The reform movements in eighteenth and nineteenth century Latin America were the result of initiatives in Spain and Portugal to compete with the English, Dutch and French, who were conducting a thriving contraband trade with the Spanish colonies. These reforms anticipated later reform movements, such as the Liberal reforms in Mexico under Benito Júarez and the more recent reforms under presidents Lópex Portillo and Salinas de Gortari of Mexico. The agenda of the eighteenth and nineteenth century European reformers was to rationalize government, apply scientific principles of management and economic planning, and produce more taxable wealth from the American colonies. The ensuing period of economic liberalization and revival lasted through most of the eighteenth century under the Spanish Bourbon dynasty.

Portugal had a similar reform period in the mid-eighteenth century under a prime minister named the marquis de Pombal. Pombal’s approach was more state-capitalist than Spain’s, as he created companies that were granted monopolies over trade with certain regions of Brazil, rather than opening the market to direct legal trade with the English, Dutch and French. The Pombaline reforms were a partial success, in that by the end of the eighteenth century nearly one third of the manufactured goods imported to Brazil were Portuguese, whereas previously they were almost exclusively British and Dutch.

The economic success of the Bourbon and Pombaline reforms speaks to the value of legitimizing black-market trade, and of capitalizing companies to compete in the export sector, as well as to the benefits of applying technical knowledge to shipbuilding and agriculture. The failure of these reforms to maintain Spanish and Portuguese prominence in Europe or hegemony over their colonies reveals the weakness of the institutional structures that reform could not address. With significant change came opposition from "reactionary elements within the church and the nobility"- the same protected groups who would oppose liberal reforms in the mid-nineteenth century in Latin America. The failure of reform to go deep into the social or political structure of Spain and Portugal was an early indication of the problems Latin American Liberals would face in the next century. Historian Benjamin Keen describes the extent of the Bourbon reforms as follows:

"The crown, linked by a thousand bonds to the feudal nobility and church, never touched the foundation of the old order, the landed nobility, with its corollaries of mass poverty and archaic agricultural methods. As a result of these weaknesses, added to the lack of capital for industrial development and the debility of the Spanish middle class, Spain, despite marked advances in population and production, remained at the close of the era a second or third-class power."

As with the Portuguese, the Spanish implemented the reforms of the Bourbon monarchs not out of far-sighted vision for a more dynamic and prosperous society, but as a reaction to the economic stagnation that resulted from their policies of deliberate exploitation of the colonies and protection of Spanish commerce. As Spanish merchant houses and governors held onto their monopoly privileges, and the indigenous workforce shrank, Spanish trade contracted. Over the course of the seventeenth century, the tonnage shipped in Spanish galleons declined by over three quarters.

The Spaniards attempted to compensate for this by raising prices, such that prices in the New World were often up to three hundred percent above the prices in Spain. Even monopoly could not dictate that wealth be created in the absence of fair pricing and the profit incentives. Free markets asserted themselves in the form of a thriving contraband economy, and what was Spain's loss was Britain's and France's gain. Royal decrees that complained of the illegal presence of foreign ships and goods were ineffective, as were the pressures on the Catholic Church to teach that contraband trade was a sin. According to historian R.A. Humphreys, "when the galleons sailed for the last time in 1737 they were unable to dispose of their goods because the markets were already overstocked."

The story of the success of the Bourbon trade reforms is told in the increase in shipping from colonial ports. The exports from Río de la Plata in Argentina increased, and with them customs receipts, and its population. At Havana, six vessels had carried the trade to and from the island in 1760; two hundred in 1778, and more than a thousand by 1801.From roughly 1760 to 1810, under the rulers Charles III and IV, Spain adopted a program of administrative and economic reform that extended to the lands of her empire. Colonial government was rationalized and centralized to provide more efficient administration and tax collection. The mercantilist policies toward Spain's colonies were liberalized, but not eliminated, so that the trade routes that the Crown had monopolized were opened to other countries. Restrictions on trade between colonies were also liberalized, along with the duties and tariffs that had discouraged legal commerce.

There is an important distinction between legal and black market activity because Spain's controls over trade had been flouted by colonial traders as well as English and French merchants for decades. The Decree of Free Trade of 1778 which opened the important ports of Spain and the Spanish possessions in the Americas not only increased the volume of trade, but legitimized much that had previously been unrecorded and untaxed. Although falling short of what we would consider free trade today, the reforms allowed colonial commerce to flow directly and legally between colonial ports.

