Assessing the Obstacles to Industrialisation: The Mexican Economy, 1830-1940

Author(s): Stephen H. Haber

Source: Journal of Latin American Studies, Vol. 24, No. 1 (Feb., 1992), pp. 1-32
Published by: Cambridge University Press
Stable URL: http://www.jstor.org/stable/156670
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Assessing the Obstacles to
Industrialisation: The Mexican
Economy, 83 0-I94o*

STEPHEN H. HABER

After England began what came to be known as the First Industrial

Revolution at the end of the eighteenth century, industrial technology
quickly diffused throughout the nations of the North Atlantic. Within
fifty years of the first rumblings of British industrialisation, the factory
system had spread to Western Europe and the United States. Latin
America, however, lagged behind. It was not until the twentieth century
that manufacturing came to lead the economies of Latin America and that
agrarian societies were transformed into industrial societies.
This article seeks to understand this long lag in Latin American
industrialisation through an analysis of the experience of Mexico during
the period 8 30-1940. The purpose of the paper is to look at the obstacles
that prevented self-sustaining industrialisation from taking place in
Mexico, as well as to assess the results of the industrialisation that did
occur.
The basic argument advanced is that two different types of constraints
prevailed during different periods of Mexico's industrialisation. During
the period from 1830 to 1880 the obstacles to industrialisation were largely
external to firms: insecure property rights, low per capita income growth
resulting from pre-capitalist agricultural organisation, and the lack of a
national market (caused by inefficient transport, banditry and internal
tariffs) all served as a brake on Mexico's industrial development. During

* Earlier versions of this article were

presented at the 'Why the Lag in Latin American
Industrialization?' conference at Harvard University, the Stanford University Social
Science History Workshop, and the Conference of the California Intercampus Group
in Economic History. Jeffrey L. Bortz, Frederick P. Bowser, Gregory Clark, John H.
Coatsworth, Kenneth L. Sokoloff and John D. Wirth, as well as an anonymous referee,
made detailed comments on earlier drafts. Research for this article was funded by
grants from the Latin American Program of the Social Science Research Council and
the Fulbright Program. The usual disclaimers apply.

Stephen H. Haber is Associate Professor of History at Stanford University.

J. Lat. Amer. Stud. 24, I-32 Printed in Great Britain

2 StephenH. Haber
the period I880-1910 the obstacles to industrialisation were largely
internal to firms. These factors included the inability to realise scale
economies, high fixed capital costs and low labour productivity. During
the period from 910o to 1930 these internal constraints combined with
new external constraints -including the Revolution of 1910-17, the
political uncertainty of the post-revolutionary period and the onset of the
Great Depression - which further slowed the rate of industrial growth.
This article is organised into three sections, each of which takes up one
of these periods in detail. Each section begins with a discussion of the
obstacles to industrial growth and then assesses their impact on the
structure and nature of manufacturing. The article ends with the
rekindling of Mexican industrial growth in the mid-193os. The outcomes
of that wave of growth, which stretched through the mid- 970s, are not
discussed in detail here, since that period has been written about
extensively by other scholars.
Mexico is chosen for study because, of all the countries of Latin
America, it was the most successful industrialiser prior to the Second
World War. As early as the I83os cotton textile manufacturing in Mexico
began to take place in a factory setting and by the I89os Mexico was
producing a wide range of goods in large-scale, vertically integrated
enterprises. In fact, many of Mexico's present-day industrial giants, some
of which form the nuclei of large conglomerates, date from the end of the
nineteenth century. Examples can be found in the steel, cement, glass,
explosive, cigarette, soap, cotton and wool textile, paper and beer
industries.
Yet while industrial development began in Mexico quite early relative
to the rest of Latin America, the process of self-sustaining industrialisation
that took hold in England or the United States did not occur. Instead, a
series of obstacles produced a truncated process of industrialisation
dependent on government intervention, lacking in backward linkages to
capital goods production, characterised by oligopoly and monopoly
production, and dominated by entrepreneurs following rent-seeking
strategies.

