Question

Why did Peron, Vargas, and Cardenas push for industrialization?

Answer 1

Latin American countries failed to catch up with the income levels of advanced economies in the twentieth century due primarily to their inward-looking strategies, macroeconomic instability and weak institutional framework. However, during the middle of the century they succeeded in industrialising and increased their shares in world production regardless of their lack of competitive assets and low technology levels. This project reassesses these facts providing new estimates of real output and comparative productivity levels for manufacturing industries between Brazil, Mexico, Argentina, and the United States. Decomposing manufacturing productivity at industry levels using official production records and foreign trade statistics, I apply growth accounting techniques and a distance to the frontier approach to explore the main factors behind the industrial divergence in parallel with the historical and institutional features that affected productivity growth after the Great Depression. Furthermore, I suggest that a learning process evolved in leading sectors according to the distance to the technology frontier, facilitated by institutions and policies, which despite its shortcomings engendered an uneven pattern of heterogeneous productivity growth across manufacturing industries. Factors such as a weak structure of human capital, misaligned public incentives and trade-union relations during the years were crucial for the retardation of Latin American industry.

In the case of Argentina, the depression years witnessed substantial changes in its industrial base, including certain branches of manufacturing such as textiles and metallurgy. These new factories produced for the domestic market and most of them had foreign, especially British interests.32 Conservative governments before the period of populist leader Juan D. Perón began to intervene directly in the economy. The infamous decade (1930-1943) had significant changes in the labor politics of the country. Left-wing trade unions began to occupy a space in public life and strengthened a labor movement, which at the time was founded the Confederación Nacional del Trabajo or CNT, having a strong influence in labor contract decisions. This brief description of the political environment in these countries, questions how this could have affected industrial performance and how industries evolved differently than in the US and other industries in advanced economies. Labor unrest in Latin America responded to different aspects of the labor market environment. However, the common denominator in Brazil, Mexico, and Argentina were the strong left-wing components in labor unions searching to have a determinant weight in wage bargaining. The level of the political pressures on industrial wages must have varied in each country due to different configurations of the corporate-state model promoted by ISI.

Governments headed by Getúlio Vargas (1930-1945) in Brazil, Lázaro Cárdenas in Mexico (1934-40) and Agustin Justo in Argentina (1932-1938), followed in separated contexts state interventions in which ‘corporatist policies’ (understood as social arrangements where employers associations and labor representations in unions were attached to the state), played a major role. This corporate model had the aim of controlling labor relations at the firm level, limiting wage demands to the growth of productivity. According to Eichengreen, manufacturing wages in Western Europe and Japan grew by 3 percent per year after the Second World War, allowing rapid growth in tandem with their high productivity levels.28 However, in Mexico, Argentina, and Brazil, these relations evolved in a different way. In 1930, the Brazilian revolution brought into power a coalition of forces lead by Vargas, an era of economic nationalism in the midst of a clash of strong economic interests between landowners, industrialists and workers. Vargas advocated a program of social reform and economic modernization by imposing tariffs to favor manufacturers. In the following years, the so-called Estado Novo, established a new Constitution which gave absolute power to the President, and even though at the beginnings of Vargas’ administration the agenda apparently tended to favor left-wingers representations, it rather repressed communist labor movements. New legislations were issued to force labor unions to be attached to the Government as state agencies, controlling and supervising them through the Ministry of Labor.