Spain was trying the last option available to compete with the British and French for trade in Latin America and to collect more revenue from the colonies to support her ambitious campaigns on the Continent. In a pattern that would be repeated throughout Latin America's history, government folly undid the good that Spain's economic reform accomplished in the late eighteenth-century. After the death of Charles III, Spain became entangled in the French revolutionary wars of 1793 to 1795. Then, in 1776, Spain went to war with England for the next twelve years. British admiral Lord Nelson nearly destroyed nearly the entire Spanish and French navies at the Battle of Trafalgar in October, 1805, off the Spanish coast. Spain's economy and chances of reviving the prestige of the previous century were irreparably damaged.

If there is a period of Latin American history where dependency theory applies, it is to the colonial period under the mercantilist agenda of Spanish rule. The Bourbon Reforms came after over a century of mercantilist and protectionist measures by the Spanish Crown had milked the colonies of trade goods - principally silver - and had not encouraged dynamic new sources of wealth to replace the diminishing resources that they took. Spain's relationship to her colonies was parasitic. She controlled all the trade to and from her colonies, which gave the merchants and bankers in cities such as Cádiz, Lisbon and Rio de Janeiro a monopoly over trade duties and finance, but did not encourage new industry.

The galleons that left Cádiz were loaded with goods that had been produced in England and France, not in Spain, and Spanish merchants were "little more than agents or shippers." Consequently, little of the wealth that came to Spain was reinvested in the country. Instead, it was sent where it could be invested in productive enterprise, much as capital flows out of Latin American countries today because local returns on investment are low or uncertain. Despite these shortcomings, the Bourbon era can be called the first era of liberal reform, as it was an intentional departure from state-capitalism, the mercantilist system and the tariff and monopoly structures that supported it.

Instability and Liberal Reform in the Post-Independence Period

Mexico and South America took the first steps toward self-government and economic growth in 1811 with the wars of independence. In Mexico the independence movement began with the grito of Miguel Hidalgo in 1811. Simón Bólivar became South America's most famous liberator after leading New Granada to independence in 1812. As with the war of independence in Mexico, the struggle in Colombia and Venezuela would last until 1821, when the last Spanish garrison in Venezuela surrendered to the patriot army. Argentina, formerly part of the province of La Plata, gained independence in 1816 when a government formed three years earlier by a national assembly finally declared independence. That year, José de San Martín led a military force to the Spanish colony of La Plata to throw his support behind the new liberal government in its struggle against the conservative Creole royalists. With the support of Buenos Aires, San Martín then led his Army of the Andes to Santiago where they defeated the Chilean royalists in 1817. He would liberate Peru in 1821, but there, as in much of the rest of South America, the victory over Spain was the first step in a prolonged confrontation with conservative elites who would resist constitutional government, the abolition of Indian tribute, and attempts to install representative government.

In Chile, the new government of Bernardo O'Higgens abolished titles of nobility and entails (the restriction of an inheritance to insure that estates remained intact), and placed restrictions on the power of the church. Successive governments under Diego Portales (1830-1837) and General Manuel Bulnes (1841-1851) reinstated some of the church's authority in an attempt to maintain civil order, but proceeded to establish the central authority of the state. They established import tariffs and income and property taxes as sources of revenue, modernized infrastructure, built port facilities, and added steam ships to the Chilean merchant marine.

The path to independence took a different turn in Brazil when the Portuguese court arrived in 1808, having fled the French invasion which displaced the Spanish throne and sparked the wars of independence throughout Latin America. Under Emperor Dom Pedro, Brazil made the transition to independence with the support of the aristocracy, and with relatively little bloodshed. Without a liberal component to challenge central authority and traditional oligarchy, Brazil retained many of its colonial structures such as the monarchy, slavery, concentrated land ownership, a highly stratified society, and "a wasteful, inefficient agricultural system." In the trade-off between liberalization and political stability, Brazil opted for the latter, while most of the rest of Latin America suffered through a half-century of political turmoil.