Assessing the obstaclesto industrialisation,I8No-80

In looking at the economic history of Western Europe and the United
States, scholars have pointed to a number of features of those economies
which encouraged rapid rates of economic growth. Among the features
commonly mentioned are the availability of low-cost transport, a relatively
even distribution of income, highly productive agricultural sectors, low
entry costs for early manufacturers, and the development of legal
institutions designed to protect property rights and facilitate commerce.
In short, it is generally agreed that those economies which were already
 Industrialisationin Mexico 3
affluent, which possessed large and well-integrated markets, and which
had the ability to accumulate and mobilise the capital to finance
manufacturing ventures were the economies which were the first to
industrialise. Scholars have emphasised that no single feature or institution
can be isolated as the determinant in industrial success, but they would
agree that the lack of these features as a group would certainly work
against successful industrialisation. It just so happens that from the i830s
to the I88os almost all of the features which permitted industrial growth
to occur rapidly in the Western European and US settings were lacking
in Mexico.
First and foremost, those countries which underwent successful
processes of industrialisation were already relatively affluent. They had
realised slow rates of growth in per capita income for a number of decades
well before they began to industrialise, and attained quite high levels of
national income for pre-industrial societies. The Mexican economy, on the
other hand, was not only significantly smaller than the successful
industrialisers, it was also shrinking - both absolutely and relatively. In
I8oo, according to John Coatsworth's estimates, Mexico's per capita
GDP (in 1950 US dollars) was $73, roughly two-fifths that of the United
States and Great Britain. Throughout the first half of the nineteenth
century, per capita GDP actually declined, falling to $5 6 per capita in 845
and $49 in I86o. In this last year it was only 13 % of British per capita
GDP and 14 % of the US figure. It was not until the i86os that per capita
GDP began to increase, rising to $62 in 1877 and to $9' in i895.'
Underlying this fall in national income were a number of factors, all of
which we may also specify as obstacles to industrialisation. It should be
kept in mind, however, that these were impediments not only to industrial
growth, but to economic growth in general. Let us take up each of these
in detail.
Perhaps the most noticeable obstacle to Mexican industrialisation was
the lack of a national market because of high transport costs. Unlike the
United States, England or the other early industrialisers, whose regions
were connected by low-cost transport systems (canal and riverine traffic,
coastal shipping, and toll roads), Mexico's topography prevented the
development of inexpensive modes of transport. Only one-third of the
land mass of the country is reasonably level, and there aie almost no
navigable waterways, save for a few rivers in the sparsely populated
southeastern states of Veracruz and Tabasco. In addition, the great
majority of the population has historically lived in the mountainous
interior of the country, meaning that coastal traffic could not play a
significant role in linking markets.
1John H. Coatsworth,'Obstaclesto Economic Growth in NineteenthCenturyMexico',
American Historical Review, vol. 83 (1978), p. 82.
4 StephenH. Haber
Almost all traffic therefore had to move over mountainous terrain by
expensive mule train or ox-drawn, wheeled vehicle. Transport by such
means was costly because it required an expensive highway system to be
constructed and maintained. It was also unreliable, as Mexico's rainy
season, which stretches from May to September, regularly made the
roadbeds impassable. During the colonial period a road system was indeed
constructed in order to accommodate the heavy, two-wheeled carrosthat
were used to transport silver from the mines in the Bajio and imported
manufactures from the port city of Veracruz to Mexico City, but
beginning in the eighteenth century this system fell into disrepair. After
independence in I821 the situation became even worse, as there was little
money available for the improvement or maintenance of the rapidly
deteriorating roads. By the nineteenth century only a single roadway
existed that was suitable for wheeled traffic over its entire length. Even on
this highway, which ran from Mexico City to Chihuahua via Zacatecas and
Durango, mule trains outnumbered wheeled traffic.2
Railroads, which would have alleviated the transport problem, were
not constructed for the same reasons that affected highway maintenance.
Federal funds were nowhere near sufficient to launch a railroad
programme. Foreign investment could have been used to build a rail
system, but none of the regimes from I82I to I876 had much luck in
enticing foreign capitalists into financing such a venture. Mexico's first rail
line, from Mexico City to Veracruz, was not completed until 873. As late
as 1877 the entire Mexican rail grid contained only 640 kilometres of track,
of which I I4 employed mules rather than steam engines as the source of
motive power.3
The result of this situation was extremely high transport costs. Two
examples can give the reader an idea of how difficult the transport
situation was. In 82 5 the Real del Monte mining company imported from
England steam engines and other equipment necessary to renovate its
mines in the state of Hidalgo. The 3 so-mile journey from the port to the
mines (Veracruz to Pachuca) took almost twelve months. Similar delays
occurred in the transport of textile machinery. In fact, imported textile
machinery often doubled in cost by the time it reached Mexico City from
Veracruz, a distance of only some 300 miles.4
The transport problem was compounded by widespread banditry. By
mid-century brigandage was so commonplace that the National Congress
could not meet because the representatives feared travelling from their

2
John H. Coatsworth, Growth Against Development: The EconomicImpact of Railroads in
3 Ibid., p. 35.
Porfirian Mexico (Dekalb, Illinois, 1981), p. 18.
4Enrique Cardenas, 'Some Issues on Mexico's Nineteenth Century Depression', mimeo
(1981), pp. 29-30.
 Industrialisationin Mexico 5
home districts to Mexico City on the nation's bandit-infested roads.
Though no global data are available on the frequency of highway
robberies, Paul Vanderwood's qualitative data indicate that, like
contemporary joggers in Central Park, most travellers expected to be
robbed at least once on a long journey. The available quantitative data
mirror this judgement. In one single day in 1861, for example, the
stagecoach from Mexico City to Puebla was robbed three times.5 During
one Is-day period in I865 there were four major robberies along the
highway from Orizaba, Veracruz, to Mexico City- an average of one
every four days. The Mexico City Independencia,summing up this situation,
proclaimed that it was 'a scandal the way bandits infest the roads. What
the government is thinking about we do not know, but the bandits
rampage with impunity.'6
In addition to inefficient transportation technology and the threat of
banditry, Mexico's market was further segmented by a system of internal
tariffs, similar to that which existed in Germany prior to the Zollverein.
Until the latter part of the nineteenth century, Mexico was a congery of
individual provinces, each of which functioned with a great degree of
autonomy from the central government. Essential to the political
autonomy of these provinces was the fiscal autonomy provided by state
taxes. That this taxation system served as an impediment to the
development of a national market and a national economy was not deemed
particularly important by those who benefited from it.
Since the scale of technology employed in most manufacturing
enterprises in the early nineteenth century was very modest, robust
regional markets probably could have sustained an industrialisation
process, even without access to a national market. Indeed, as Sidney
Pollard has demonstrated, industrialisation in nineteenth-century Europe
was largely a regional phenomenon.7 The market for manufactured goods
in mid-nineteenth century Mexico, however, was neither robust nor deep.
Our knowledge of living standards, the distribution of income, and wages
during the early republic is extremely limited, but indirect evidence about
Mexico's social and economic structures suggests very low income levels.
Indeed, the great majority of the Mexican population were village-
dwelling peasants who practised rain-fed, subsistence agriculture. A
sizeable portion of the population did not even function in the money
economy. Even as late as 191o, after a 40-year period of economic growth
and structural change, 71.3 % of the population resided in villages of less

