchy in the proper sense of the word; that is, a group controlling decisions depending almost exclusively on its political power, deriving its income from the monopolization of speculative opportunities secured through the control of information and the financial mechanism of the State, and not through organized productive activity. This type of oligarchy, wholly different from that which is improperly given this name in the countries mentioned earlier, has very little autonomy. First, the preservation of political power forces it into alliances with the landlords through the usual concessions. Second, in the economic sphere the oligarchy has functions which are subordinate to the dynamic core of outward expansion, consisting of foreign enterprise and controlled agricultural and mining enclaves.~ 2

capitalist system. The large amount of capital required for mining exploitation, as well as the speculative profit provided by the mining trade, ultimately subordinated the national entrepreneurial elites to foreign control in their own country. Apparently the speculative impulse encouraged by this pattern deprives the entrepreneurial spirit of that which permits the evolution from adventure to capitalist routine; that is, the spirit of system.

As in the case of the agricultural entrepreneurial elites, the elites now under discussion were also formed in Latin America by "new men" allied (but never merged) with the aristocratic urban elites of colonial times and the semi-feudal landowners. However, for a real entrepreneurial elite to form, more flexible mechanisms for the selection and social mobility of the new economic groups are not sufficient, nor is a nation-building orientation. This is so because, in the two basic cases mentioned, the nation-building proposition exists as a function of outward development. The economic basis on which the producing classes are organized imposes its norms and limitations on the formation of economic groups capable of controlling the nation. The same can be said of the rules of capitalism in both the accumulation and technological production aspects. This explains the different means of integrating national economies into the world market.

IV. T H E E N T R E P R E N E U R I A L E L I T E S

IN T H E I N D U S T R I A L I Z A T I O N

PROCESS: T R A N S I T I O N A L P H A S E

The economic elements stimulating the transformation of the outward development pattern into an inward development pattern are known. The common element of the different Latin American countries was the "defense of the market." In part this consisted of a full employment policy during the crisis reached in the attempt to sell commodities for export purposes (mainly after the 1929 "crash"). This policy was enforced by means of regulations underselling imported products; it was a natural defense of the market against the decline of foreign trade during the depression period and the economic consequences of the Second World War, which interrupted the flow of imports.

The formation of a national entrepreneurial elite in countries based on the mining trade was impaired by the difficulty of its integration into the world

The national entrepreneurial elites reacted to opportunities which arose for blocking or developing an industrialization policy. Their reaction assumed

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different characteristics in the various countries of the area, and the presence of an already effective entrepreneurial elite had considerable influence on this differentiation. However, in order to analyze the formation, functions, and orientations of the industrial elites, it is not enough to divide them into two groups according to whether they have been formed within the agricultural producing classes or within those with a trade-mining basis.

The industrialization process caused noticeable changes in the employment structure and led to the existence and expansion of domestic markets. These factors altered the system of social stratification as well as the political balance between the groups. For the same reason, industrialization meant a reorganization of the functions of the State, the incorporation of new groups into the political process, and a redefinition of national ideologies of economic development.

The industrial elites became consolidated within this framework, which limited their functions and orientations. This framework also limited the channels of recruitment and upward social mobility insofar as it influenced the agreements which the new groups reached among themselves and with the old entrepreneurial elites.

1. Progressive industrialization and the

industrial elites.

The continuous growth of industrial activities oriented toward the domestic market continued until 1930 in the countries where development followed the agricultural export pattern. Nor was this growth absent in countries of enclave economies, where the elites managed to reorganize sections of mining production and made domestic reinvestments in agriculture and industry. There were even times of expansion, such as the First World War period, which brought about increased diversification, la However, it was after this world crisis that the industrial system expanded with greater impetus and began to strongly influence national products.

Control of industrial activities was partly in the hands of non-elitist groups of immigrant origin in countries such as Brazil and Argentina and of feudal origin in countries such as Colombia, x4 where immigration was of little importance. This control was also partly in the hands of groups whose prin- cipal activity continued to be agricultural exports.

This division of control was modified during the 1930's in two ways: first, the crisis of the export economy brought many industries formerly controlled by the agricultural-exporting elite under the control of businessmen, generally of immigrant origin. Second, State action became apparent in the creation of heavy industry.

