Paradise Lost?
Colonial institutions and Republican isolation in Paraguay
Paper to be presented at the conference
“Understanding the institutional trajectory of Latin American development”
London School of Economics, September 27th-28th, 2012
[PRELIMINARY - PLEASE DO NOT QUOTE OR CITE]
Leticia Arroyo Abad
Middlebury College
[email protected]
Caitlin Ludlow
Middlebury College
[email protected]
Abstract
This paper looks at the type of institutions implemented in colonial Paraguay, specifically
the system that governed the allocation of colonial labor. We trace the trajectory of the
encomienda in Paraguay, as it was transformed from the traditional institution by which
the Spanish Crown controlled its empire, to a relatively equitable system built on close
relationships between the settlers and indigenous people. We explore why, despite these
relatively benevolent colonial institutions, Paraguay failed to keep pace economically
with the other countries in the region that were characterized by far more extractive, and
ultimately harmful colonial practices. Using quantitative evidence on trade during the
19th century, we argue that institutions changed over time responding to local conditions.
Autarkic policies, political upheaval, and a devastating war, crippled the Paraguayan
economy and precipitated its lackluster performance during the first wave of
globalization.
1
Since colonial times, Paraguay has endured many changes ranging from Spanish
colonization to dramatic wars with neighboring countries. However, features of the
Paraguayan society are deeply rooted in history and have persisted over time. For
example, Guarani, the language of the indigenous peoples in the region, was widely
adopted by the Spanish colonizers and it is still spoken by 87% of the population
(Cardozo 1987, DGEEC 2004).1 Moreover, this language is preferred by 59% of the
households and the President routinely addresses the population in Guarani rather than in
Spanish (DGEEC 2004, Nickson 2010).
The nature of the interaction between the Guarani and the Spaniards can
potentially explain the adoption and adaptation of the typical Spanish colonial institutions
in the New World. And, despite the many attempts by the Crown to shape these
institutions to protect the indigenous people and its own self-interest, Paraguay often
disregarded the royal mandates and accommodated to the local conditions. As a result,
the rules and practices applied in Paraguay differed significantly from the ones carried
out in other areas of Hispanic Latin America. However, this relatively benevolent
relationship between the indigenous populations and the Spaniards, did not produce a
higher level of development in Paraguay during colonial or postcolonial times.
The study of the impact of institutions in economic development has surged in
scholarly popularity. In particular, academics have taken advantage of natural
experiments in history such as the colonization of the Americas and Africa to examine
how historical events influenced present and future economic outcomes. Looking at these
areas is fitting as the colonizers frequently imposed their own institutions over the
1
In contrast, only 6.2% and 25% of the Mexican and Peruvian populations speak indigenous
languages respectively (INEGI 2001, INEI 2008).
2
colonized. These colonial institutions had tangible effects on the evolution of the
colonies. The question that remains is how these colonial legacies influenced future
economic development. As a result, two main strands of literature have emerged that seek
to explain how the processes continuity and change shaped the economic trajectories in
the colonized world.
Led by Engerman and Sokoloff (1997) and Acemoglu et al. (2001), the continuity
group claims that colonial institutions persisted over time. Of great importance is the type
of institutions established. In cases of hostile environments or factor endowments
conducive to large-scale agriculture or precious metals mining, the institutions created
were extractive in nature. Conversely, in locations with low incidence of disease or factor
endowments in line with small-scale agriculture, the resulting colonial institutions were
egalitarian. Later developments in the literature look at particular institutions such as the
mita in Peru (Dell 2011) or the type of colonial activities and population density
throughout the Americas (Brunh and Gallego 2012). In all cases, the key link between
colonial institutions and contemporary economic outcomes is their persistence over time.
There is another line of research that point out the many changes that Latin
America experienced through colonial times and in the century after independence.
Coatsworth (2005) claims that the different provinces in the Spanish empire exhibited
widespread variation in economic outcomes. For example, Cuba was probably the richest
colony while producing sugar with enslaved labor. Moreover, he claims that even though
the institutions originated in the Iberian peninsula, the local elites adapted them according
to domestic conditions. Others maintain that transitions in and out of the global economy
changed not only the structure of the economies but also the relative earnings of the
3
factor endowments (Bulmer-Thomas 1994, O’Rourke et al. 1996, Arroyo Abad 2008,
forthcoming, Williamson 2010).
This paper looks at the types of institutions established in Paraguayan territory
during colonial times and examines the policies this country adopted in early postcolonial
times. We argue that despite relatively good initial colonial institutions, this country
failed to achieve economic development due to economic isolation. Using quantitative
evidence on trade during the 19th century, we compare Paraguayan economic activity visá-vis other neighboring countries and find a lackluster performance during the first wave
of globalization. Paraguay during the 1800s is an example of a country whose fortunes
and circumstances set in on a path of economic development that markedly differed from
the rest of Latin America. Paraguay’s atypical development caused it to forgo the
implementation of the export-led growth strategy by half a century, during which time
many countries in Latin American implemented this economic strategy. In this sense,
Paraguay presents a curious case because while its institutions were initially not as
extractive as other locales in the region, the lack of trade during and after colonial times
impeded the economic development of this landlocked country.
Colonial institutions in Paraguay2
The original expansion of the Spanish empire to the interior of South America was in
response to the Portuguese menace in the Southern cone and the perpetual search for
2
While we are analyzing the Spanish-Guaraní relations through the lens of the encomienda, we
are not discussing the Jesuits missions. Technically, the 30 missions were initially in Brazilian
territory and then in Misiones, Argentina. As a result, they were far from the core settlements in
Paraguay and as the literature indicates, the contact of the missions with the rest of the colonies
was extremely limited (Service 1954). For the latest literature on missions in Latin America, see
Williams (2008).