Hispanic-American societies had been evolving toward independence for some time, as Spain's power waned and the colonies became more self-sufficient, but they did not develop radically different institutions in the process. Their wars of independence were not ideological revolutions in the same sense as the American and French revolutions. Their aim was essentially the political and economic emancipation of the Creoles, with the institutions of democracy addressed in writing, but not in practice. Latin countries were governed with force, and for the benefit of a ruling class who derived their power not from the consent of the governed but from the power of military or economic force. As R. A. Humphreys remarked, "…over large parts of Spanish America, it was the law of force, not the force of law, that held most governments in power."

The Latin revolutions were ideologically democratic, but their democratic features were largely unenforceable because they failed to address the hierarchical social system and geographical identities of their people in the various countries. The US Constitution, by contrast, was enforced and supported by a more homogenous and egalitarian society. Despite the disenfranchisement of women and the failure to address slavery, it was fundamentally democratic, not just in word, but in effect. The corresponding lack of unity behind the Latin constitutional governments, or later reform movements, made them immeasurably more difficult to implement. This, in part, explains the speed of resolution of the American Revolution against Britain against the twenty or more years for Latin America to free itself from royalist opposition in support of a declining European power. Benjamin Keen, in his book, A History of Latin America, makes a harsh statement about the reality of Latin American states after the wars of independence:

"These facades of modernity… poorly concealed the dictatorial or oligarchic reality beneath. Typically, the chief executive was a caudillo whose power rested on force, no matter what the constitutional form; usually, he ruled with the support of a coalition of lesser caudillos, each more or less supreme in his own domain."

There was a flurry of reforms in the aftermath of the wars of independence as new states forged new identities. They wrote constitutions and created legislatures, but the social and economic structures of the estancia, the hacienda and fazenda still dominated the countryside and kept agriculture in its "archaic" form based on cheap Indian labor. The Creole class, by comparison, found some upward mobility in the ranks of the military, positions in the merchant class vacated by peninsulares, and in the new governments. The years of political instability that would follow were partly the result of pressure from the rising expectations of these Creoles, and the resistance from entrenched interests, political conservatives and neighboring states or regions.

Warfare was a regular feature of the new Latin societies, and the army found a powerful political role in assuring some degree of protection and political stability. Consequently, the members of the officer corps became politically influential, and standing armies in the new states often consumed as much as half of the total national budget.

One of the longstanding legacies of the colonial era has been the active involvement of the military in Latin politics. Post-colonial instability made the army an active and essential arm of Latin governments. This built upon a colonial tradition of the military being elevated above civil law. Originally the military fuero was a result of the Spanish and Portuguese crowns attempts to attract and keep capable men as officers in their armies. They offered them special legal status, outside the jurisdiction of civil courts, and created within the armed forces a special caste with its own set of interests. Despite nineteenth century reforms that rescinded these privileges, they set a pattern of the colonial military acting outside of constitutional control as a check on the power of other competing groups.

These military governments usually side with conservative, landed or propertied classes in order to protect the wealth of the state, and, indirectly, their own interests as salaried state employees. Consequently, the military to was used in the service of propertied interests and held to a basically conservative course. Order is always preferable to disorder when one is invested in the status quo, and such as investment was not confined to hacienda owners, but extends to bureaucrats, merchants and judges. They had a vested interest in both economic stability and maintenance of the social hierarchy, and in their own positions as decision-makers.

Richard Graham's cautious generalization that "the (Brazilian) empire drew on the political and administrative skills of a relatively small group of men of similar backgrounds, education and experience" can probably be applied to all of Latin America. This said, the men who should have shared a common vision for Latin America held back the "civilizing" influences of western models in the post-independent years. The dominance of large landowners in Latin societies meant that the defense of the status quo meant the defense of oligarchy. This handicapped Latin America at a time when unity and a democratic vision of the future was most important - and most notably absent.

The evidence that Latin American "elites" lacked a common vision of the course their countries should take following independence is found in the disagreement among groups from landowning and merchant and industrial classes. They worked together to achieve an uneasy dominance over political affairs, but one group seldom achieved hegemony. Heraclio Bonilla draws this distinction in his article on the turmoil of Peru and Bolivia in The Cambridge History of Latin America.