Further evidence that during this period a new producer group was established is that industrial expansion became based on two types of capital: speculative capital, which strengthened the inflation then beginning; and trade capital, either accumulated by the work of two generations of immigrant settlers or brought in by new immigrants. In other words, industrial growth was made possible during this period by the enterprising activity of non-elitist groups.

The conditions and consequences of this process were significant for the formation of the industrial elite. The old internal division of the industrial group into two categories of entrepreneures, those linked with the agricultural exporting groups and those who had risen through their own efforts, became intensified. Moreover, the new industrialists came to have greater political importance. During the previous period the industrial function had been dependent on the export economy; con- sequently it was not so necessary to formulate actual industrial policies. Those necessary were issued through already established channels, in which the managers of industrial groups cooperated with agricultural exporting groups, x5 When the role of the domestic market became more relevant, the important economic decisions had to be made in connection with this new focal point of growth; from this moment on, the absence of an industrial elite was felt, and its establishment became necessary for the continuity of industrialization.

It would be wrong to suppose that, during the industrialization period of durable consumer good imports, the industrial elite had been created through the gradual assumption of political functions by the self-made industrialists of the previous exporting period. On the contrary, the few available studies on this subject indicate that the majority of the industrialists within this category remained marginal to the political process during the 1930s and, in some countries, even during the following decade. Their main concern was enterprise; they paid little attention to society at the political level. They reacted to

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their social exclusion by putting a high worth on work as an activity excluding political participation. It cannot be denied, on the other hand, that industrial activity as an economic function contributed to the formation of a dynamic although non-elitist entrepreneurial stratum. However, it remained unable to establish itself in the national political life. The transformation of the old Jmtrones who managed their industries as if they were still family workshops into capitalist industrialists TM concerned with the returns and productivity of business and with its continuing expansion, operated through a long series of values, objectives, and functions. These qualities were not politically organized until later, when they became incorporated to entrepreneurial behavior.

The transition from captain of industry to entrepreneur or modern industrial leader occurred through the intervention of other types of entrepreneurs different from the self-made man. In fact, the distinctive feature of the entrepreneur, like that of the entrepreneurial elites of the outward expansion period, is his political nature. The national development policy, control of the monetary and exchange instruments, credit policy, all became again a normal function of the Latin American entrepreneur. This reorientation of a broadly-based group included political leaders, more concerned with national interests involved in industrialization than in company interests, as well as segments of the old entrepreneurial elites which continued to control a substantial portion of the country's productive activity.

The extra-entrepreneurial impulses for industrialization will be examined later. With regard to the role of the previous elites in the composition of the new industrial elites, suffice to say that as a reaction to the crisis of 1929-30, noticeable changes in the State's function occurred. In some countries, especially in Argentina, the State developed more strictly an economic function under the control of what was called the digarcby. In the same way in other countries, for instance in Colombia or in Brazil, where this process was not so clear, the new domination pattern, establishing the bases for industrialization, included the active participation of the old agricultural exporting groups.

The coexistence of groups from the previous stage and those of the import-substitution stage did not take place solely in the political sphere of elitist organization. In the spheres of both business

organizations and industrial production, representatives of the two groups are found: "pure" industrialists and "oligarchical" industrialists. Even during the initial stages representatives of the new plutocracies, which arose as a consequence of inflation, protectionism, and official political favor, were not absent. Available research is conclusive in this respect, fragmentary as the information may be.

The incorporation of the "pure industrialists" into the elitist groups was slow and operated through the second generation rather than through the early entrepreneurs. Socially, the family alliance pattern allowed for the assimiliation of the new wealthy groups into the traditional groups. Elitist selection, controlled by the classes of greater prestige, acted as a regulating mechanism of social upward mobility during this phase of industrialization. In the economic aspect, the growth itself of entrepreneurial activity created alliances between enterprises, dis- rupting the traditional pattern of the family enterprise. This process caused greater homogeneity between industrial groups of different historical origins, and paved the way for the arrival of a new industrial entrepreneurial elite.

2. State action and nat ional development.

Reorganization of the ruling elites during the for- mative period of the industrial system followed different lines in countries where the economy was linked to the world market without the export sector being controlled by national entrepreneurs. Before the establishment of enclaves, the possible reactions of local ruling elites ranged between a policy of retreat, limiting their control to marginal sectors of the enclave economy (such as mining or agriculture) and a policy of accommodation to the parasitical political groups which controlled productive activity. The consequences of these different orientations, which began in the previous century, were felt at the stage in which the economic system moved from the foreign to the domestic sector.