4
mineral wealth. An expedition led by Pedro de Mendoza settled temporarily in Buenos
Aires; however, the belligerence of the nomadic tribes in the area prompted the
exploration upstream of the River Plate. The Spaniards, in the unceasing quest for
precious metals, ventured into the interior and found the Guarani, a peaceable
agricultural community. Despite the failed attempt to colonize the Pampas region, the
Spaniards achieved a permanent residence in Paraguay with the foundation of Asunción
in 1537 (Service 1954).
Much poorer that Mexico and Peru, Asunción remained on the fringes of the
Spanish empire even with the alliance formed between the Guarani and the colonizers
during the first decades of settlement. Initially, the Spaniards considered the settlement in
Asunción a base for further expeditions in the Andean region. In this exploratory phase,
the Spanish-Guarani relations diverged considerably from those in other areas of
settlement with sedentary indigenous populations. Unlike the Incas or the Aztecs, the
Guarani lacked a hierarchical societal structure. As a consequence, the Spaniards were
unable to replace the top ruling class as a means of subduing the rest of the population.
Instead, the colonizers opted to negotiate with the different villages to form an alliance.
The Guarani would offer protection against the warring nomadic tribes and in return the
Spaniards attempted to integrate into Guarani society by marrying (sometimes many of)
their women. This move led to the creation of consanguinity connections, el cuñadazco,
between the settlers and the natives. The Spanish Crown’s early efforts to regulate the
Guarani labor and relations were complicated by the egalitarian nature of Paraguayan
society. The bloodline links strengthened the relationship between the Spanish and the
Guarani, and during this period the indigenous people saw the newcomers as allies rather
5
than conquerors. During this period, the indigenous groups saw the newcomers as allies
more than conquerors (Service 1951, 1954; Lockhart and Schwartz 1983, Pavetti 2008,
Perusset 2009).
Despite their early rejections of the Crown’s legislation regarding Guarani labor,
the Spaniards in Paraguay consented to the adoption of the encomienda system in 1556.
In Hispanic Latin America, the encomienda allocated Indians to individual Spaniards.
This relationship implied the right to demand labor and tribute from the Indians and the
obligation to protect and educate the Indians in the Catholic faith (Keith 1971). This
institution was part of the colonial management system that provided incentives for
Spaniards to settle in the colonies while at the same time allowed the Crown to exert
control over a vast and otherwise unmanageable territory. As the encomenderos
accumulated power and authority however, the Crown opted to reign in their power. The
King outlawed the encomienda as a system of coerced labor in 1549 due to concerns over
Indian welfare as well as the growing disobedience of the encomenderos. As a result, the
Indians were obligated to pay tribute as a substitute for labor (Zavala 1935).
In Paraguay, the Crown and the settlers accepted the encomienda because the
system served the interests of both groups. The Spanish government found it crucial to
have a uniform legal system throughout the empire. On the other hand, the colonizers,
having opted to settle this “backwater region” as an area of permanent residence, wanted
to enjoy the same privileges as their counterparts in Peru. The initial encomienda
allocation provided by the Crown was 20,000 Guarani for 320 Spaniards.3 Despite the
Crown’s desire to have homogeneous institutions through the empire, the encomienda
3
In 1588, the number of encomiendas in viceroyalty of Peru was 695 with 325,899 tributary
Indians (Zavala 1935).
6
had particular characteristics in Paraguay. In practice, this institution legitimized the
system of service that was already in place and expanded it to nearby towns (Service
1954, Keith 1971, Lockhart and Schwartz 1983).
The first move of the encomenderos was to incorporate the Guarani linked
through bloodline, which resulted in the originario encomienda. Later, the expansion of
the encomienda system went beyond the original settlement at Asunción into the
surrounding rural communities and was known as the encomienda mitaya. Under this
particular version of the system, the Guarani did not earn a wage, but the encomenderos
provided them with daily necessities and, conditional on good behavior, treated the
indigenous people relatively well (Service 1951). During the other six months, the
Guarani had a certain degree of freedom over their daily lives; many chose to continue to
work for pay or for other privileges.5
The encomienda mitaya model developed in Paraguay better suited the needs of
the individual region and its colonizers than the encomienda system that governed the
rest of Latin America. Given that Paraguay had a relatively small land area that was
conducive to agriculture, the practice of granting large estates with hundreds of Indians
governed by individual colonizers did not fit the development needs of the region.
Additionally, the Guarani in Paraguay existed as a semi-sedentary population, and their
lack of social structure made assigning them in large groups to individual estates
5
For those who demonstrated stubbornness or issues with authority however, the Spanish in
Paraguay reserved the encomienda de la yanacona, a system of forced labor as punishment that
did not exist in many other Latin American countries. Removing recalcitrant Guaraní served the
dual purpose of preventing these individuals from inciting more dissent, and providing the
Spaniards with a justification for the harsh treatment of the more violent members of the
population. Some scholars argue that encomienda de la yanacona provided the Spaniards with a
means to perpetuate slavery after the Spanish Crown had outlawed the practice in the 17th century
(Pastore 1997).
7
infeasible (Service 1951). Thus the encomienda mitaya allowed for encomenderos to use
small groups of the Guarani for a variety of projects including agriculture, bridge
construction, and defense of the colony, depending on specific needs (Service 1951,
1954).
A series of actions on the part of the encomenderos in Paraguay and their
counterparts in the other colonies led to increasing Crown oversight of the encomienda
system and daily life in general. One of the encomenderos’ obligations was to convert the
indigenous peoples to the Catholic faith.7 However, the lack of Catholic clergy in the area
made this mission challenging. In response to this situation as well as concern over
Guarani exploitation the Crown sent the inspector Francisco de Alfaro in 1612. His visit
led to a set of ordinances to protect the natives and segregate them from the Spaniards. Of
particular importance was the abolition of personal service in favor of tribute. The Crown
intended for these new regulations to be implemented throughout the empire, but they
were soon disregarded by Paraguayan encomenderos as impractical and cumbersome.
Alfaro himself noted the difficulties of calculating tribute rates for different towns.