Paul Vanderwood, Disorder and Progress: Bandits, Police, and Mexican Development
(Lincoln, Nebraska, I98I), pp. 3, ii and 37. 6 Ibid., p. II.
7 Sidney Pollard, Peaceful Conquest: The Industrialization of Europe, I76o0-970 (London,
1981).
6 StephenH. Haber
than 2,500 persons, indicating that they were peasants who lived in
traditional villages.8 A good portion of this population (close to 6o % in
some states) could not even speak Spanish, implying that they functioned
only in local markets.9 Finally, Coatsworth's national income estimates for
the nineteenth century suggest an economy characterised by low income
levels. Gross Domestic Product per capita in I845 was only $56 (195o
dollars), and was, as has previously been mentioned, shrinking.'0 The
market for manufactures would in fact have been even smaller than this
$56 figure indicates, since the nation's skewed distribution of wealth no
doubt produced an extremely uneven distribution of income. In fact, at
the turn of the century, when real GDP per capita had doubled since 845,
average household incomes were still so low that in years of bad corn
harvests, when the price of this important staple rose, Mexico's working
class could not afford to purchase cotton cloth.1"
Not only was the market not conducive to the growth of manu-
facturing, neither was the legal-institutional environment. In the United
States and England, for example, legal systems had developed in which
decisions were based on precedent, in which judges made rulings based on
pride in craft, and in which well-defined bodies of contract, commercial
and patent laws were established. This made property rights, at least for
the 'respectable classes', easy to protect. In Mexico no such state of affairs
existed. Until the last two decades of the nineteenth century no legislation
existed to encourage the formation of limited liability corporations, a
modern patent law did not exist, nor was there a body of mortgage credit
law designed to protect long-term investments. Indeed, as was the case in
early modern Europe, economic activity of all kinds still required special
permits and licences for which special taxes and fees were charged. Above
all, litigants faced a corrupt and whimsical judicial system. Thus it was
extremely difficult to enforce contracts, collect on loans (especially if they
were to the government) or enforce property rights without resorting to
political machinations. As David Walker has pointed out in his work on
commerce in nineteenth-century Mexico, without access to those who
8
James W. Wilkie, The Mexican Revolution:Federal Expenditureand Social Changesince o191
(Berkeley, 1970), p. 2I8.
9 Direcci6n General de
Estadistica, Estadisticas Sociales del Porfiriato, r877-y9ro (Mexico,
1956), pp. II8-20. The data are for I895, when in the nation as a whole 17% of the
population spoke only an indigenous language. The percentage of non-Spanish
speakers in the mid-nineteenth century was certainly significantly higher than the 1895
figure. But even in I895 the majority of the population in indian-dominated states like
Yucatan and Oaxaca spoke only an indigenous language. In seven other states (out of
3 ) over 20 % of the population spoke no Spanish in I895. It is highly likely that in
the mid-nineteenth century the national average approached the levels of these states.
10 Coatsworth, 'Obstacles to Economic Growth', p. 82.
1 El Economista Mexicano, 7 May I904, p. 114.
 Industrialisationin Mexico 7
wielded political power and influence it was virtually impossible to
conduct business of any kind.12 Since the government changed hands in
the early nineteenth century on an almost monthly basis (Mexico had 75
presidents between i821 and I876), access to those who wielded the
political power necessary to enforce property rights constantly shifted as
well. The net result was an arbitrary institutional environment that made
free enterprise problematic.
The ramifications of these various institutional and social factors were
several. First, it meant that the Mexican economy could not grow.
Secondly, because of the lack of a robust economy, the Mexican state
could not defend itself from external or internal attack. Indeed, it was
during this period that the nation lost nearly half of its territory to the
United States, saw the secession first of the Central American provinces
and later the Yucatan, and was successfully invaded by France. Finally,
these factors served to discourage industrial development. Manufacturers
faced a divided and shallow market, an uncertain institutional environment
and a contracting economy.
What is perhaps most surprising about the economic history of this
period is the amount of industrial development that did occur. The history
of early Mexican manufacturing is still far from written, but the picture
that does emerge indicates an impressive amount of industry relative to
the other countries of Latin America. In a way, some of this
industrialisation was due to the very features that discouraged a more
complete and self-reinforcing process of industrial growth. High internal
transport costs protected small manufacturers from the onslaught of
British goods. The ability of the well-connected to manipulate the state to
their own advantage produced a government finance bank (capitalised
from import revenues) which lent the majority of its portfolio to its own
board members. The need for government revenues produced tariffs, both
federal and state, which served to afford some protection to industry.
The best-developed and fastest-growing of Mexico's nineteenth-century
industries was cotton textiles. In 1843, after a I2-year period of investment
and growth (a small fraction of which was subsidised by loans from the
government-sponsored Banco de Avio, which existed from 1830 to 1842),
the nation boasted 59 cotton textile factories, the great majority of which
were located in the states of Mexico and Puebla, producing primarily for
the Mexico City market. These firms processed some io.6 million kilos of
raw cotton into yarn, most of which was sold to independent weavers
though some was also processed into cloth in the factories. No data are
12
Coatsworth, 'Obstacles to Economic Growth', p. 98; David W. Walker, Business,
Kinship and Politics: The Martinet de Rio Family in Mexico, I82j-1867 (Austin, Texas,
1986).
8 StephenH. Haber
available on the number of workers employed in I 842, but it was probably
in the area of ten thousand.13
Eleven years later the number of active mills had actually declined to
only 42. Other indicators suggest, however, that the situation had
improved for the remaining mills. If we use raw cotton consumption as
a proxy for output (which eliminates the problems associated with
measuring output in goods of different types and different qualities over
time), the data indicate a rise in production of I9 %.14 This increase may
have been due to the increase in the number of machines in service, which
grew by I8 %. Lack of accurate labour-force data makes it difficult to
assess the growth of labour productivity.
By 877, the end of the early period of Mexican manufacturing, the size
of the cotton-textile industry had increased significantly since the I85os.
Mexico now had 92 cotton mills, though these were somewhat smaller in
size than the I854 factories: the average mill now worked only 2,753
spindles with 128 workers, compared to 3,004 spindles with 264 workers
in I854.15
In comparison to the United States, this was a modest textile industry.
Mexico's 253,270 ring spindles in 1877 was an extremely low figure
compared to the 10.7 million spindles in the United States in I880.16
Compared to other Latin American nations, however, this was quite a
sizeable industry. Brazil, for example, in 1866 possessed but nine mills,
employing 768 workers and 14,875 spindles. By i88i the number of
Brazilian mills had increased to 44, and now employed 60,419 spindles,
but this was still only one-quarter of the number in Mexico.17
Besides cotton textiles other important industries existed as well,
though none functioned on as large a scale. Unfortunately, little in the way
13 parael estudiodela industrialiiacion
Secretariade Hacienday CreditoPLblico,Documentos
en Mexico, I837-i84I (Mexico, 1977), doc. 5; Ministerio de Fomento, Estadistica del
Departamento de Mexico(Mexico, I854), doc. 2. For a discussion of the Banco de Avio
see Robert A. Potash, The MexicanGovernment andIndustrialDevelopment in the Early
Republic:TheBancodeAvio (Amherst, I983). The literaturehas tended to overestimate
the role of the bank in financingMexico'searlyindustrialisation.The total loans of the
bank to cotton textile manufacturers from 1830 to 1842 came to 509,000 pesos, but in
854, when therewere fewer mills in operationthanin 1842,the total value of the plant,
equipment, and buildings of the industry (valued at acquisition cost) was 8,872,95i
pesos, indicatingthat the bank could only have been responsiblefor six per cent of the
financecapital of these enterprises.
14 Ministerio de Fomento, Estadisticadel Departamento de Mexico,doc. 2.
5 Calculatedfrom ibid.; and Secretariade Hacienda,Estadisticade la ReptiblicaMexicana
(Mexico, i88o), cuadros de industria.
16 US Bureau of the Census, Censusof Manufactures, 1879.
17 A. V. de BorjaCastro,'Relatorio do segundo grupo', in Antonio Jose de Souza Rego,
de 1866(Rio de Janeiro, 869), p. 49; Ministeriode
exposifaonacional
Relatorioda segunda
e
Trabalho, Industria, Comercio, Comisio Executiva Textil, Indistriatextil algodeira
(Rio de Janeiro, 1946), p. 5I.
 Industrialisationin Mexico 9
of time-series data is available for these other industries, but qualitative
data indicate that their rates of growth were quite slow. Many resembled
artisanal shops more than modern factories. In the iron and steel industry,
for example, an 853 census listed but five foundries, only one of which
employed more than oo00 workers. Median foundry size was but 14
employees. A similar situation prevailed in the glass industry, where an
1857 census turned up only five firms, four of which employed fewer than
Ioo workers. Median firm size was 70 workers.18 Small-scale industries
existed as well in paper manufacturing, beer brewing, and other activities,
but again we know little about their development over time. It is clearly
the case, however, that even as late as the i88os these industries were very
modest in scale. In the paper industry, for example, until I892 the
combined value of production of the nation's 12 paper mills was scarcely
one million pesos (at that time roughly $700,000). Total output was
approximately four tons of paper per day.19
In short, with the exception of cotton textiles, most of Mexican
industry was still small in scale by the i88os. An 1877 census of the
manufacturing establishments in the Federal District, for example, turned
up 728 manufactories. Industries like boots and shoes, other leather
working, hats, tailor shops, bakeries and wood-working predominated.
Average firm size was only 17 workers, implying that these were more
artisanal shops than modern factories. Even in industries which in the
advanced economies were becoming large-scale, like iron and steel, small-
scale factories continued to predominate. In the iron industry, for
example, the 1877 Federal District census turned up only two foundries,
whose combined investment in fixed capital was only 54,000 pesos (at this
point the dollar and peso traded roughly one for one) and which employed
only Ioo workers between the two of them. Total output was
approximately 5oo,ooo kilos of iron goods, with a value of only 6o,ooo
pesos.20
Most significantly, all of the firms enumerated in the 1877 census were
consumer goods producers; no capital or intermediate goods industries
existed. Indeed, throughout the nation this was the case. The explanation
for this situation is fairly straightforward: the consumer goods industries
were still too underdeveloped to support capital goods industries. Even
in the relatively rapidly growing cotton textile industry, an industrial
18
Secretaria del Estado, Memoria de la Secretaria del Estado y del Despacho de Fomento
ColonigacionIndustriay Comerciode la Repiblica Mexicana, ir87 (Mexico, I857), docs. 18-
2, I8-3.
19 Hans Lenz and Federico G6mez de
Orozco, La industriapapelera en Mexico (Mexico,
1940), p. 83.
20 Secretaria de Hacienda, Estadzsticade la
ReptiblicaMexicana (Mexico, I880), cuadros de
industria.
 o StephenH. Haber