In this case the creation of an industrially oriented elite was a more complicated undertaking than in the previous situation. For one thing, it was necessary for the industrial group to overcome the foreign interests established in the local productive system. These were set up purely for exports; they had little functional relation to the local semi-industrial sector. Also, while in the previous cases the local ruling elite

156 STUDIES IN COMPARATIVE IN TER N A TIO N A L DEVELOPMENT

enjoyed a stable social basis and was experienced in the management of the State and the export productive system, in this case industrialization had to be undertaken under social conditions characterized by a lack of leadership by the national economic groups.

In countries such as Chile, in spite of the enclaves it was somehow possible to maintain an active entrepreneurial elite. In these countries the transition from development based on exports to a development based on substitutive industrialization can be carried out with profound changes in the power pattern, but without the exclusion of the old entrepreneurial classes. However, this cannot be said of countries in which the enclave economy was established as the exclusive principle of economic life; or in which the dominant classes tended to adjust to the pattern of a State-controlled market and through it benefiting from the enclave production.

The absence of a ruling entrepreneurial class required for successful industrialization the formation of entrepreneurial elites with social origins different from those of the old dominant class. In countries of this type, when industrialization really took place it generally depended on a previous revolution. Such revolutions assumed different characters and different social and ideological nuances. They ranged from the Mexican Revolution, which through expropriation destroyed the power bases of the old ruling elites, to revolutions of a more restricted social impact and democratic nature, as that of Venezuela. In any case, the growing industrial elites arose from politically upward-moving social classes disconnected from the old power patterns.

Even in the case of countries illustrating both patterns, which have been suggested as the basis for incorporation into the international market, it would seem that in the enclave economy model, the transition to industrialization operates through the rise of new national social groups capable of controlling the State and, through it, of promoting industrialization.

Both the Mexican PRI and Chilean Popular Front of 1939-41, and more recently the Venezuelan Democratic Action, are political expressions of the pressures exerted by new social groups disconnected from the agricultural-exporting-entrepreneurial pattern. In each of these cases, industrialization was promoted through the State, which in part assumed entrepreneurial functions in the basic industries. The State also encouraged the creation of new eta-

trepreneurial groups capable of pursuing the economic development of the country. In the case of countries like Chile, the local industrial elite which arose as a result of the industrialization policy of the 1930s and 1940s was largely recruited among the old agricultural, trading and mining entrepreneurial classes. 17 In the case of Mexico a new bourgeoisie was created. However, in both cases the industrial elite welcomed newcomers, whether from the immigrant groups devoted from the beginning to small urban trade, or from the government bureauracy which in various ways became a private entrepreneur.

In countries of a nationally-controlled agricultural exporting basis, the already mentioned slow growth process of an industrial bourgeoisie occurred under a State enterprise system. However, in countries where production was initially of the enclave type, industrialization commenced directly under the influence of the State, due to the action of the "en- lightened bourgeoisie," which later partly became a "progressive bourgeoisie." The extreme differences between the two systems, with respect to the causes of the industrialization process, range between the cases of Argentina and Mexico. In Argentina the vigor of the agricultural exporting group imposed a liberal pattern of economic development with little State participation. In the Mexican case, the State oriented and promoted industrialization until a domestic market capable of supporting the private sector of the economy became established.

The economic system's dynamism was achieved largely in countries following the pattern herein described, due to the economic action of the non- landowning groups, which succeeded in controlling the State to some extent. The clue to understanding the industrial entrepreneurial groups lies in the scope of the reorganization of the political system and in the social drive of the masses and middle class groups. It is from these groups that the intellectuals and bureaucracy favoring development are recruited. TM

Industrialist ideologies reflect the basic orientations of social groups concerned with nation-building. Nation refers here to a political body capable of autonomous action and of entering into agreements with foreign sectors, either defining the limits of the concessions when their elimination is not possible, or securing markets and capital for the development of the national productive system. The industrial elites formed under these conditions bypass the stage in which the entrepreneurs behave as captains of

T H E E N T R E P R E N E U R I A L ELITES OF L A T I N AMERICA 157

industry absorbed by business activities. The omission of this stage is possible because the industrial elites immediately assume the roles of industrial leaders, conscious from the beginning of the political implications of entrepreneurial behavior.