Within each town, the natives were procuring services to different encomenderos in the
region. In addition, given the demographic collapse, the number of potential tributaries
could only provide meager funding. The indigenous peoples claimed that the personal
service was either as a favor due to family ties or not enforced on a regular basis. As a
consequence, they preferred the existing system instead of the tribute. He concluded then
that the Guarani did not see themselves as victimized (Service 1951, 1954, Susnik 1965,
Velazquez 1982, Perusset 2009).
7
Previous attempts to regulate the treatment of the Indians included Ramírez Velasco’s
ordinances in 1597 and Hernandarias’ laws in 1603 (Perusset 2009).
8
Because of increasing oversight and the Crown’s growing distaste for the
institution, the encomienda system was eliminated in most of Latin America by the 18th
century. However, this did not happen in Paraguay where the institution remained in
place. New encomiendas continued to be granted on a case-by-case basis as original
encomenderos died and their allotment of indigenous labor became available. The
increase in population during this century contributed to the rise in the average size of the
encomienda from 14.4 to 22.1 from 1726 to 1774 in Asunción. However, the encomienda
system was already in steep decline. In the late 18th century, changes in the Spanish
government leadership led to a tighter control over the colonies. The appointed governors
took the letter of the encomienda law seriously discouraging the allocation of new
encomiendas. In addition, inspections of the existing encomiendas were more frequent.
According to the new governors, this system was intended to be a privilege from the
Crown for the early settlers. However, in Paraguay, it had the unintended effect of
creating an encomendero class that enjoyed special privileges and wealth against royal
will. In addition, the Crown saw this arrangement as a potential threat given the power
accumulated by this class. The number of encomiendas dwindled throughout the century.
For example the number of encomiendas mitayas fell from 66 in 1726 to 19 in 1802
(Saeger 1981).8
From an economic perspective, the encomienda system provided flexibility in the
role of the indigenous Guarani, and thus allowed the Spanish to allocate their resources,
8
Saeger (1981) argues that the encomienda system in the 18th century in Paraguay shared
characteristics with the early systems in Peru and Mexico. He adds that the uniqueness attributed
to Paraguay as a colony is out of context. He adds that within the Southern cone, the early
settlements in other areas had similar characteristics. However, we believe that despite the
potential similarities with other areas in the region, the Guarani were the only semi-sedentary
indigenous group in the Southern cone. As such, the relations between settlers and indigenous
peoples were different compared to other densely populated areas such as Mexico and Peru.
9
namely indigenous labor, most efficiently. Using this model, Paraguay evolved into a
relatively self-sufficient region, in which the colonizers produced goods and services
based upon their own needs, rather than those of Spain or the other colonies.
In addition to the economic and societal benefits Paraguay reaped from its
encomienda model, indifference on the part of the Spanish Crown also contributed to
Paraguay’s development of an atypical encomienda system. The Paraguayan region is
landlocked, with the semi-arid Chaco plain to the West, the expansive Matto Grosso
woodland plain to the North, and a vast undeveloped (during the 19th century) wilderness
to the East. This isolation rendered travel and communication between Paraguay and
Spain difficult and dangerous. Any directives the Crown gave regarding the encomienda
system in Paraguay could take years to reach the isolated region, and when they did, the
Spaniards in Paraguay tended to ignore such instructions (Service 1951, 1954).
Additionally, unlike its surrounding neighbors, Paraguay had limited marketable
crops and did not have a vast variety of resources to render it valuable or irreplaceable in
the eyes of Spain (Williams 1972). Only yerba mate and tobacco had trading value
outside the province and served as a link to different areas within the viceroyalty (Areces
2010). Without direct access to the ocean, any goods Paraguay did produce had to be
transported over land to the Paraguay river, and sent through Argentina in order to reach
the coast, an expensive and laborious undertaking (Areces 2010). Any incentives Spain
would have possessed to try and overcome Paraguay’s geographic isolation disappeared
because of Paraguay’s perceived lack of profitability. Without the Crown’s influence
guiding economic policy, Paraguay developed an encomienda system that mirrored the
needs of the region rather than the Crown.
10
The encomienda mitaya provided a relatively equitable means to control the
Guarani without dominating or harming the population. The region produced enough
food and other resources to sustain itself and engaged in moderate levels of local trade
with surrounding regions for other necessary goods. Indeed, in writing about his travels
through Paraguay in the 19th century, French doctor E. de Bourgade commented on the
remarkable health and the general well being of the Paraguayans, and encouraged his
fellow Europeans to consider the little known colony for their own emigration.
Additionally, Spain did not view Paraguay as a main source of revenue or resources, and
left the Spanish colonizers to operate with a relatively free hand (de Bourgade 1892).
The rules and practices between the Guarani and the Spaniards were in
continuous adaptation and change. From the point of initial contact, the settlers in
Paraguay faced different conditions than their counterparts in the densely populated,
resource rich colonies of Peru and Mexico. Given that the Guarani society was not classstructured or politically unified, the settlers adapted by creating close connections with
each village. The Indian and the Spanish worlds became more and more intertwined as
the offspring of the settlers and indigenous peoples were identified as “Spaniards” instead
of mestizos as in many corners of Latin America. Paraguay is unique because it adopted
the encomienda system after strong bonds had already been formed between the
colonizers and the indigenous people. The nature of these relations shaped the integration
of the Spanish and Guarani worlds, resulting in a more rapid racial and cultural fusion.
Moreover, by agreement of both of the Guarani and the Spaniards, this institution
prevailed despite the royal mandate to be replaced by the tribute. The pre-existing
Guarani social hierarchy, the subsequent depopulation, and the economic activities
11
shaped the relations between the settlers and the natives. The colonial institutions were a
flexible process of adaptation to the local circumstances.
Economic isolation and political independence
To a certain extent, Paraguay had, since its inception as a colony, experienced
isolation. At the beginning of the colonial enterprise, Paraguay was an island of safety for
the Spaniards given the belligerence of the neighboring tribes. Once the promise of El
Dorado and other dreams of stunning wealth vanished, Paraguay’s relative importance
within the colonial system decreased. Moreover, location and the Spanish trade system
reduced Paraguay’s connection to the world through Santa Fe or Buenos Aires.