plant consisting of only 92 small factories running just over 250,000

spindles was not large enough to support a textile-machinery industry.
The Mexican market had not yet reached the minimum threshold size to
support capital-goods producers. When it did, later on in the century,
changes in the size of scale economies in capital goods industries again put
them out of Mexico's reach, a subject we will return to in the next section.

Reassessing the obstacles to growth, 1880-I9io

Beginning in the i88os the obstacles which had earlier limited Mexican
industrialisation began to be removed. The spark that set off this process
was the inflow of capital from the United States and Europe. During the
last decades of the century foreign capital and foreign entrepreneurs (who
possessed knowledge about specific technologies and markets which
Mexican capitalists did not) flowed into the nation, draining and
retimbering the mines, spurring the growth of commercial agriculture,
developing the oil industry and financing the whirlwind construction of
a national railway system. By 910o, according to the available estimates,
foreigners had invested close to $2 billion in Mexico's railroads, mines and
a variety of other undertakings - a sum that accounted for between 67 and
73 % of the total capital invested in the country.21 The greatest part of this
foreign investment was clustered in export-related enterprises.
The key area into which foreign capital flowed was the transport sector.
In 1873 Mexico possessed only 572 kilometres of railroads; by 1883 it had
over 5,ooo. The network expanded to over io,ooo kilometres by i893 and
to I6,ooo in 1903. In I910, just before the Revolution broke out, the
Mexican rail system boasted over 19,000 kilometres of track. These figures
account only for track laid under federal concession. In addition,
commuter and feeder lines constructed under state or municipal
concessions accounted for an additional 7,8o0 kilometres.22
Although the system was laid out without any central plan, the
government generally awarding concessions on an ad hoc basis, the
ultimate effect was that a fairly well-integrated grid developed. The
primary purpose of the railways was to move raw materials to the coast
or to the northern border for export to foreign markets, but the sheer
number of feeder lines built eventually gave rise to an interconnected grid
that linked internal markets as well as the mining areas and the ports. By
the turn of the century most of the major cities were connected to one
another by rail.
With the arrival of the railroad, transport costs fell precipitously,
21
Rodney Anderson, Outcastsin theirOwnLand: MexicanIndustrialWorkers,I906-1911
(Dekalb, Illinois, 1976), p. 19.
22
pp. 36 and 40.
Coatsworth,GrowthAgainstDevelopment,
 Industrialisationin Mexico I

