The Wealth and Poverty of Nations: Why Some Are So Rich and Some So Poor

by David S. Landes

  Not until the last third of the century did the flow of immigrants pick up—about a quarter of them from Spain, the traditional source, but now half from Italy, where population growth had outstripped employment, especially in the countryside, north and south. Few newcomers came from northern or eastern Europe, and of these, many subsequently left for the United States. Argentina was Mediterranean territory.

  For many decades, these migrants fitted uncomfortably into this proudly backward society, full of illusions and prejudices, singularly unwelcoming. Most of them stayed in Buenos Aires, with its semicosmopolitan culture. Sensitive contemporaries despaired: “The conversion most urgently needed in this country is not that of gold for paper or paper for gold but that of the inhabitants of this land, born in Europe, into human beings with all the rights inherent in members of a civilized society: the conversion of foreign subjects into citizens.”24

  Once Argentina got into high gear, in part owing to the new, imported technologies (steam navigation, railway transport, agricultural machinery, meat refrigeration), in part to growing European demand (population growth, increased purchasing power), product and income increased substantially, to levels comparable to those of industrializing European nations. Note, however, that they were lower than those of other frontier societies (see Table 20.1). Even in the happy circumstances of Argentina, agriculture alone was not going to generate the productivity, income, and wage gains attainable in a balanced economy.25 Farm workers, particularly hired (migrant) laborers, typically earn a fraction of industrial wages.

  Meanwhile the estancieros, rancheros, professionals, officials, and the boutique trade that catered to them made money. As elsewhere, clocks and watches were both sign and instrument of a modern, time-conscious society. Swiss and American makers vied for this new market and fashioned imposing timepieces to the Latin taste.26 At the end of the nineteenth century, Argentina was a most promising example of staples success, and optimists predicted a future like (or almost like) that of the United States. Even today, neoclassical economists gush over this case study in the benefits of comparative advantage.

  But was it optimal? This country had some very rich people, yet “for reasons that have never been clear…has always been capital-dependent and thereby beholding [sic] to loaner [lender] nations, in ways that seriously compromise the country’s ability to run its own affairs.”27 The British built Argentina’s railroads—less than 1,000 kilometers in 1871, over 12,000 kilometers two decades later—but built them to British purposes: to move meat and wheat to the ports. Not to develop internal markets in Argentina, say the locals. But how does one build such a network without fostering internal markets? And if not, whose fault? What does that say about the spirit of native enterprise? The Argentines were not asking such questions. It is always easier to blame the Other. The result: a xenophobic anti-imperialism and self-defeating sense of wrong.

  Withal, nature’s bounty made up the difference. Economic growth continued into the twentieth century, not only in agriculture but also in the young industrial sector. This took the form of direct investment by multinationals, particularly in food processing;* and of import substitution, effected largely by small enterprises (most of them owned by foreigners and many of these, in the 1930s, by Jewish refugees) and promoted by periods of short supply (as during World War I), a few protective tariffs, bilateral agreements, and exchange controls.28

  Table 20.1. Product per Head and Population of Selected Frontier Countries, 1820-1989 (1985 PPE dollars)*

  SOURCE: Maddison, “Explaining the Economic Performance of Nations 1820-1989,” Table 2-1.

  One should not exaggerate this late and stunted industrial sector. The data in the census of 1914—after twenty-five years, then, of mixed agriculture and heavy immigration—show that over half the “industrial” capital was in mining; a quarter in public services; and only 13.6 percent could be characterized as “basically manufacturing.”29 This production, necessarily derivative, showed little invention or adaptation. No increasing returns. It throve (survived) in primitive working conditions that recall the nightmare mills of the early British Industrial Revolution, but worse because the state didn’t care. Nor did the employers, who assumed that casualties could be easily replaced by immigrant labor. They knew little of the technology of their own business and could not be expected to think of improving human capital. A few enlightened people tried to persuade these primitives that better workers and working conditions would be to their own advantage. They were dismissed as impractical Utopians who knew nothing about factories and industry. The result was industry in a time warp of backwardness:30