Paraguay’s geographic isolation has remained an enduring and influential part of its
history and economic trajectory.
Once the winds of independence arrived in the Southern Cone, the powerful
southern city of Buenos Aires intended for Paraguay to become one of its United
Provinces of the Rio de la Plata. Argentina considered Paraguay a colony in rebellion
because a century earlier, Spain had classified both Argentina and Paraguay as belonging
to the regional kingdom of the Viceroyalty of the Rio de la Plata. However, at the same
time Paraguay appointed a provisional Junta with powers to govern the country. After a
couple of armed conflicts, Paraguay became the buffer zone between Brazil and
Argentina.
Paraguay elected its first national ruler José Gaspar Rodríguez de Francia, known
as the “Supreme and Perpetual Dictator” in 1814. He had no intention of accepting the
Rio de la Plata union that Buenos Aires wished to impose, nor did he plan to perpetuate
12
ties with Spain. In Paraguay’s first Congress of the union, he was clear about his point of
view: “My arguments supporting my ideas are these –placing two guns on the table: one
against Fernando VII [The King of Spain] and the other one against Buenos Aires.” (our
translation, Cardozo, 1987: 62). He imposed a series of isolationist measures on the
already insulated region. Francia harbored a deep distrust of foreigners, in part because of
Paraguay’s continuing disagreements with its neighbors. He would only grant export
permits if the weapons and ammunition were brought in return, as a means to secure
political independence (Areces 2010).
Paraguay’s lack of potential economic profitability and geographic barriers kept
Argentina from invading its “colony” to bring it back under control. Francia also angered
Paraguay’s neighbor to the North, Brazil, when he offered their African slaves asylum if
they could reach Paraguay’s borders (Williams 1972). Francia further cemented his selfprotective and belligerent image in the eyes of the rest of Latin America by exiling
political enemies at whim; on the pretense they were disloyal to the Paraguayan system
(Cooney 1972). Remarkably, Francia issued a proclamation in 1814 that banned fullblooded Spaniards living in Paraguay from marrying each other; Europeans could only
marry blacks, Indians, or mestizos (Williams 1972). Francia’s reasoning behind such
actions is unclear, but it is likely that he believed Europeans with no ties to Paraguay
presented a greater threat to his rule than an integrated mestizo population did. In 1825,
he banned the entry of traders declaring “when the Republic is free to navigate to the sea,
we will allow traders in.” (our translation, Cardozo 1949: 64). This was a reference to
Buenos Aires’ continuing control of maritime activity, and the economic profit that
control guaranteed.
13
While Francia undoubtedly implemented political isolationist policies, the extent
of Paraguay’s economic isolation under his rule remains far more contentious. Scholars
continue to debate the magnitude of Paraguay’s economic isolation during Francia’s
reign. Cardozo (1949) argues that the isolation was so extreme that the dictator centrally
planned to organize the economy to guarantee the country’s self- sufficiency. Williams
(1972) sustains that historians have long overemphasized Paraguay’s complete isolation,
and that Paraguay remained connected to the rest of Latin American throughout the
duration of Francia’s rule. Bulmer-Thomas (2003) on the other hand claims that while
Paraguay’s isolation was not absolute, it was an enduring and defining characteristic of
its development. Pastore (1997) believes that Francia’s political isolation perpetuated
economic isolation. That is, Francia did not actively seek to prevent trade and commerce,
rather his fears of foreign influence caused trade and other economic transactions with
the rest of Latin American to markedly decrease.
We argue that Paraguay’s isolation varied through time. Through statistics of
trade we can assert that Paraguay was still trading with other countries; however, the
levels were very low when compared over time. In the absence of aggregate exports for
the period before independence, we can compare the volume of trade of Paraguay’s main
export good, the Paraguay tea: yerba mate.17 In 1800, Paraguay exported 2,739 tons of
this tea while in 1820 the figure fell to 529.5 tons to a low of 140.3 tons by 1829 (White
1978). Looking at the following decades, as depicted in Figure 1, the average real exports
in the 1820s represented less than 5% of the average level in the 1850s. Overall, Francia
markedly decreased Paraguay’s trading capacity and general connectedness to the rest of
17
Yerba mate represented 75% of total exports in the 1788-1792 period according to White
(1978).
14
the world. In imposing such isolationist policies, Francia virtually ensured his country
delayed its integration into the world markets.
Francia’s death in 1840 plunged Paraguay into a state of anarchy and deepened its
isolation from the surrounding regions. His successor, Carlos Antonio López capitalized
on a power vacuum to seize control, but factions within Paraguay immediately rebelled
against the new, brutal dictator who outlawed private landownership. While perhaps less
ruthless than Francia, López sought to use his power to advance his own wealth and selfinterest (Reber 2008). In the eyes of Argentina, Brazil, and Uruguay, the power struggles
created by Francia’s death rendered Paraguay vulnerable. All three countries saw an
opportunity to seize a region that had, in their eyes, been an upstart, arrogant colony for
centuries. Argentina and Brazil, citing the century-old Viceroyalty of the Rio de la Plata,
claimed parts of Paraguayan territory as their own. Regional politics forced Uruguay into
the fray, as Brazil occupied the small country at the start of the war and therefore
Paraguay considered Uruguay as tantamount to Brazil (Peñalba 1982). Though by no
means allies, Argentina, Brazil, and Uruguay launched the War of the Triple Alliance
against Paraguay beginning in 1864, thus ensuring the further delay of any cohesive
Paraguayan economic policy.