stimulating the revival of the rest of the economy. According to the

conservative estimates of John Coatsworth, freight rates fell from 10 cents
per ton kilometre (using wagon transport) in 1878 to 2.3 cents per ton
kilometre (using railroads) in 91o0. If Mexico had tried to move the
volume of freight transported by the railroads in 910ousing the next-best
available technology, that is, wagon transport, the cost would have
increased between five and ten times.23 To give a concrete example: the
cost of shipping a ton of cotton textiles the roughly 130 miles from
Mexico City to Queretaro declined from $6i in I877 to $3 in i9io.24
The fall in transport costs rebounded throughout the economy as
commercial producers expanded their output to serve the now vastly
wider markets they faced. Foreign investment in railroads made
investments in mining, petroleum and commercial agriculture econ-
omically viable. Over the period from 1880 to 910o these economic sectors
boomed: silver production increased nearly fourfold, the output of
industrial metals tripled and petroleum production increased from scarcely
more than 5,00o barrels in I900 to over 8 million barrels by I9io.25
Changes in the legal environment, facilitating capitalist enterprise,
occurred as well. New laws were also written to encourage foreign
investment in other areas. A new mining code was written in 1887, for
example, which deliberately did not reserve ownership of the nation's
subsoil rights for the state, as the earlier mining code did. Instead it gave
ownership to the private mining companies. In addition, in 1889 a general
incorporation law was passed, allowing for ease in forming limited
liability, joint-stock corporations. Other important legal changes occurred
as well, including a new commercial code, banking and credit laws, public
debt reorganisation and an end to internal tariffs.26
The vehicle for this process of institutional and economic trans-
formation was Porfirio Diaz. During his 34 years in power (I876-19I I) he
dedicated himself and the power of the state to the expansion of the
economy - at whatever cost. The aim of the Diaz government was to
create the internal political and economic conditions that would attract the
foreign capital needed to modernise Mexico. This inflow of capital in turn
provided the financial resources that permitted the continued expansion
and consolidation of the central government. Under the lemma of 'Order
and Progress', the Diaz regime moved to eliminate the political
opposition, break the power of the regional caudillos, curtail banditry and
prevent the organisation of the working class. 'Order' was to be provided
23 24
Ibid., pp. 97-IO3. Anderson, Outcasts in their Own Land, p. iz.
25
Seminario de Historia Moderna de Mexico, Estadisticas economicasdel Porfiriato fuerga
de trabajoy actividadeconomicapor sectores(Mexico, 1965), pp. 136-8 and I43.
26
Coatsworth, 'Obstacles to Economic Growth', p. 99.
I2 Stephen H. Haber

by the federal government, often at bayonet point. The 'progress' part of

the equation would be brought about by the infusion of foreign capital
into the economy. This was, therefore, a reflexive process. Just as Dfaz
needed to attract foreign capital in order to fuel the growth of federal
government power, foreign capitalists understood that it was in their
interest that a strong centralised government be created that could instil
and inspire popular loyalty and maintain order and stability.27
In short, during the last decades of the century the institutional and
transportation obstacles which had earlier impeded economic growth
were struck down. Peasant agriculture began to give way to higher-
productivity commercial agriculture; the mining sector, in decline
throughout the nineteenth century, began to set new records for
production and sales, and new industries, like petroleum, were founded
and grew rapidly. The overall result was that the economy began to grow:
per capita national income grew from $62 (I95o dollars) in 1877 to $91 in
I895 and $I32 in I9I0.28
From the point of view of the Porfirian elite these economic and
political changes created the conditions necessary to foment large-scale
industrial investment. They controlled a state that would support their
endeavours and keep the working class under control. At the same time,
the creation of that expanding, wage-earning work force,29 the
development of a national railroad system, the ending of provincial
autonomy and internal tariffs, and the curtailment of banditry, meant that
the internal market was growing rapidly. The expansion of commerce,
both internal and external, was fuelling the process of capital ac-
cumulation: Mexico's merchants were growing increasingly wealthy,
commanding capital that could be invested in all manner of economic
activities. Most important, Mexico's capitalists believed that the process of
economic growth that the country had been experiencing since the i88os
was going to continue. Influenced by the neo-positivist notions of
progress then popular throughout Latin America, and convinced that the
Dfaz dictatorship was going to convert Mexico into a 'modern' nation,
they were willing to sink their fortunes into industrial ventures. Mexico's
second round of industrialisation had begun.
Beginning in the i89os Mexican industry was transformed. A
manufacturing sector previously characterised by small, family-owned
27 BarbaraTenenbaum, 'Planning for Mexican Industrial Development: The Liberal
Nation State, Tariff Policy, and Nationalism, i867 to I9IO', unpublished paper,
presentedat Conferenceof the AmericanHistorical Association, December 1983.
28
Coatsworth, 'Obstacles to Economic Growth', p. 82.
29 The numberof workersin non-agriculturalactivitiesincreasedthreefoldbetween i 861
and 1895 to almost two million workers in the latter year. See Anderson, Outcastsin
their Own Land, p. 19.
 Industrialisationin Mexico 13