  Each industry had its particular health hazards. In the textile, metal, match and glass factories, the air was always full of a fine dust that irritated the lungs. In leather factories, the curing process required the use of sulfuric, nitric, and muriatic acids as well as arsenic and ammonia, all of which gave off harmful vapors that filled the building. In the packinghouses, workers trod upon floors that were slippery with coagulated blood, entrails, and animal excrement. The stench was overwhelming. The men who carried meat to the freezers had to wrap their hands and faces in rags or old newspapers, being careful not to have any fresh blood on their clothes lest it freeze to their bodies. Rheumatism was a common ailment, and few packinghouse workers lasted more than five years.

  Argentine industry, then, was not a driver but a passenger of growth. When a time of troubles returned after World War II, it left the vehicle. Labor, whether in industry or agriculture, was not happy and took to those ideological nostrums—anarchism before World War I, Perónism after World War II—that are the revenge of the powerless. The economist Paul Samuelson attributed this alienation to the discrepancy between economic backwardness and social indifference on the one hand, political precocity on the other.31 The people wanted what neither economy nor state could give.

  Today, Argentina is painfully finding its way back from political oppression and brutality, military adventurism, and economic depression. In particular, the tactic of “disappearing” suspected radicals, to say nothing of personal enemies, often by flying prisoners out over the ocean and pushing them out of the plane—with jailers and assassins kidnapping and “adopting” the children of the victims (a specially gruesome touch going back to Inquisition days)—all this has left a legacy of evil and horror. But also, paradoxically, sloganeering populisms have nurtured the beginnings of a national identity, witness the phenomenal success of Evita.

  The failure of Latin American development, all the worse by contrast with North America, has been attributed by local scholars and outside sympathizers to the misdeeds of stronger, richer nations. This vulnerability has been labeled “dependency,” implying a state of inferiority where one does not control one’s fate; one does as others dictate. Needless to say, these others exploit their superiority to transfer product from the dependent economies, much as the earlier colonial rulers did. The pump of empire becomes the pump of capitalist imperialism.

  Yet to co-opt independent, sovereign nations requires lending and investment; simple pillage is not an option. So with Argentina, which saved little and drew increasingly on foreign capital.* Some economists contend that foreign capital hurts growth; others, that it helps, but less than domestic investment. Much obviously depends on the uses. In the meantime, no one is prepared to refuse outside money on grounds of efficiency. The politicians want it and are willing to let the dependency theorists wring their hands.

  One economist attributes Argentina’s low rate of savings to rapid population growth and high rates of immigration—to which I would add bad habits of conspicuous consumption. In any event, foreign capital flows depended as much on supply conditions abroad as on Argentine opportunities. During World War I, the British needed money and had to liquidate foreign assets. Although remaining Argentina’s biggest creditor, they no longer played the growth-promoting role of earlier decades. The United States and others picked up some of the slack, but
here, too, politics and the business cycle abroad called the tune, so that Argentina found itself in intermittent but repeated difficulty both for the amount and terms of foreign investment and credit. All of this promoted conflict with creditors, which led in turn to reactive isolationism—restrictive measures that only aggravated the stringency and dependency. When Argentine economists and politicians denounced these circumstances and the misdeeds, real and imagined, of outside interests, they only compounded the problem. To be sure, cocoon economics helped shelter Argentina and other Latin American economies from the worst effects of the Great Depression. Such is the nature of cocoons. But it also cut them off from competition, stimuli, and opportunities for growth.

  Dependentista arguments have flourished in Latin America. They have also traveled well, resonating after World War II with the economic plight and political awareness of newly liberated colonies. Cynics might even say that dependency doctrines have been Latin America’s most successful export. Meanwhile they are bad for effort and morale. By fostering a morbid propensity to find fault with everyone but oneself, they promote economic impotence. Even if they were true, it would be better to stow them.