By any measure, the War represented a complete disaster. Six years of fighting
decimated Paraguay’s land, resources, and population. Perhaps most unbelievably, when
the war ended in 1870, no large-scale takeover of Paraguay took place. Brazil and
Argentina each annexed parts of Paraguay that bordered their own territories, but within a
decade both countries would abandon the majority of these conquered lands because of
the high cost of maintaining armies and bureaucracies in hostile, decimated regions
15
(Peñalba 1982). Estimates regarding casualties differ widely, but scholars agree that the
final death total encompassed more than half of the Paraguayan population. Notably, the
yerba mate, one of the few crops Paraguay had consistently exported before the War,
became practically non-existent after the conflict ended, and its production would take
decades to recover (Bulmer-Thomas 2003). The War of the Triple Alliance took place
over a period of only six years, but the devastation it caused ensured that Paraguay would
need to largely rebuild its society and economy.
While most of Latin America was adopting export-led growth as a development
strategy, Paraguay lagged behind. Isolationist policies and war left the country with little
capacity to meet domestic demand, let alone export to world markets. However, as Figure
2 shows, exports and imports in Paraguay after the war recovered, quickly surpassing the
pre-war levels. Table 1 looks at this issue from an international perspective. Paraguay in
the 1850s had the lowest per capita exports in all of Latin America (see Figure 3, panel
(a)). At 1.3, Paraguayan exports per capita were lower even than tiny countries like Haiti
and Honduras, and well below the Latin American average. In 1879, Paraguay’s exports
per capita rose to 5.8, and while this number was still below the Latin American average,
Paraguay no longer trailed every other country. Indeed in the decade of recovery
immediately following the War of the Triple Alliance, Paraguay rose from being ranked
last in exports per capita, to having higher exports per capita than six other countries.
Circa 1890, when Paraguay had fully embarked upon the export-led growth
strategy, its exports per capita rose to 8.5, higher than nine other Latin American
countries. In 1890 Paraguay’s exports per capita were still below the Latin American
average as seen in Figure 3, panel (b). Additionally, by circa 1912, Paraguay’s exports
16
per capita had risen very minimally to 8.6, and its ranking had dropped so that only six
countries had exports per capita lower than Paraguay.
Paraguay’s domestic economic and political structure perpetuated its isolation
from the rest of Latin America and delayed its implementation of the development
strategy of export-led growth. The data show that Paraguay’s policies influenced its
economic development given that exports and imports decreased not only in the years
corresponding to the War of the Triple Alliance but decades before as well (see Figure 2).
The fact that Paraguay experienced a marked increase in exports per capita after the end
of the War and the implementation of export-led growth strategy indicates that delaying
this policy harmed Paraguay’s economic development.
Colonial institutions and Republican economic outcomes
To what extent are colonial institutions to blame for the economic outcomes observed in
19th century Paraguay? The institutional persistence view would claim that the sluggish
economic growth in postcolonial Paraguay is a product of the initial (colonial)
institutions. Engerman and Sokoloff (1997) argue that the combination of factor
endowments particularly determines these early institutional arrangements, which persist
over time. Thus it is possible that Paraguay’s decision to continue with the encomienda
system, and later to shun export-led growth and other commerce in favor of isolation,
predetermined future economic stagnation. However, when looking at long-run historical
processes, it is possible for institutions to change endogenously (North 1990, Greif and
Laitin 2004), as they had in Paraguay.
17
Throughout Paraguayan history we observe ever-changing political institutions.
During colonial times, change was pervasive in institutions that shaped the relations
between Indians and Spaniards. In the transition to independent times, the historical
context gave rise to a powerful national figure, the Supreme Dictator Francia. While he
tilted the power scales away from the colonial elite, the Paraguayan society maintained its
traditional nature. The autarkic policies adopted failed to modernize the country and fuel
economic growth and development.
In the quest to conquer and settle the new territories, the Spaniards encountered
the semi-sedentary Guarani with whom a mutually beneficial pact was achieved. The
relations between the settlers and natives were of reciprocity based on kinship. The
Neolithic character of the Guarani society at the eve of Spanish settlement explains the
adoption of such strategy. It was customary to establish relations based on blood ties. The
Spaniards were expected to marry multiple Guarani women. These unions would
guarantee food for the new settlers. In exchange, the Spaniards were asked to contribute
with the defense against the hostile nomadic tribes in the area and provide useful tools
such as iron axes and plows and draft animals and chickens (Susnik 2010). Given the lack
of centralized authority in the Guarani civilization, the Spaniards negotiated on a clanby-clan basis. As such, the early Spanish-Guarani society differed from the experience in
other Latin American settlements. The relations between the Indians and the Spaniards
were of reciprocity, lacking a vertical social organization. The ruled and the rulers were
not separated by many social distinctions.
This arrangement prevailed until the kinship system weakened. The mingling of
the Spaniards with the native population gave rise to substantial growth of the mestizo
18
population (Spanish father and Guarani mother). These mestizos were reluctant to return
to their indigenous communities. As a result, while the mestizo population was growing,
the Guarani population was stagnant or in decline. From an initial stock of 400 Spaniards
at the eve of settlement, by 1550/51 the mestizos numbered around 3,000 in Asunción
(Susnik 2010). The decline of the Guarani population implied fewer arms available to
work for the Spaniards and creoles. The tilt in the coerced labor availability opened the
doors to the adoption of the infamous encomienda.
In particular, this colonial institution was embraced as a response to the declining
Indian labor force as it guaranteed personal service. To secure labor from the clans, the
Spaniards changed the nature of the chiefdom in the clans (the cacicazgo). Historically,
the cacique was not a hereditary post with little power as the chief was chosen based on
his oratory skills and could be replaced at any moment. The Spaniards then converted this
position to a hereditary one with actual authority. This power was bestowed on the chief
of the clan by the conferral of the title of “Don” together with a physical token of such
power: the capintandusú cane (Susnik 2010). While it is hardly new that the encomienda
had social consequences wherever it was applied in Latin America, in Paraguay, the
Spaniards transformed the Guarani society to a hierarchy. The Spaniards and creoles
became the masters; the mestizos populated the land, the caciques acted as
intermediaries, and the Indians supplied labor. While the mestizos were technically
entitled to an encomienda, reality differed.