The vulnerability of each elite group that took power allowed another one to follow it in a "succession of military caudillos" that ruled most Latin states during the first half of the nineteenth century, and formed a pattern of political instability from which many have never escaped. The pattern of central political authority sharing power with regional caudillos was very similar in Argentina, Mexico, Central America and Peru. Landowners were strong enough to challenge central authority, and frequently strong enough to overthrow it, but not strong enough to reconsolidate it on their own. This would provide the justification, and the necessity, for a strong central state. In an apparent contradiction, the rights of many groups would have to become subordinate to the central government before the rights of society as a whole could be protected.

Order and Progress

For most of Latin America, the success of capitalism was dependent on the success of centralism. The disunity of most Latin states meant that only a central authority could provide the nationwide system of laws and institutions which would normalize economic activity and subject it to the consistent application of the law. Not surprisingly, some of Latin America’s most accomplished liberal reformers, such as Benito Juarez, did not preside over periods of economic prosperity. Other accomplished strongmen, who were not politically liberal, and probably don’t fit the mold of "reformers," accomplished great economic achievements simply because they had both the will and the power to do things such as invest in a system of railroads, or provide sufficient political stability to lure investment in domestic projects. Men such as the Brazilian emperor Pedro I and his successors; Argentine dictator Rosas; and Porfirio Díaz of Mexico all presided over periods of economic transformation.

The liberal programs of mid-century reformers had the ironic consequence of opening the Indian village lands to appropriation or purchase by large landowners, who aggregated land and power in the countryside at the expense of both the Indian and the small would-be entrepreneur or farmer. It also provoked resistance from the Catholic clergy and the conservative right, including royalist army officers. This highlights the fact that reform created losers as well as winners, and that westernization was not universally welcomed.

The Ley Lerdo, passed in 1856 was intended to create a rural middle class and open up the kind of opportunity that aspiring Creoles saw as both democratic and in the progressive tradition of Europe and the US. Instead of having its intended effect, the law forced Indian villages to sell their communal land, which subsequently passed into the hands of already-large estates. The law also barred the Church from owning land not used for religious purposes, and mandated the sale of church lands to tenants or other purchasers.

According to John Coatsworth's studies of the Mexican hacienda, the concentration of landholding that came with liberal reform did not expand the traditional, self-sufficient economy of the ejido, but rather allowed existing hacienda owners to use economies of scale in crop production. Keeping in mind the rule that capital flows to the areas of greatest return, the result was that agricultural production increased dramatically, "at the expense of the free villages and small landowners." Village lands were encroached on by legal and illegal means, titles were purchased, or simply challenged and won in court. This meant that land reform - a keystone of social and political reform - antagonized both the indigenous community and the clergy, and it is not surprising that this process was accompanied by an escalation in rural violence. Nor was it coincidental that it was Benito Juarez - not Porfirio Díaz - who created the state police force known as the rurales in 1861.

Liberal reforms failed to address many aspects of feudalism, mostly vestiges of local control from the colonial era. One example is the corrupt and inefficient system of taxation in the Spanish colonies which as contracted out to private collectors. These men collected taxes for the state up to a certain level, and then were allowed to keep any extra they could collect to compensate themselves for their services. Even during the liberal era of the mid-1800s, reforms were often incomplete and transitory. Political reform often did not translate into the creation of legal institutions to rationalize and regulate commercial activity. The dominance of the political sector over the economic sector meant that economic policies, like political regimes, were arbitrary or discontinuous. The judicial system did not enforce a well-defined set of property rights, state monopolies continued to artificially raise prices and distort the allocation of capital, and political favoritism granted tax and regulator exemptions to favored groups, increasing the economic burden on others. That situation still exists, to one degree or another, in Mexico and Latin America today.

The liberal reformers of the 1850s and 1860s were replaced by "progressive" dictators such as Porfirio Díaz in Mexico, Raphael Nuñez in Colombia, and President Roca of Argentina. They shared the Liberal's view of reform as progress, but their faith "was now deeply tinged with cynicism, egotism, and a profound distrust for the popular classes." The Industrial Revolution in England fueled growth in the export sector of most Latin countries, but this economic boom did not coincide with the period of liberal reform. It came afterward, during the relative prosperity and stability of authoritarian rule and oligarchy. With opportunity and stability, European and American capital became available to finance infrastructure projects such as port facilities and processing plants and railroads. Mexico, Brazil and Argentina all experienced a transportation revolution in the 1870s.