and family-run firms producing for local and regional markets became
increasingly characterised by large, capital-intensive, vertically integrated
firms producing for the national market. This transformation held true
across product lines and across regions. From cement to steel, from
textiles to beer, large corporations, many of them exercising monopoly
control of the market (a subject we will return to in some detail shortly),
began to appear, pushing aside the smaller, regional producers that had
historically been the mainstay of Mexican industry. A complete description
of this transformation is beyond the scope of this article, but a few
examples can give the reader an idea of how Mexican industry changed
once the earlier obstacles to industrialisation were removed.
Perhaps in no other area was the transformation from small, regional
producers to a large, national producer as pronounced as in the steel
industry. In 1o00 the first integrated steel mill anywhere in Latin America
was founded in Mexico, the Fundidora Monterrey steel works. The
subscribed capital of the firm was I0 million pesos (about $5 million at the
contemporary rate of exchange), making it the second largest manu-
facturing enterprise in Mexico and thirtieth largest corporation of any
type. Unlike the small foundries that had preceded it, Fundidora
Monterrey was a totally integrated operation, handling all phases of steel
production, from the mining of the ore to the rolling of finished products.
Moreover, Fundidora Monterrey's equipment was a far cry from the
antiquated technology utilised by its predecessors. Iron ore was reduced
to pig iron in a Massick-and-Crook-type blast furnace capable of handling
I,ooo tons of ore per day, with an output of approximately 35 tons of pig
iron; and three Siemens-Martin open-hearth furnaces, with a daily capacity
of 35 tons each, and one Bessemer Converter refining the pig into steel
ingots. The firms also owned all the necessary rolling mills, cranes,
locomotives and other machinery to turn out a variety of finished steel
products.30 When the mill was running at full blast, over 2,000 workers
toiled round the clock in its various departments.
A similar transformation occurred in the paper industry, where one
new firm, the Compafifa de las Fabricas de San Rafael y Anexas, came to
control the nation's entire production of newsprint and virtually
controlled the domestic production of other classes of paper goods.
Founded in 1890, San Rafael y Anexas ran two mills, both in the state of
Mexico. Like Fundidora Monterrey, it was a totally integrated operation:
30
Jose Luis Cecefia, Mexico en la orbita imperial (Mexico, 1973), p. 87; The Mexican
Yearbook,1912 (London, 1913), p. 114; Fundidora Monterrey, 'Informe Anual, 1902',
p. 46; Luis Tor6n Villegas, La industria sideriurgicapesada del norte de Mexico y su
abastecimientode materiasprimas (Mexico, 1963), p. 55; Oscar Realme Rodriguez, 'La
industria siderurgica nacional', unpubl. tesis de licenciatura, Universidad Nacional
Aut6noma de Mexico, 1946, p. 97.
14 StephenH. Haber
it owned and operated its own haciendas, where the trees were grown, ran
its own mechanical wood-pulp plant, generated its own hydroelectric
power, and operated its own railroad. The total number of workers in all
of these operations is unknown, but in its two paper mills alone 2,000
operatives were employed. The total paid-in capital was 7 million pesos,
and annual production was roughly three times that of all its small
competitors combined - roughly I 2 tons of paper per day. In fact, within
a decade of its founding, San Rafael eliminated almost all of its domestic
competition.31
In other capital-intensive industries, like cement, beer, dynamite and
explosives, and glass, a similar process occurred: large, highly capitalised
firms producing for the national market replaced the numerous small
shops which had preceded them.32 They also began to drive foreign-
produced goods out of the market. In beer production, for example, the
nation's newer, larger, firms (the Cervecerfas Cuauhtemoc and
Moctezuma) not only began to challenge the numerous local beer
producers, but also replaced foreign beer imports. Beer imports fell from
approximately 3 million kilos in fiscal 1889-90 to just over 5oo,ooo kilos
in 1910-Ii, while demand for beer was rising. The Cerveceria
Cuauht6moc's production alone in 9 0 was over 2 5 times that of the total
volume of imports.33
In more labour-intensive manufacturing, especially in consumer non-
durables, a similar transformation was underway. Data from the two
largest of these industries, cotton textiles and cigarettes, illustrate this
change best.
One of the most obvious indicators of this change in the textile industry
was the tremendous growth in the number and size of factories. At the end
of the earlier period (1877) there had been 92 cotton mills in operation,
each employing on average 2,753 spindles, 98 looms and 128 workers. By
1895 the mills were both more numerous and larger: there were now I o
mills in operation, employing an average 3,741 spindles, 112 looms and
207 workers. By I9I0 they were more numerous and larger still: there
were now 123 active mills, employing 5,714 spindles, 203 looms and 260
workers on average. In other words, not only were there now roughly