The abolition of the encomienda varied throughout Latin America. In Peru, the
system prevailed until 1720, and in Mexico the encomienda was abandoned around the
same time, in 1717 (Zavala 1935, Gibson 1964). Paraguay remained defiant in this
19
matter; Spaniards and creoles believed that free labor would not prosper in that province.
The vertically structured society was still beneficial to the rulers as labor was
increasingly scarcer as the indigenous population dwindled due to dislocation and disease
(De Bourgade 1892). The transition to free labor was a challenge, as the Guarani had no
conceptual understanding of remunerated work. In fact, in their ancient language there is
no word for “work” per se. Given this situation, the Spaniards rejected the tribute as the
Indians had few marketable goods to offer. Moreover, the question of access to labor was
still tied to defense. The top class needed the influx of Guarani to fend off potential
attacks of neighboring tribes. As a consequence, the encomienda as personal service
remained a reality beyond independence, as it was not until 1848 that the government
declared all the Indians free.
Many contemporary and historical authors have condemned the encomienda as a
system of oppression (De Las Casas 1875, Lovell 1983). However, the system as
practiced in Paraguay was the viable option to achieve integration between the colonized
and the colonizers. Through adaptation to the geographical and social conditions, these
institutions evolved to consolidate the province. Securing labor was essential for the
control and development of the colonial activities. Still, the institutions regulating forced
labor underwent profound changes throughout the colonial times. Several factors
contributed to the revisions of the forced labor practices ranging from the severe
depopulation of the Indian base to the possibility of free labor. As labor became scarcer,
the colonizers used coercion to secure the scarce resource: labor.
While this labor system continued beyond colonial times, the stagnant Paraguayan
economy experienced a jolt in economic activity as the result of the Bourbon reforms and
20
other initiatives designed to provide oversight and economic assistance. Known as the
Golden Age, the period between 1780s and 1810 saw an increasing integration of
Paraguay into the world markets through the authorized port of Buenos Aires. Tobacco
and yerba mate were the main export products. Yerba mate represented approximately
74% of total exports in the 1790s. The trade in these commodities created a dynamic
commercial sector during this period, albeit with more limited resources compared to the
one in Buenos Aires. Together with a few immigrants, these newcomers managed to
comingle with the powerful elite through marital arrangements, gaining access to land
and encomiendas as a result (Areces 2010).
Given this reality in Paraguay, the obvious question is why the country suffered
the economic difficulties it did in early postcolonial times. The argument concerning the
persistence of institutions over time asserts that colonies that were permanently settled,
rather than extracted from, are supposed to do better over time, not worse. So what
happened in Paraguay?
The character of Paraguayan institutions, especially the encomienda, continued to
evolve endogenously, in ways that were different than the other colonies. The Guarani
population, which had always been sparser in Paraguay compared to Peru, Bolivia or
Mexico, also experienced steep decline due to dislocation and disease in the 1700 and
1800s (Bourgade 1892). Despite the more equitable nature of the Paraguayan society, the
system remained vertically structured. “The one hundred families” that produced and
traded the main commodities constituted the elite at the eve of the independence (Areces
2010). Thus the lessening of the traditional labor force at the bottom reverberated
throughout the entire society, and served to destabilize the encomienda as an institution.
21
At the same time the population decrease was making the encomienda system less
viable in the early and mid late 1800s, the Paraguay dictator Francia sought to centralize
his own control by taking away power from the landowning classes. Francia’s crusade
against the society’s elite destabilized the encomienda as well as other important
institutions that had come to define Paraguay as a more equitable society. In order to
undermine the colonial structure, he attempted to disarticulate the historical paternalistic
relationship between the estancieros and the rural masses. He personally chose regional
leaders representing different segments of the population. As a result, the change in
representation tilted the political power towards the popular class, in particular in the
countryside (Areces 2010).
With the advent of independence and the Francia dictatorship, trade volume
decreased significantly. The drastic decline in international trade crippled the economy,
particularly affecting the traders with overflowing stocks of yerba mate, tobacco, and
firewood. To prevent the ruin of the popular class, the government bought these
commodities and allowed merchants to sell them at exorbitant prices to nearby regions.
However, he imposed a tariff on all traffic between Asunción and Itapúa (Areces 2010).
To show his support to the peasantry, Francia reduced the alcabala and the tithe
and replaced them with a 5% harvest tax. However, the labor institutions remained
untouched. Despite Francia’s warm relationship with the Guarani people (he was a
mestizo himself), he kept the labor draft unchanged from colonial times (Whigham
2002). Above all, Francia sought to protect Paraguayan resources and centralize state
power. By monopolizing political power, he organized society in order to erode colonial
privileges and to eliminate the opposition. Despite these changes, the society remained
22
rural and traditional (Areces 2010). Autarky, as a response to foreign threats, served to
diversify the economy however, it also delayed the process of modernization in Paraguay.
As a development strategy it failed to create economic growth (Bethell 1985, Areces
2010).
Conclusions
Because of the relatively few colonizers who came to Paraguay, and their
motivations for coming to a remote region, the structure of the society that formed after
their arrival displayed fundamental differences from of the rest of Latin America.
Overwhelmingly, the Spaniards who colonized Paraguay demonstrated disinterest in
creating a regimented, racially organized society akin to the one being established in most
Latin America. The first Spaniards to arrive in Paraguay intermarried with the Guarani,
creating a sizeable mestizo population. Those who claimed the most Spanish blood
continued to hold power, but this reflected the inheritance of their ancestors land holdings
more than sentiments of overt racial superiority. These mestizos, valued and
acknowledged in Paraguayan society, began to develop a national identification with the
region of Paraguay. Thus Paraguay’s proud mestizo population viewed itself as separate
and distinct from the countries that oftentimes deemphasized its indigenous people.
Unlike in many of the surrounding regions, having Guarani blood was a source of pride,
not shame, and being part Guarani did not severely limit an individual’s prospects.