V. E C O N O M I C L E A D E R S A N D

LARGE INDUSTRY.

After 1950, the problem faced by the entrepreneurial elites of the countries which had entered industrialization was basically the consolidation of the productive system through the creation of a capital goods sector. The more industrialized countries of the area had managed to form a private entrepreneurial sector; they had also organized, especially through public investment, the minimum indispensable infrastructure and basic industry to ensure the continuity of economic growth. The formation of a capital goods and durable consumer goods sector was an indispensable complement for these developing economies.

The basic decision which determined the orientation of the entrepreneurial elites was the selection of a way to continue industrialization. The new industrial initiatives required large concentrations of capital and advanced technical knowledge, both relatively scarce factors in underdeveloped countries. The same problem which had once been faced by the mining economies was being reenacted under new conditions. In view of this difficulty, there were two extreme possibilities: either increased State control of the economy, or a large investment of foreign capital. In practice, Latin American countries discovered several intermediate solutions. For example, there was a restriction of the role of the State in important regulating functions and in the control of fundamental investments (oil, iron, and steel). Another instance was the association of national with foreign enterprises under conditions which generally left the national groups with a minority role.

The reorganization of the economy imposed by the advance of industrialization brought about note- worthy modifications in the composition of the entrepreneurial elites. New members of the economy's leading groups appeared: State entrepreneurs and professional administrators of foreign concerns. Private sector enterprises became leaders equally concerned with the economy of the enterprise and with

national development policy.

It is easy to understand that, considering the origin and social mobility of the entrepreneurs, industrialization in the production and durable consumer goods stage brought with it an "opening" of the economic elites. Jointly with representatives of the agricultural-trading-exporting sectors and the traditional (second generation) industries, other parti- cipants in government policy decisions were officials of government agencies for economic promotion, 19 professional administrators, representatives of foreign concerns and even representatives of some local companies. Thus the presence of middle class professionals became more common among the leading entrepreneurial elites. Moreover, the differentiation of functions within the economic elite became intensified, to the extent that the strengthening of corporate life became necessary in order to carry out entrepreneurial policy. Through the chambers and employer associations, individuals who were not owners of industrial property and did not even administratively control any enterprise began to participate in the entrepreneurial elites as representatives of the producing classes. Access to these positions was gained through acting as liaison between the industrial chambers, government, and other sectors of the economy, particularly the banking sector. In many instances, these positions were filled by individuals who belonged, through family ties, to the old pre-industrial elites. To the extent that these individuals continued to exercise control of important positions in the political and financial power structure, it was convenient for the enterprises to maintain links with them. The appointment of a lawyer from a traditional family to act in boards of enterprise or entrepreneurial chambers thus became a common and convenient arrangement for the enterprises. For these reasons it would be difficult to believe that in the more industrialized Latin American countries the entrepreneurial elites present a degree of homogeneity equivalent to that existing during the stage of outward development, and even in the first phase of industrial expansion. The assessed weight of the groups which constitute the enterprising elites is not equal in decision-making, nor do the groups support a common development policy. Nor are organi- zational and managerial practices similar in State concerns, foreign enterprise, or local industry, despite the uniformity which the size of the concern and modern technology require in the actual industrialization stage. 20 A distinction ought to be made

158 STUDIES IN COMPARATIVE I N T E R N A T I O N A L DEVELOPMENT

between the various spheres of behaviour of the new economic elite to make the diversity of existing orientations meaningful, in spite of the common framework of interests which characterizes it as an entrepreneurial elite. Likewise, it would be necessary to define the economic and social assumptions of the internal organization of the entrepreneurial elite in this phase of development. Research ex- plaining its behavior and orientations ~1 is scarce, so that the lines followed by such explanations are necessarily conjectural.