  The Portuguese-Brazilian Way

  Gilberto Freyre, in his classic study of Brazilian civilization, The Masters and the Slaves, distinguishes between Spanish and Portuguese policies of colonial settlement. Where the Spanish introduced national as well as religious restrictions, the Portuguese cared only for religion. The immigrant could come from anywhere, so long as he was Roman Catholic. In certain periods, a friar was sent abroad every vessel entering a Brazilian port to examine and verify the conscience and faith of the new arrivals.

  Nothing else mattered, because this was the seal of common identity. “Whereas the Anglo-Saxon regards an individual as being of his race only when the latter is of the same physical type as himself, the Portuguese forgets race and regards as his equal the one who professes the same religion.” (Such are the myths of national pride, as the very title of Freyre’s book testifies.) Freyre compares the “suavity” of these controls favorably with the brusqueness of today’s health inspectors and police functionaries (as though six of one, half a dozen of the other), and sums up:

  The thing that was feared so far as the Catholic immigrant was concerned was the political enemy who might be capable of shattering or weakening that solidarity which in Portugal had evolved in unison with the Catholic religion. This solidarity was splendidly maintained throughout the whole of our colonial period, serving to unite us against the French Calvinists, the Reformed Dutch, the English Protestants. To such an extent that it would, in truth, be difficult to separate the Brazilian from the Catholic: Catholicism was in reality the cement of our unity.32

  “Muero con Mi Patrial”—

  I Die with My Country! *

  In the annals of development-from-above, of industrialization by fiat, no case is more poignant and quixotic than that of Paraguay, fastness republic caught in the jungles and forests of South America hundreds of miles from the sea. Some scholars, beguiled by this experiment—one of them speaks of an economic “takeoff”33—see it as one more instance of native enterprise and aspiration stifled by European imperialists and their local henchmen.34 This is a misreading, however, of a not uncommon pattern of premature development for political ends.

  Paraguay was a most exceptional country, more Indian (Guarani) than any other on the continent, for the grinding of the natives inflicted in other parts had been prevented here by intercession of the Jesuits. These had been allowed to establish autonomous districts, and so far were such areas from places of treasure and traffic that they had been largely left alone. Besides, the Spanish needed the Guaranis: without them, they could not have held the area against Portuguese-Brazilian incursions.

  After independence, like other debris states of the great Hispanic empire, Paraguay had fallen almost immediately under the control of dictators. The laws said republic, but the practice was one-man rule—a mix of benevolent despotism and populist tyranny. * The first of these dictators (that is what he called himself), Dr. Gaspar Rodriguez de Francia, was something special. A Jacobin ideologue, and like many of the original French variety, a lawyer by training, Francis was committed to a republic of equals and him more equal than the rest. He was the “organic leader,” the elitist embodying the popular will.35 He cultivated this image. When an Indian villager came to see him, he received the petitioner with every courtesy, sat down beside him, patted him on the back, radiated interest and warmth. But let a landowner or bourgeois seek an audience, and Dr. Francia had him cool his heels and drum his fingers, eventually to be admitted into a disdainful, impatient presence.

  This was class discrimination (affirmative action), but also racial: the lines of division in Paraguayan society were the same for both. The Dictador Supremo wanted to build on the special Guarani character of the society, to subdue the old Spanish and Creole elite. To this end he forbade the whites to marry among themselves, requiring them rather to take their spouses from among Indians, mulattoes, and blacks.36 How strictly this rule was enforced is hard to say; but it showed an awareness of racial realities and signaled a deliberate effort to avoid the color-based segmentation that marked the rest of Latin American society.