Unlike in the rest of Latin America, where the settler and indigenous populations were
both numerous, Paraguay’s small pre-colonization population ensured that the mestizos
would quickly become a majority.
23
This initial paradise in which the Guarani and the Spaniards coexisted peacefully
broke down as the labor availability declined. The cooperation between the natives and
the settlers transformed into a coercive institution in order to secure labor to the
Spaniards. The rise of the encomienda system was viable alternative to integrate the
Guarani to the new life in the province. However, the perpetuation of this system obeyed
particular characteristics of the Paraguayan reality. The inability to convert this institution
to a tribute system as in the rest of the empire was rooted in the resources available to the
rulers. The colonizers used political power to distribute the resources, mainly labor, in
their favor. Unlike in most of Latin America, by the beginning of the 1800s the
encomienda system had not broken down in Paraguay. Despite the limited availability of
marketable commodities, Paraguay managed to integrate in the colonial trade system by
contributing yerba mate and tobacco.
With the rule of dictator Francia in early independent times, this integration was
abruptly interrupted. Despite his popularity with the mestizo population stemming in part
from his bold declaration of Paraguayan sovereignty, his reign was a costly enterprise for
the Paraguayan economy. Because of his fears of invasion, outside influence, and internal
dissent, Francia imposed economic and political isolation in Paraguay. By monopolizing
power he exerted control on the overall society without radically changing its structure.
His policies reduced the economic power of the traditional elite while attempting to
support the rural masses. The diversification of the economic activity achieved during his
rule did not compensate for the negative effects of autarky. Paraguay’s economy was
ultimately dealt a deathblow with the armed conflict known as the War of the Triple
24
Alliance. The loss of population, land, and capital crippled Paraguay and it would take
decades to rebuild the country.
By the beginning of the 20th century, Paraguay’s economic performance lagged
behind virtually every other country in Latin America. Paraguay’s policies adopted in
early postcolonial times produced economic stagnation, an emerging Paraguayan identity,
and ultimately, a fear of outside influence that would lead the country to war and the
brink of destruction.
The careful study of institutional development in Paraguay offers interesting
insights in the question of institutional persistence. It shows that institutions
endogenously change over time as a result of changing factor endowments and historical
context. While the Guarani-Spanish relations were quite benevolent during the initial
stages of colonization, they turned more coercive as indigenous labor decreased. With
independence, the structure of society changed little while the isolationist policies and
circumstances delayed modernization and the adoption of export-led growth as a
development strategy.
25
Figure 1: Average real exports by decade
#$!!!$!!!"
($'!!$!!!"
($&!!$!!!"
!"#$%&&#'(#)*++,-.#
($%!!$!!!"
($#!!$!!!"
($!!!$!!!"
'!!$!!!"
&!!$!!!"
%!!$!!!"
#!!$!!!"
!"
('(!"
('#!"
(')!"
('%!"
('*!"
('&!"
Note: Real exports in 1900 US dollars. Given the lack of data to build a price of exports index, we inflated
the exports using the US CPI. No available data for 1840.
Sources: 1816-1839: (1978); 1840-1860: Pomer (1970).
Figure 2: Average real exports and imports by decade
($!!!$!!!"
'$#!!$!!!"
!"#$%&&#'(#)*++,-.#
'$!!!$!!!"
&$#!!$!!!"
&$!!!$!!!"
%$#!!$!!!"
%$!!!$!!!"
#!!$!!!"
!"
%)%!"
%)&!"
%)'!"
%)(!"
-./0123"
%)#!"
%)*!"
%)+!"
%))!"
%),!"
%,!!"
45/0123"
Note: Real exports and imports in 1900 US dollars. Given the lack of data to build price of exports index,
we inflated the exports using the US CPI. No available data for 1840 or 1870.
Sources: 1816-1839: (1978); 1840-1860: Pomer (1970); 1880-1904: Warren (1985).
26
Figure 3: Exports per capita in selected Latin American countries
(a) 1850
(b) 1890
A*,+,)-"
D1E3"
D,E)"
A21913:"
>*+/595)""
>29)/</3""
A51B/;"CB)B/;"
A/+B)4"CB3B)4"
<371@1)"
;-7+@+3"
=)95">?/*12)"
=3</">?)2+,3"
<*)617"
.3+<"
835:,*);"
;236+7"
8)19"
8323913:"
4/5/6,/7)"
5)/)61)73"
./0123"
.-/01234"
()*)+,)-"
()*+,-"
!"
#!!"
$!!"
%!!"
&!!"
'!!!"
'#!!"
!"
#!!"
$!!"
%!!"
&!!"
'!!"
Notes: Average Latin America = 100
Sources: Based on Bulmer-Thomas (2003).
27
Bibliography
Acemoglu, D., S. Johnson, and J. Robinson. “The colonial origins of comparative
development: An empirical investigation.” American Economic Review 91:5 (2009):
1369-1401.
Areces, Nidia, “La doble independencia paraguaya. Aspectos económicos y sociales” in
La historia económica y los procesos de independencia en la América hispana,
edited by Susana Bandieri Buenos Aires: Prometeo Libros, 2010.
Arroyo Abad, Leticia, “Persistent inequality? The role of factor endowments and trade in
Republican Latin America.” Journal of Economic History, forthcoming.
Bethell, Leslie, The Cambridge History of Latin America, Cambridge: Cambridge
University Press, 1985.
Bourgade, de E. Paraguay: The Land and the People, Natural Wealth and Commercial
Capabilities. London: George Phillip & Son, 1892.
Bruhn, Miriam and Francisco A. Gallego, “Good, Bad, and Ugly Colonial Activities: Do
They Matter for Economic Development?” Review of Economics and Statistics 94:2
2012: 433-461.
Bulmer-Thomas, Victor. The Economic History of Latin American Since Independence.
London: Cambridge University Press, 2003.
Cardozo, Efraim. Paraguay Independiente. Buenos Aires: Salvat Editores, 1949.
