After independence in 1821, the Mexican economy struggled to grow for several decades. Sustained economic growth appeared in the late nineteenth century under the dictator Porfirio Díaz, who seized power in 1876 and ruled for more than three decades. Under this regime, known in the historiography as the Porfiriato, virtually all branches of the economy experienced a notable expansion, in sharp contrast to the previous half century. Social Foundations of Limited Dictatorship tackles the puzzle of growth under dictatorships. Contrary to the perception that authoritarian regimes weaken property rights because of permanent threats of predation on asset holders, Armando Razo demonstrates that the Díaz dictatorship was able to construct credible commitments conducive to economic growth.The author aims to better understand how authoritarian regimes are capable of fostering growth in absence of democratic institutions responsible to enforce property rights. In chapter 2, Razo develops a network theory of private protection according to which dictators choose private over public policies and prefer selective credible commitments to benefit a reduced number of beneficiaries. In this framework informal institutions are key elements for dictators in their quest to generate favorable conditions to economic growth.In the rest of the book, theory meets reality. Chapter 3 sets out the political context faced by Díaz. Razo argues that the dictatorial traits of the Díaz regime clearly appeared after 1890. In particular, formal institutions such as congress conferred on the executive faculties to rule by decree. In support for his argument, Razo employs mainly evidence from political institutions, but he does not emphasize sufficiently that the consolidation of the dictatorship coincided with sustained economic growth. In addition, references to the international context are missing as well as discussion of the effects on the Mexican economy of international debt and foreign investment markets.Chapter 4 demonstrates that policies implemented by Díaz protected a select group of firms and individuals from competition, thus granting monopolistic rents. The major finding is that Díaz channeled protection with a clear bias to big business in mining, oil, transportation, and communication, sectors in which foreign investment dominated. Razo draws his conclusion from regression analysis of data on individual firms, the length of their concession, and their corporate type. Yet Razo’s source does not report the length of concessions but the duration of firms according to the norms established by the Commercial Code. This difference is crucial, since the government did not intervene in determining firms’ duration. Concessions for the exploitation of subsoil resources, for example, were a different matter, because they were usually granted by the executive’s decrees. In short, the conclusions of this chapter should be revised in the light of evidence of actual concessions granted by Díaz.Chapters 5 and 6 deal with the structure and function of the network of private protection. The author aptly describes the close links between asset holders and public officials and the role of the latter in preventing predatory practices. The presence of public officials in elite and business networks as well as their long-lived careers indicated that not only did they act as private enforcers of private policies but also that their actions were secured in the long run. Chapter 6 focuses on the specific linkages between public officials and major firms and how the protection provided by this network was strong enough to deter predation. In particular, Razo underscores the importance of the banks in attracting private enforcers but also in securing them access to different industries. Chapter 7 summarizes major findings of the book and extends some of the conclusions to other examples of dictatorship. Finally, Razo reflects on how private protection in early phases of industrialization shape long-term economic outcomes.Overall, Razo demonstrates the importance of private policies in authoritarian regimes. In the particular case of Porfirian Mexico, however, deliberate policies to foster economic growth did not only adopt the form of private policies. For instance, policy makers implemented commercial and monetary policies aimed at promoting manufacturing regardless of extending the benefits to a larger group of asset holders not necessarily connected to the government. In short, it is indispensable to incorporate in Razo’s analysis the evaluation of public policies vis-à-vis private protection.This volume should be an obligatory reference for scholars in the fields of economic history and comparative political science. It certainly enriches a complex research agenda on the interactions of institutions, growth, and development.
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May 1, 2011
Mohamad Chmayssani + 4
Open Access