John Coatsworth wrote that during the Porfiriato, "freight-transport costs fell to less than one-tenth their prerailroad levels." The country went from a country that relied on mule and wagons to one with 20,000 kilometers of railroad track, and Brazil from a country that relied primarily on pack mules to one with 24,000 kilometers of rail. The construction of railroads stimulated exports in the same way that a reduction of tariffs would have - by making export goods less expensive. Railroads made mining centers in the interior more profitable, along with agricultural products such as cotton, coffee and tobacco. The investment in infrastructure made exports Mexico's engine of growth during the last decades of the nineteenth century. From the 1870s until the Revolution in 1910, Mexico's exports in current dollars, increased by 5.3 percent per year. In Argentina political stability, vast agricultural resources, and European immigration coincided to create a booming economy through the last half of the century. Argentina's railroad system grew from 39 kilometers of track in 1860 to more than 7,000 kilometers by 1880.

Lost Opportunities: The Policy Alternatives

Despite the structural problems inherited from colonial times, the impoverishment of Latin countries during the nineteenth century was not inevitable. They could have been avoided, since all had a source of exploitable wealth in natural resources, and most were able to attract foreign loans or investment to exploit these resources. Even in the non-export economy there was opportunity for greater internal productivity through land reform, rational economic policy and state tax and investment policies. What would have been possible across Latin America is suggested by the experience of those countries which enjoyed relative political stability after independence. Although these periods of stability and prosperity did not last far into the twentieth century, they do provide a lesson about the potential that was lost to Latin America, and about how that potential could have been exploited in better circumstances.

The discussion of how political reform affected economic growth is not just a discussion of economic policy, but an inquiry into how Latin America's political model might have allowed greater economic growth. This could have come from either of two scenarios, one would have been a greater effort to promote financial stability and attract investment capital to the export sector. The promotion of exports could have translated into a boost to the domestic economy through state policy of taxation and investment in infrastructure. Another scenario would have been the investment in the domestic economy directly, rather than through the export sector. Both approaches would have required the state to alleviate the uncertainties and disincentives which came from political violence and a lack of institutions that would have permitted popular participation and rational economic planning. In other words, they would have had to reduce the risks which companies like Zurich American insure against today in order to promote investment in developing economies.

By the beginning of the twentieth century, industries in Europe and the US were becoming less dependent on raw materials, and the initial jump in demand for agricultural goods was beginning to normalize. To maintain growth, export-led economies would have to to adjust to these changes, and to find new markets, such as those developing in Asia. The process of change requires that economic as well as political systems be dynamic in order to survive. Export economies based on a single commodity, with no other internal sources of wealth, found themselves in trouble when world conditions went against them. That happened periodically, and supplied the evidence for dependency theorists to advance their doctrine that exploitation is an inescapable feature of trade with wealthy nations.

Dependence on commodity exports was seen as an intentional feature of the terms of trade between Latin America and the industrialized countries, imposed on Latin America by its trading partners. Actually, dependence on commodity exports was an unfortunate result of a number of historical factors that I have recounted. The answer to dependence on commodity exports did not lie in self-isolation (which was unsuccessfully practiced by Paraguay), or state control over the export sector, but rather in economic diversity and institutional reform. Remember that Latin America has been able to maintain a rough parity with Europe and the US during the twentieth century, when export trade has been greatest. With the slow process of liberalization and removal of old forms of land ownership, poor systems of transportation, and institutional barriers to economic growth, Latin America may close the "gap" with the U.S. and Europe.

Unlike the nations of North America and Europe, Latin states faced the challenge of imposing western forms on decidedly non-western societies - societies which evolved from the peculiar accommodation of Indian traditions and Spanish exploitation. In contrast to North Americans, Latinos inherited disunited, racially and geographically segregated populations with semi-feudal traditions and no history of democratic government. They struggled just to create a sense of national identity among people with strong village or regional identities and personal political loyalties.

The failures of their political system illustrate the fragility of their culture, which is still trying to assimilate an Indian and Spanish authoritarian past with a post-colonial world. Latin America's historic pattern of violence and political instability was about the failure to institutionalize rules for accommodating conflicting interests. This was the genius and ingenuity of the founders of the US system of government, who were fortunate in that the system of rules they created was for a relatively homogeneous and egalitarian society. Given the disunited and stratified nature of Latin society, and the persistence of colonial and pre-colonial forms, it is not surprising that integrating that principle into their governments is an ongoing struggle.

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