  Dr. Francia and his successors, Lopez father and son, would turn the country into an enlightened Sparta—egalitarian, literate, disciplined, and brave. Elementary schooling was to be free and compulsory from age seven, a heroic ambition. Although that was easier said than done, the system did start with 5,000 pupils, rising to 17,000 under Carlos Antonio Lopez in 1857, 25,000 in 1862—roughly half of the eligible age group. “Probably a record for the future Third World in the nineteenth century!” exults one admirer.37 The pupils were to learn the three R’s, plus a civic catechism. In this way, they would know who they were and why. Meanwhile the instructors, like good soldiers on duty, wore “government issue”: two shirts, two pairs of trousers, a poncho, a hat, a scarf. Teaching materials were hard to come by, because the unfriendly Argentines were blockading river access, but in the early days the state did get hold of five thousand flutes (fifes?)—one for each child. One is reminded of the stress that Plato placed on music as part of his ideal education; also the role of music in Muhammad Ali’s schools in Egypt of the same period (cf. below, chapter xxiv). But Muhammad Ali never aspired to universal schooling.

  The trouble with idealized, reformist states is that they gain strength by improvement and then succumb to temptation. They threaten and subvert their neighbors, upset the balance of power and the status quo. Such actions invite reactions. So it was that the dictators of little Paraguay nursed ambitions, along with fears of danger from the bigger countries around; in short, a rational, latently irrational paranoia. (Who says paranoiacs don’t have enemies?) The biggest threat came from Argentina, which saw Paraguay as a rebellious province and sought to annex it.38 But all the neighboring countries looked unkindly on revolutionary experiments next door.

  Paraguay’s leaders, then, were determined to build the economy and acquire the armaments necessary to defend and attack in all directions. For this, they needed not only weapons but the tools and machines of industry. These could be had solely from Europe, and although Paraguay, with its Indian legacy, had an aversion to things European, Europeans overseas were more likely to be helpful than covetous neighbors.

  Beginning with Carlos Lopez, the Paraguayan government contracted with European suppliers for steamboats, steam engines, and industrial plant (most important, an iron foundry and a forge-arsenal). The purchases were paid for with scanty natural exports (mostly yerba mate, a tealike, mildly addictive herbal) and the modest loans of a London shipbuilder and purveyor. A start was made on a railway and a telegraph network, but rail-line construction proved painfully slow, a few kilometers a year until the approach of war speeded the effort. Some two hundred European technicians were hired, but these were hardly the best. Needless to say, these rudimentary installat
ions were not doing work of export quality; but they found outlets in the army and the native Indian population, cut off as these were from foreign imports.39

  At the same time, the Paraguayans bought European arms, generally old, small, and discarded, and built fortresses against the likelihood of war. One in particular, located at Humaita on a U-bend in the Parana River, closed the waterway at will to foreign vessels, including those of riverine Argentina. (Turnabout is fair play.) These neighbors in turn, warned by words and incidents, began arming themselves. The Brazilians in particular began buying ironclad ships, with an eye to forcing the Parana passage if necessary.

  Who started what is not easy to say. That is the way of war.40 But certain it is that Paraguay did not hang back from combat. It had its share of casus belli, and boundaries in this region were dubious. Petty formalities, like having to get permission to cross neutral territory (going through Argentina to get at Brazil and Uruguay), were simply brushed aside. That was the last straw: in May 1864, Brazil, Argentina, and Uruguay joined forces to crush the pest. Paraguay, with its universal service and reserve classes, actually had far more men under arms than the three together; but the allies had a much bigger reservoir of potential conscripts, to say nothing of superior materiel. Time was on their side.

  For three years, however, their efforts were blocked by the fortress of Humaita, garrisoned by thousands, bristling with cannon, equipped with its own foundry and forge-“‘that military marvel, that impregnable bastion,’ that Sevastopol of the South.”* Finally the Brazilians brought up their armored vessels, iron hulls impervious to enemy shells. Their guns broke the huge chain that had closed the river. The Paraguayans struck back by sending out boats full of boarders, who bravely climbed the enemy vessels under continuing fire from their own shore batteries. They got on board, but found everything closed, the hatches sealed, the crews below. And then the Brazilian vessels swept the decks with enfilading fire, slaughtering the intruders.