3' The Mexican Yearbook, i908 (London, 1909), p. 539; The Mexican Yearbook, Io909-o
(London, 1911), p. 416; The Mexican Yearbook,1912 (London, 1913), p. II, i26; Lenz
and G6mez de Orozco, La industriapapelera, p. 83.
32 For a more complete discussion of the transformationof these industriessee Stephen
H. Haber, Industryand Underdevelopment: The Industrialization
of Mexico, I890-I940
(Stanford, 1989), chs. 4 and 6.
33 Calculatedfrom data in El Economista Mexicano,24 Dec. i898, p. 249; El Economista
Mexicano,27 July 1907, p. 360; Fernando Rosenzweig, Comercioexteriorde Mexico,
1877-19II: estadzsticaseconomicasdel Porfiriato (Mexico, 1960), p. 208.
 Industrialisationin Mexico 15
one-third more mills in operation than there had been three decades
earlier, but they were roughly twice the size of the earlier mills.34
There had also been an increase in productivity since the early years of
the industry. Physical productivity (measured in output of pieces of cloth
per active loom) increased some 379 % between 1843 and 1905, an average
rate of growth of productivity of roughly 2.5 % per year. This is a low end
estimate, since it does not take into account improvements in the quality
of cloth or the increase in the production of fine-weave goods, both of
which were substantial. Labour productivity increased as well, though
this is somewhat harder to measure in the years prior to i895 because of
significant changes in the allocation of the labour force between spinning
and weaving departments of the mills. An analysis of post-I895 data,
however, indicates a similar increase in output per worker: labour
productivity grew by 31 % between 1895 and 1905, a 2.7% annual
increase. 35
Whatever the exact rate of productivity growth, it is clear that Mexico's
newer, highly mechanised firms were more efficient than their older
competitors and certainly were able to out-compete the nation's artisans,
thereby forcing both of these traditional producers from the market. Of
the nation's 150 cotton mills in 1905, for example, only 123 were
operating, the other 27 (almost all of them smaller, older mills) unable to
compete against the newer, more efficient mills.36 The nation's artisans
fared even worse: of the 4I,000 artisan cloth producers in 1895, only
12,000 remained in 19I0.37
A similar transformation occurred in the cigarette industry where three
giant firms, employing automated cigarette rolling machinery from
France, drove the nation's artisanal producers out of the market. In 1898
the nation's output of almost 5 million kilos of cigarettes was divided up
among 766 manufactories. Ten years later, in I908, though production
had increased by 76% to almost 8.7 million kilos, the number of
producers had fallen by over 40 % to 437. In other words, output per
establishment trebled over the ten-year period, from 6,40o kilos in 1898
to 19,819 kilos in I908. By June 191I, the last date for which data exist,
there were only 341 manufactories in operation, less than half the number
in existence just 12 years earlier.38 These figures probably understate the
degree to which the major producers forced out the smaller manufacturers,
34 Calculated from Secretaria de Hacienda y Credito Puiblico, Documentos, doc. 5;
Ministerio de Fomento, Estadistica del Departamentode Mexico, doc. 2; Seminario de
Historia, Estadisticas economicasdel Porfiriato, p. io6. 35 Ibid.
36 Calculated from Seminario de Historia, Estadisticas econdmicas del Porfiriato, p. io6.
37 Anderson, Outcasts in their Own Land,
p. 47.
38 Calculated from Secretaria de Hacienda, Boletin de estadzsticafiscal, I894-I9Ir (Mexico,
various years).
I6 StephenH. Haber
since the data on the number of firms includes cigar manufacturers (which
were not mechanised and therefore not subject to the same kind of
concentration because of increasing returns to scale) as well as cigarette
producers. Indeed, firm level data from the three major cigarette
producers suggest that they controlled 60 % of the market by the close of
the Porfiriato.
Data on the labour force also indicate that the big, mechanised firms
were forcing the artisanal shops out of business. In I895 there were 10,397
workers employed in cigarette production. By 910o there were but 6,893,
approximately half of whom were employed by the nation's three major
firms.39 If we assume that cigarette output was the same in i895 as it was
in 1898, the first year for which output data are available, the data indicate
that output per worker increased from 473 kilos in 1895 to I,216 kilos in
19 0 - an increase in labour productivity of I 57 % over the 5-year period
- the apparent result of the substitution of automated rolling machinery
in the big firms for thousands of workers rolling cigarettes by hand in
hundreds of small shops. These figures, like those on output per factory,
also tend to underestimate the degree of change in the industry. It is
unlikely that output in I895 was equal to the level of 1898 - it was almost
certainly significantly lower. Thus, if anything, the degree to which the
automated machinery employed by the large firms raised labour
productivity was probably greater than the 157% increase estimated
here.40
Family-owned enterprises remained in Mexico. In some lines of
manufacturing, like leather goods, cigars and food processing, small firms
continued to dominate. Even in the increasingly concentrated cotton and
wool textile industries, small firms that produced for geographically
isolated areas continued to hold out. Wherever there were sizeable
economies of scale or speed, or where the lack of a skilled labour force
created incentives to mechanise production, however, big firms were
pushing the small producers out. Because no comprehensive industrial
census was ever carried out during the Porfiriato, it is not possible to
calculate the percentage of industrial production attributable to large-scale
manufacturing. Data from the census of 929, however, shed some light on
the subject. As a percentage of total national production of manufactures,
the subsectors that were becoming increasingly concentrated - steel,
textiles, cement, beer, dynamite, soap, paper, glass, tobacco products -
accounted for just over half of all manufactures produced in 1929. I

39 Anderson, Outcasts in their OuwnLand, p. 41.

40 Calculated from Secretaria de
Hacienda, Boletin de estadisticafiscal, 1894-191g (Mexico,
various years).
 Industrialisation in Mexico 17