Cardozo, Efraim. Breve Historia del Paraguay. Asunción: El Lector, 1987.
Coatsworth, J. H. “Structures, endowments, and institutions in the economic history of
Latin America.” Latin American Research Review 40:3 2005: 3-39.
Cooney, Jerry. “Paraguayan Independence and Doctor Francia.” The Americas 28, no. 4
(Apr. 1972): 407-428.
De las Casas, Bartolome. Brevísima relación de la destrucción de las Indias. Madrid:
Imprenta de Miguel Ginesta, 1875.
Dell, M. “The persistent effects of Peru's mining mita”. Econometrica 78:6 2010:18631903.
Dirección General de Estadística. Encuestas y Censos (DGEEC), Paraguay: Resultados
Finales, Censo Nacional de Población y Vivienda, Año 2002, Asunción: DGEEC
Publicaciones, 2004
28
Engerman, S. and K. Sokoloff. “Inequality, institutions and differential paths of growth
among New World economies.” In How Latin America Fell Behind edited by
Stephen Haber, Stanford: Stanford University Press, 2009.
Gibson, Charles. The Aztecs under Spanish rule; a history of the Indians of the Valley of
Mexico, 1519-1810. Stanford: Stanford University Press, 1964.
Greif, Avner and David D. Laitin. “A Theory of Endogenous Institutional Change.”
American Political Science Review 98(4) (2004): 633-652.
Instituto Nacional de Estadística y Geografía (INEGI), Censo General de Población y
Vivienda, Aguascalientes: INEGI, 2001.
Instituto Nacional de Estadistica e Informatica (INEI), Peru: Resultados Definitivos
Censos Nacionales 2007, Lima: INEI, 2008.
Keith, Robert. “Encomienda, Hacienda and Corregimiento in Spanish America: A
Structural Analysis.” The Hispanic American Historical Review 51(3) (1971): 431446.
Lockhart, James and Stuart B. Schwartz. Early Latin America: A History of Colonial
Spanish America and Brazil. Cambridge: Cambridge University Press, 1983.
Lovell, W.George. “To submit and to serve: forced native labour in the Cuchumatan
highlands of Guatemala, 1525-1821.” Journal of historical geography 9 (2) 1983:
127-144.
Nickson, Robert Andrew. "Change and Continuity in Paraguayan History - 1811, 1911,
2011" Paraguay 200 Years of Independence in the Heart of South America. Ed.
Robert Munro. Oxford, England: A Whap Production for Paraguay 2010: 87-94.
North, Douglass C. Institutions, Institutional Change and Economic Performance.
Cambridge: Cambridge University Press, 1990.
O'Rourke, K., A. M. Taylor, and J. G. Williamson. “Land, labor and the wage-rental
ratio: factor price convergence in the late nineteenth century”. International
Economic Review 37 (1996): 499-530.
Pastore, Mario. “State Led Industrialization: The Evidence on Paraguay.” Journal of
Latin American Studies 26(2) (1994): 295-324.
Pastore, Mario. “Taxation, Coercion, Trade, and Development in a Frontier Economy:
Early and Mid Colonial Paraguay.” Journal of Latin American Studies 29 (2) (1997):
329-354
Pavetti, Ricardo. La integración nacional del Paraguay. Asunción: Editora Litocolor,
29
2007.
Peñalba, José Alfredo Fornos. “Draft Dodgers, War Resisters, and Turbulent Gauchos:
The War of the Triple Alliance against Paraguay.” The Americas 38 (4) (1982): 463479.
Perusset, Macarena. “Reglamentación jurídica vs. usos y costumbres en el Paraguay
colonial temprano (1542-1612).” Antíteses 2 (4) (2009): 991-1010, Universidade
Estadual de Londrina, Brasil.
Pomer, León. La Guerra del Paraguay: Gran Negocio!. Buenos Aires: Ediciones Caldén,
1970.
Reber, Vera Blinn. “Commerce and Industry in 19th Century Paraguay: The Example of
Yerba Mate.” The Americas 42(1) (1985): 29-53.
Saeger, James. “Survival and Abolition: The Eighteenth Century Paraguayan
Encomienda.” The Americas 38 (1) (Jul. 1981): 59-85.
Service, Elman. “The Encomienda in Paraguay.” The Hispanic American Historical
Review 31 (2) (May 1951): 230-252.
Service, Elman. Spanish-Guarani Relations in Early Colonial Paraguay. Ann Harbor:
University of Michigan Press, 1954.
Susnik, Branislav., El indio colonial del Paraguay. Buenos Aires: Imprenta López, 1965.
Susnik, Branislava, La independencia y el indígena. Asunción: Intercontinental Editora,
2010.
Velázquez, Rafael E. “Caracteres de la encomienda paraguaya en los siglos XVII y
XVIII” Historia paraguaya, XIX (1982): 113-163.
Warren, Harris Gaylord. Rebirth of the Paraguayan Republic: the First Colorado Era,
1878-1904. Pittsburgh: University of Pittsburgh Press, 1985.
Whigman, Thomas L., The Paraguayan War, Lincoln: University of Nebraska Press,
2002.
White, Richard Alan. Paraguay’s Autonomous Revolution, 1810-1840. Albuquerque:
University of New Mexico Press, 1978.
Williams, C. A. “Opening New Frontiers in Colonial Spanish American History: New
Perspectives on Indigenous-Spanish Interactions on the Margins of Empire.” History
Compass 6 (2008): 1121–1139.
30
Williams, John Hoyt. “Paraguayan Isolation under Dr. Francia: A Re-Evaluation.” The
Hispanic American Historical Review 52 (1) (Feb. 1972): 102-122.
Williamson, J. G. “Five centuries of Latin American income inequality.” Revista de
Historia Económica 28 (2010): 227-252.
Zavala, Silvio. La Encomienda Indiana. Madrid: Imprenta Helénica, 1935.
Zavala, Silvio. “Las Indias del Paraguay.” Revista de Historia de América 84 (1977): 727.
31