From Argentina to American capitalism and slavery

Some comparative reflections on a book on Latin American state formation

Sebastián Mazzuca’s Latecomer State Formation: Political Geography and Capacity Failure in Latin America is a book that I really like. He is using Argentina to help understand the whole of Latin America, which is great. And he is innovative in stressing the role of time and space and the importance of individual politicians. The discussion of failed states and counterfactuals is also interesting. Overall, it’s a good read and highly recommended.

These are six thoughts inspired by it:

1. Trade is good, damn it!

Mazzuca corrects an erroneous assumption that Latin American states’ dependence on taxing imports was a major source of weakness. Instead, he argues that trade was the basic path for state formation in nineteenth-century Latin America. Simply put, a booming export sector facilitated state formation because it provided the foreign exchange needed to pay for imports, which were relatively easy to tax, giving Latin American states the revenues they needed. In short, mo’ trade, mo’ state formation. Dependence on the tariff for state finance was a feature, not a bug.

This reminds me of Bill Warren’s critique of dependency theory. Unlike most of his leftist comrades, Warren (whose Wikipedia entry is wonderfully titled “Bill Warren (communist)”) argued that developing countries needed more imperialism, not less. Imperialism meant more foreign investment, which generated faster growth, which facilitated development. Similarly, Mazzuca correctly argues that more exports facilitated state formation. He is thus departing from the Latin American nationalist positions that inspired much of dependency theory in the first place.

2. Mazzuca does historical political economy

Crucially, however, Mazzuca doesn’t throw the baby out with the bathwater. He corrects some of the mistaken assumptions of the Latin American nationalists/dependency theorists while keeping what they were good at: historical political economy. It’s a good book because it uses that same methodological approach.

3. It’s all about Argentina

Notionally, Latecomer State Formation is about Latin America, but the other countries take supporting roles. Hence, Argentina gets 86 pages, Brazil 41, Mexico 36, Colombia and Uruguay 42 between them, while Central America, Venezuela, and Peru share 36. Given my own predilections as an economic historian of Argentina, I fully endorse this approach.

And I am only half joking. I do believe there is something special about Argentina that means that studying it has helped me to understand the world better.

4. Trade also made European states

A more critical thought relates to the denominator in Mazzuca’s analysis. He aims to compare Argentina’sLatin America’s “trade-led” path of state formation with the “war-led” path that Europe took, as described by Charles Tilly. The problem is that Tilly missed how trade also drove state formation in Europe and the most successful states were those that were better able to avoid war. Britain became the most powerful European state precisely because it was an island, which insulated it to a considerable degree from the threat of invasion by belligerent neighbours. Crucially, Britain did not need a large standing army, which allowed it to focus on naval power. The Royal Navy then gave it an advantage in international trade, resulting in large revenues for the government in London – revenues that have been underestimated by economic historians until recently.

War-making, moreover, tended to be expensive and often undermined growth, making it harder for states to raise more revenues without using despotic means. Spain was the major example of a war-making state that taxed too much, especially in its colonies, whereas the less belligerent British Empire benefited from what Adam Smith described as “peace, easy taxes, and a tolerable administration of justice.”

5. Where are the gringos?

The United States is largely absent from Latecomer State Formation. This is important because it, too, experienced trade-led state formation in the nineteenth century: the federal government in the United States was just as dependent upon import duties as its Latin American counterparts. Yet it didn’t suffer from the problem of “patrimonialism” – that is, personal control by local rulers over their territories through informal hierarchies and patron-client relationships.

For Mazzuca, patrimonial rule was typical of Latin America because there were few incentives for trade-led states to establish strong central governments. “Waging a battle against peripheral notables torpedoes the plan of export-led growth by pulverizing the business climate required for investment and production,” is how he puts it (p. 7). Again, the contrast with an idealized Europe is key. Mazzuca believes that in Europe war-led state formation led to “Weberian bureaucratization,” in which there was a “gradual but steady growth in the quantity, quality, and efficiency of goods and services supplied by the government across the state’s territory” (p. 2).

From my perspective, this analysis is a bit off. Export-led growth tended to empower landed elites in Latin American countries because they were exporters of primary commodities, whereas European countries didn’t have that option, given a lower land-labour ratio. Instead, European states needed capable governments that could promote industrialization. That explains how the two regions got quite different types of government despite both following paths of trade-led state formation.

The question then becomes why the United States managed to become a democracy with a capable government, even though it was also a land-abundant country that was dependent upon taxing imports for state formation. In part, the answer is high levels of literacy, which resulted in better quality government compared to Latin America – the Protestant reading ethic made a big difference. The United States had, moreover, a fairly complete set of natural resources – coal and iron ore were important ingredients for nineteenth-century industrialization. But there was something else: the United States did experience misrule by a landed elite, but it was contained. For most of the nineteenth century, cotton dominated the country’s export sector, but the power of the parasitic planter class was largely confined to the South, despite Northerners’ frequent complaints about the Slave Power. The United States was thus unusual because of its dual nature. The confinement of slavery to the South meant that the North could benefit from trade-led state formation without suffering the side effects.

6. Financial revolutions were also trade-led

Mazzuca’s focus is very much on politics – unsurprisingly, given that he is a political scientist. But Luis Felipe Zegarra has shown that export sectors were also needed for financial systems to expand in nineteenth century Latin America. In his PhD dissertation, Zegarra offers a demand side explanation: it was only when export sectors expanded that there was demand for financial services. Yet I suspect that the mechanism was more on the supply side. After independence in the 1820s, Latin American governments had attempted to promote the expansion of their financial system, but they soon discovered an almighty balance-of-payments constraint. Financial systems could not expand without export earnings.

The same, moreover, was true elsewhere. Nuno Palma has argued that Britain benefitted from inflows of Brazilian gold, making possible its financial revolution. And I make a similar argument in my work on the United States. The cotton produced by the South’s captive labor force, I argue, both allowed the American state to form and facilitated financial revolution – it made American capitalism, in other words.

This is, then, why studying Argentina is so important. I never would have understood how slavery contributed to the growth of American capitalism if I had not studied Argentina first. Balance-of-payments constraints are a persistent feature of its history, which helped me to understand why the United States’ export sector mattered in the nineteenth century. American economic historians, by contrast, are shaped by the experience of living in a country that produces the world’s reserve currency, meaning that they don’t have to worry much about the balance of payments. I have been able to make an original analysis of slavery’s contribution to growth because I had previously studied Argentina. And that’s also why I like Mazzuca’s book.

https://www.cia.gov/the-world-factbook/countries/argentina/