The Political Economy of Equality
and Growth in Mexico: Lessons from
the History of the United States
James A. Robinson
Harvard 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.
Income per-capita Relative to the US Average
in US Regions since 1840
200
160
120
80
40
0
1840 1860 1880 1900 1920 1930 1940 1950 1960 1980 1990
NE
MA
ENC
WNC
ESC
WSC
Mt
Pc
Source: Easterlin (1960, 1961), Barro and Sala-i-Martin (1991).
SA
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
a
Name
Minge, G.
Lyon, F.
Paulling, William
Hatch, Alfred
Alexander, J.
Whitfield, B.
Terrill, J.
Taylor, E.
Robertson, R.
Dew, Duncan
Walton, Jhon
Collins, Charles
Hays, Charles
Brown, Jhon
Pickering, Richard
Withers, Mary
Jones, Madison
Nelson, A.
Taylor, J.
Pickens, Wm.
Reese, Henry
Walker, R.
Smaw, W.
Blanks, E.
Walker, Morns
County
Marengo
Marengo
Marengo
Hale
Marengo
Marengo
Marengo
Marengo
Marengo
Greene
Marengo
Hale
Greene
Sumter
Marengo
Hale
Hale
Hale
Hale
Hale
Marengo
Hale
Greene
Marengo
Marengo
Number of planters
Percent present in 1870
Real estate holdings
1870
1860
1850
$ 85,000
30,000
75,000 115,000
35,000
72,000 150,000
29,000
70,000 120,000
40,000
69,000
10,000b
38,000
65,000 200,000b
100,000
62,000
93,000
61,000
60,000
52,000 200,000b
41,000
50,000 250,000
25,000
b
50,000 201,000
30,000
50,000 113,000
50,000
69,000
13,000
50,000
42,000
15,000
50,000
75,000b
40,000
50,000
36,000b
27,000
48,000
10,000b
48,000
45,000 210,000b
51,000
45,000
52,000
24,000
42,000
55,000
42,000
32,000
41,000
41,000
25
18
72%
a
16
64%
Rounded 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.
b
Wealth of father or husband
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).
Wealth Inequality fell dramatically after 1900…
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.
As did income inequality…
The Economy Grew Rapidly and above trend…
Source: Jeremy Atack and Peter Paseell (1997) A New Economic View of American
History, Norton.
The Anti-Trust moves at least halted the wave towards
concentration and in some cases reversed it…
Source: Atack, Jeremy and Peter Passell (1997) A New Economic View of American
History, 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).