The Political Economy of Equality and Growth in Mexico: Lessons from

the History of the United States

James A. RobinsonHarvard University

Issues

• Following the transition from the one-party rule of the PRI to a competitive democracy, Mexican policymakers wish to move the economy onto a path of more rapid economic growth.

• Yet they have inherited a legacy of inequality of assets and political power that emerged as an intrinsic part of the PRI’s strategy of rule.

• Do these inequalities matter for economic prospects? Should the new democratic governments try to do something about them?

• I present two examples from US economic history which suggests the answers to both questions is yes.

Failed Reform, Economic Stagnation and Persistent Inequality in the Post-Bellum South

• The slave economy of the South was relatively poor before the Civil War.

• The Civil War led to key institutional reforms, slavery was abolished and blacks given the vote.

• But after the ending of Reconstruction in 1877 an economic system recreated itself that looked remarkably like that which had existed before the Civil War – based on labor repression, low wages, no labor mobility, and no investment in education and human capital.

• The South got even poorer and stayed that way for another 100 years.

0

40

80

120

160

200

1840 1860 1880 1900 1920 1930 1940 1950 1960 1980 1990

NE MA ENC WNC SA

ESC WSC Mt Pc

Source: Easterlin (1960, 1961), Barro and Sala-i-Martin (1991).

Income per-capita Relative to the US Averagein US Regions since 1840

Why did Reforms not work?

• The victorious North did not change the underlying inequalities of asset holdings (no “forty acres and a mule”).

• In consequence they also left in power the ante-Bellum elite. Though blacks started voting after 1865, the former white elite were able to re-establish their control first over the labor force and eventually over the political system.

• They offset the effects of the reforms implemented after 1865.

• The South stayed poor.

The persistence of the landed Southern elite in three “Black Belt” counties of Alabama

Name County 1870 1860 1850Minge, G. Marengo $ 85,000 30,000Lyon, F. Marengo 75,000 115,000 35,000Paulling, William Marengo 72,000 150,000 29,000Hatch, Alfred Hale 70,000 120,000 40,000Alexander, J. Marengo 69,000 38,000 10,000b

Whitfield, B. Marengo 65,000 200,000b 100,000Terrill, J. Marengo 62,000 93,000Taylor, E. Marengo 61,000Robertson, R. Marengo 60,000Dew, Duncan Greene 52,000 200,000b 41,000Walton, Jhon Marengo 50,000 250,000 25,000Collins, Charles Hale 50,000 201,000b 30,000Hays, Charles Greene 50,000 113,000Brown, Jhon Sumter 50,000 69,000 13,000Pickering, Richard Marengo 50,000 42,000 15,000Withers, Mary Hale 50,000 40,000 75,000b

Jones, Madison Hale 50,000 36,000b 27,000Nelson, A. Hale 48,000 10,000b

Taylor, J. Hale 48,000Pickens, Wm. Hale 45,000 210,000b 51,000Reese, Henry Marengo 45,000 52,000 24,000Walker, R. Hale 42,000 55,000Smaw, W. Greene 42,000 32,000Blanks, E. Marengo 41,000Walker, Morns Marengo 41,000

Number of planters 25 18 16Percent present in 1870 72% 64%aRounded off to the nearest thousand; as reported in the U.S. Census of Population, manuscript schedules. To convert to constant gold prices, see p. 14, note 13.bWealth of father or husband

Real estate holdingsa

Source: Weiner (1978, Table 2, p. 12)

Successful Reform, Industrial Dynamism and Falling Inequality in the Progressive Era

“What do I care about the Law? Hain’t I got the power?”

Cornelius Vanderbilt

The Development of the “Robber Barons”• Along with Vanderbilt were a stream of larger than life

figures:• Andrew Carnegie created one of the first great

monopolies and by 1901 the US Steel Corporation controlled 60% of US steel production.

• John D. Rockefeller (the first billionaire in the US) founded the Standard Oil Company of Ohio in 1872. He unscrupulously eliminated competitors and rivals.

• J. P. Morgan

The Standard Oil Company…

The Merger Boom of the 1890s

Progressive Reforms

• Interstate Commerce Act of 1887 and creation of the Interstate Commerce Commission began the development of Federal regulation of industry.

• Sherman Anti-Trust Act on 1890 began the attack on business trusts (monopolies).

• Real implementation came with presidencies of Teddy Roosevelt 1901-1908, William Taft 1908-1912 and Woodrow Wilson 1912-1920.

• Wilson passed the Clayton Anti-Trust Act in 1914 and created the Federal Trade Commission.

• Break-up of Standard Oil in 1911.

Woodrow Wilson

• “If monopoly persists, monopoly will always sit at the helm of government. I do not expect to see monopoly restrain itself. If there are men in this country big enough to own the government of the United States, they are going to own it.”

• In his The New Freedom (1913).

Source: Peter Lindert (2000) “Three Centuries of Inequality in Britain and America”in Anthony Atkinson and François Bourguignon eds. The Handbook of Income Distribution,North-Holland.

Wealth Inequality fell dramatically after 1900…

As did income inequality…

The Economy Grew Rapidly and above trend…

Source: Jeremy Atack and Peter Paseell (1997) A New Economic View of AmericanHistory, Norton.

The Anti-Trust moves at least halted the wave towardsconcentration and in some cases reversed it…

Source: Atack, Jeremy and Peter Passell (1997) A New Economic View of AmericanHistory, Norton.

Why the Different Outcomes? The Failure of Reconstruction in the South

• Reform began to fail in the South as early as 1865 when became clear that freed Blacks would not get their “40 acres and a mule.”

• The North was not prepared to pay to re-organize the South and had little economic interest in doing so.

• Conflicting political motivations: 700,000 black votes gave the Grant the Presidency in 1868. The Northern Democrats saw the possibilities of a coalition with white Southern Democrats.

• Compromise of 1877: Disputed election of Republican Rutherford Hayes. Electoral commission gave disputed southern electoral college votes to Hayes who placated Democrats by withdrawing Northern troops from the South and ending Reconstruction.

Why the Different Outcomes? The Success of the Progressives #1

• Decisive political reforms with the introduction between 1888 and 1892 of the Australian Ballot in elections. This reduced vote buying and clientelism and allowed a much less corrupt politics to emerge more focused on programmatic issues.

Why the Different Outcomes? The Success of the Progressives #2

• Large mobilized farming coalition (the Grange) with a vested interest in reform and control over key legislative seats.

• Aided by realignment of politics in the 1890s (South and West Democratic, Northeast and Mid-West Republican).

• Political elite were distinct from this economic elite and feared its power. They thus had a collective interest across party lines in disciplining it (Putin and the Oligarchs in Russia?).

Lessons for Mexico• Theory and evidence suggests that monopolies and

concentrated industries are less innovative than competitive ones. Large concentrations of wealth also can undermine democratic institutions.

• Can the Progressive coalition form in Mexico?• Seems to cut across party lines. Rural sector already

empowered by democratization (PROGRESA/Oportunidades). But votes for the PRI, a coalition including those that oppose reform. Urban middle classes vote for the PAN?

• Multi-party system may not be conducive to reform (Labor market deregulation in Anglo Saxon countries).