It could be said that in Latin America the industrial elites began participating in the national leading groups through a complicated system of alliances with the financial and agricultural-exporting elites. The few studies on the formation of economic groups 2~ indicate that it is illusory to assume that the participation of large industry in the control of economic life was detrimental to any part of the financial and agricultural sectors. It is true that, to the extent that the domestic market has become a condition for prosperity, the influence of the industrial sector on economic policy increased among the leading elites and even within each economic group. In practice, however, decisions on development policy depend on a complex weighing of factors, in which the pressures of the agricultural-exporting groups, industrial interests (the State sector), the foreign sector, and the national sector must all be taken into account. But the different industrial sectors which make up the entrepreneurial elites (national sector, foreign sector, and State sector) depend upon the State system to reconcile their interests. Two factors indicate the limits of the autonomy of private enterprise in defining its expansion policy: the expansion of the State credit system, and the degree of control of the private financial system by State entities entrusted with the financial economy. On the other hand, control of the credit instruments by foreign enterprises and by national concerns, indicates the autonomy of each of these sectors within the economic system.

It would be equally illusory to assume that the different groups which make up the entrepreneurial elites stand in radical opposition to each other. On the contrary, during the phase of establishment of large industry, development is achieved through alliances between the different sectors of the economy interested in industrialization. These alliances become evident when analyzing the composition of stock company boards, in which the same individuals

are often simultaneously associated with banking, trading, and agricultural concerns. How can it then be maintained that a diversity of interests exists ?

The only research offering concrete elements for judgment indicates that, in the ideological sphere, the entrepreneurial elites seem to be homogeneous: they defend the predominance of private enterprise in industrialization; they want to restrict the role of the State to that of a regulatory agency for economic activities or an economic promoter in extremely risky fields; they support the participation of foreign capital, etc. In the economic sphere, the entrepreneurial elites react according to the interests of the economic group each leader is most closely connected with. For example, opinions vary on State intervention in guaranteeing minimum import prices for raw materials, in assuring protection of the market, etc. In the political sphere, the leading groups differ regarding the means of exercising greater control of the overall national growth process.

In spite of the inadequacy of available information, in this case the diversity of opinions in the political sphere is consistent with the position of the different groups in the economic structure and the concept their leaders have of the role they might play in a new system of alliances. This concept depends on the extent to which the leaders of the industrial-financial groups feel that they can exert their leadership over the other components of industrial society: the labor sectors, the professional middle classes, the agricultural groups of modern orientation, and even the traditional agricultural-landowning groups.

The degree to which the national groups commit themselves to State policies indicates their adoption of one of two possible roles: the support of nationalism as a development policy based on State protection, or the defense of a policy of "pure development promotion" in which private enterprise, independent of the problem of domestic or foreign control of capital, becomes the basis of industrialization.

In practice these two extreme positions are tacti- cally handled according to whether at a given moment the antagonists are on the rising tide of popular pressures of foreign penetration. At any rate, they define the limits of the concessions which can be made to the domestic or foreign groups, with regard to both economic associations and political alliances. 23

T H E ENTREPRENEURIAL ELITES O F L A T I N A M E R I C A 159

N O T E S

* The encomenderos were the first conquistadores who received land from the Indians (editor's note).

x Cf. Jos~ Medina Echavarrla, Consideraciones socioldgicas sobre el desarrollo econdmico. Buenos Aires: Solar-Hachette, 1964; also F. H. Cardoso, Ulproceso de desarrollo en Amdrica Latina. Santiago: Latin American Institute of Economic and Social Planning (ILPES), 1965. 2 See my observations on this in "The Structure and Evolution of Industry in S~o Paulo: 1930-1960", Studies in Comparative Inter- national Development, Vol. I, No. 5 (1965), pp. 43-47. 3 See, Celso Furtado, "Development and Stagnation in Latin America: A Structural Approach", Studies in Comparative International Development, Vol. I, No. 11 (1965).

In the case of Brazil see Pierre Mombeig, Pionniers etplanteurs de S ~ Paulo. Paris: Librairie Armand Collin, 1952. In the case of Argentina see Dorfman, Historia de la Industria Argentina. Buenos Aires: Escuela de Estudios Argentinos, 1942; and O. Comblit, E. Gallo and A. O'Connell, "La generaci6n de180 y su proyecto: Antecedentes y conseeuencias," Desarrollo Econ6mico, Vol. 1, No. 4, January-March, 1962. 5 On this period in the life of Uruguay see Aldo Solari, Situacidn de la sociedad uruguaya (typewritten), which explains the social origins, functions, and significance of the new elite (pp. 28-30ff.). 6 Francisco C. Weffort, "Clases Populates y Desarrollo Social," (manuscript), distributed by FLACSO, 1965.

It is interesting to note that the political opposition of the middle class in Latin America did not produce an economic policy different from that of the oligarchy. 8 Cf. Jorge Veros, Algunos a.rpectos de ]a elite Colombiana, paper presented to the Institute of Political and Social Sciences of the Catholic University of Lovain, 1965. 9 An example of this, and an obvious illustration of the lack of entrepreneurial spirit of the leading Chilean economic class at the end of the century, was the surrender to foreign exploitation of the nitrate deposits won in the Pacific war. In this case neither technique nor capital was lacking. However, the political representatives of the ruling economic class failed to perceive the role of the State as an instrument for revenue creation. Cf. Anibal Pinto, ChilG un caso de desarrollo frustrado. Santiago: Editorial Universitaria, 1962. 10 The case of Chilean nitrate after the Pacific war is typical. In fact, some early entrepreneurs of the nitrate economy reacted by

ro osm that the overnment should take char e of the e loltatlon be p p ' g g g xp " " cause the younger generation lacked entrenreneurial snirit However, the government refused to take over, on the grounds of econormc non-intervention, perhaps yielding to manipulation by European speculators. Cf. An/bal Pinto, op. tit., p. 57.

11 In agricultural countries, the caudillos assumed control of marginal regions and in many cases have maintained it to this day. 1, For the best analysis of the Peruvian oligarchy, see, Francois Bourricaud, "Structure and Function of the Peruvian Oligarchy," Studies in Comparative International Development, Vol. II, No. 2, (1966). x3 Cf. CEPAL, "El proceso de industrializaci6n en Amgrica Latina," 1965. x4 In the case of Colombia, the participation of the antique~o entrepreneurs was fundamental to the industrialization process. They did not, like the bogotanos, participate in the political-economic system which ruled the country. Cf. E. Hagen, "The Transition in Colombia," in On the Theory of SocialChange. Illinois: The Dorsey Press, 1962, p. 364 ff. 15 It is true that since the nineteenth century, under certain circumstances the political position has been either protectionist or non-protectionist. In such cases, more or less noticeable disagreements were already arising among the producing classes. These disagreements became apparent in Parliament.

13 An analysis of the transformation of entrepreneurial functions can be found in F. H. Cardoso, Empresario industrial e desen- volvimento econdmico. SAo Paulo: DifusAo Europ6ia do Livro, 1964, Chapter IV; also Cf. Jos6 Luis Imaz, Los que mandan. Buenos Aires: Editorial Universitaria de Buenos Aires, 1964. 17 Cf. Carlos Filgueira, "El empressario industrial en Chile," Instituto, Santiago, 1966. is Cf. F. Weffort, op. cir.

a, Regarding the formation of the new entrepreneurial elites, refer to the aforementioned works of Imaz, Filgueira, and Cardoso. ,3 This question will not be examined in detail. The statement is based on the works of Cardoso, op. cir. ; I. R. Fillol, Social Factors in Economic Development: The Argentine Case. Cambridge: M.I.T. Press; and Albert Lauterbach, Enterprise in Latin American Business Attitudes in Developing Economy. Ithaca, New York: Cornell University Press, 1966. ,x At present a study of Argentine entrepreneurs is being conducted at FLACSO. This research is being directed by Juan Carlos Martn and the author. m On the economic groups in Latin America, Cf. Eric Calcagno, Nacionalizacidn de servicios pt~blicos y empresas. Buenos Aires: Editorial Raigal, 1957; Ricardo E. LagOs, La concentracidn del poder econdmico. Santiago: Ed. del Pac/fico; and Josg Luis Cecena, E l capital monopolista y la economSa de Mdxico. Mexico: Cuadernos Americanos, 1963. 28 To complement this analysis, it is advisable to consider other studies which are more concerned with the dimensions of traditional vs. modem behavior and the objectives of the entrepreneures, in this connection Cf. W. Paul Strassman, "The Industrialist," in Continuity and Change in Latin America, J. J. Johnson, ed. Stanford: Stanford University Press, 1964 and S.M. Lipset, "Elites, Education and Entrepreneurship in Latin America," mimeograph.

Documents

The entrepreneurial elites of Latin America