estimate that these industries comprised 56.6% of the total capital

invested in manufacturing and contributed 56% of total value added.41
In terms of the accomplishments of US industrialisation, this was a very
modest level of industrial development. By Latin American standards,
however, Mexico's industrial growth was quite impressive. By 191o
Mexico had well-developed beer, cotton and wool textile, basic chemical,
iron and steel, paper, cement, shoe and boot, and cigarette industries.
Brazil, the most industrialised country of South America, had textile,
beverage, and leather-working industries which rivalled those of Mexico
in size and complexity, but did not have any of the more complex
industries, such as paper, steel, cement or basic chemicals. These were not
developed until the two decades following the First World War.42
Impressive as Mexico's early industrialisation was, significant obstacles
continued to stand in the way of self-reinforcing growth. These obstacles,
for the most part, were internal to firms, and included the inability to
realise scale economies, low labour productivity, and high fixed capital
costs relative to the ability of the economy to mobilise capital. Let us
examine each of these, and their consequences for the rate and structure
of industrial growth, in detail.
The Mexican market was still relatively shallow compared to those in
the advanced industrial countries. Even after a 30-year period of rapid
economic growth and urbanisation in which a sizeable wage-earning class
was created, nearly three-quarters of the population continued to live in
small villages. A significant segment of the population continued to
function outside the market economy, producing for their own subsistence
through traditional peasant agriculture. Even in areas where haciendas
had swallowed up Indian communities, this did not imply that all of the
dislocated peasants became wage workers; sharecropping and rental
arrangements still tended to predominate. In addition, many areas of the
country had not yet been integrated into the national rail transport system,
with large sections of the south and long stretches along the Pacific Coast
remaining outside the rail grid. Most importantly, the vast majority of the
population was still quite poor. The range of manufactured products they
could be expected to consume was therefore restricted. No studies have
been conducted to date on average wage rates and living standards during
the Porfiriato, but a number of indicators point to low and unequally
distributed incomes.43 First, per capita GDP was quite low: $132 (1950
41 Calculated from data in Direcci6n General de
Estadistica, Primer censoindustrialde 193o
(Mexico, 1934).
42
For a discussion of the development of these industries in Brazil see Wilson Suzigan,
Indlstria Brasileira: Origem e Desenvolvimento(Sao Paulo, i986).
43 The minimum
wage series in Seminario de Historia Moderna, Estadisticas econdmicasdel
Porfiriato, pp. 147-54, are widely cited to make this point but are of dubious value for
18 StephenH. Haber

dollars) in 191o, compared to $807 in Great Britain and $1,035 in the

United States.44 In addition, the distribution of this income was highly
skewed. A redundant labour force and highly capital-intensive methods of
production suggest that most of value added went to capital, not to
labour. In fact, the income of the average household was so low that the
consumption of cotton cloth was highly sensitive to changes in the price
of corn, which along with beans and chiles made up the largest part of
the diet of Mexico's working class.45
This uneven and limited market had to combine with a relatively
sophisticated and expensive technological base. Mexico now had a larger,
better integrated market than it did in the I840s, but there had also been
significant changes in manufacturing technologies since that time, putting
many industries out of Mexico's reach. In general, these advances lowered
unit costs of production by taking advantage of economies of scale and
economies of speed. Thus, the optimal size (the scale of production at
which unit variable costs would be minimised) of firms increased
substantially. This not only prevented Mexico from entering many lines of
manufacturing, but also shaped the industries which did develop in
several significant ways.
Since the minimum-efficient scale in capital goods production had
increased, and since capital goods industries now required well-developed
scientific and engineering capabilities, Mexico had little choice but to
import its capital equipment.46 Thus, Mexico's blast furnaces and rolling
mills came from the United States, the high-speed cigarette machinery
from France, the paper-making machinery from Switzerland, the textile
looms, spindles, and other equipment from England, Belgium and the
United States. Although this certainly sped up the process of early
industrialisation,47 this imported technology, designed for mass

a variety of reasons. In the first place, Mexico did not in fact have a legal minimum
wage prior to the 1930s. Secondly,the authorsdid not publish the sources or methods
used, so there is no way of knowing exactly what the 'minimum wage' figures
represent.It is most likely the case that the reportedfigures representthe lowest wage
rate that the researcherscould find for a particularyear, which is not, to put it mildly,
a systematicapproachto gathering wage data.
44 Coatsworth, 'Obstacles to Economic Growth',
p. 82.
45 El EconomistaMexicano, 7 May 1904, p. II4.
46 Mexico's investment in human capital was extremely low. The educational system
served only the few, with the vast majorityof the populationhaving almost no formal
schooling and very low levels of literacy. In I895 only 14% of the population could
socialesdel Porfiriato
read and write. See Direcci6n General de Estadistica,Estadzsticas
(Mexico, I956), p. 123.
47 AlexanderGerschenkronmade this point about the role of imported technology for
late developers in Eastern Europe. See his EconomicBackwardness in Historical
Perspective: A Book of Essays (Cambridge, I962), ch. I.
 Industrialisationin Mexico 19

production/mass consumption economies, was inappropriate for the

Mexican market. This had two ramifications.
The first was that there was a severe problem of excess installed capacity
in many industries. In the cement industry, for example, Mexican
manufacturers were able to run at only 43 % of capacity between 1906 and
9I I. In the steel industry the situation was even worse. Although there
was only one major producer, Fundidora Monterrey, it still only managed
to run at 30% of capacity between 1903 and i9io.48 Even in consumer
goods, where the capital equipment was more easily divisible and scale
economies tended to be smaller, there was a capacity utilisation problem.
The scarcity of consistent data makes it impossible to estimate capacity
utilisation rates in these industries accurately, but reports from manufac-
turers and analyses conducted by the Mexican financial press on cotton
textile manufacture, the largest and best developed of the consumer goods
industries, indicate that the industry could not run at capacity. In
competing for control of the market at the turn of the century, Mexico's
major textile mills began to switch to the recently developed, high
velocity, automatic machinery. If the entire Mexican textile industry had
then been run at capacity, the market could not have absorbed all the
output. Indeed, crises of 'overproduction' occurred on a fairly regular
basis: at least twice during the latter part of the Porfiriato, in 1901-2 and
again in I907-8. Throughout the years of the Revolution (1910-17) and
the 1920S the problem was endemic.49
The second ramification of the importation of capital goods was that it
increased the costs of entry: Mexican industrialists had higher start-up
costs than did industrialists in the advanced industrial economies. Not
only did they have to pay for the foreign-produced machinery; they also
had to set aside funds to cover the cost of transport, insurance in transit,
and the salaries of the foreign technical personnel who set up the plant. In
the cotton textile industry, for example, these added expenses pushed up
the final cost of erecting a mill in 191o from $12.72 per spindle in Great
Britain to $I9.72 per spindle in Mexico, a difference of nearly 6o %.50
As a result, a large part of Mexican industry was inefficient from its
beginning. Foreign-produced capital goods led to high costs of entry and
low levels of capacity utilisation, with concomitantly high unit costs of
production. Had Mexico been able to export manufactures this unit cost
problem could have been solved. An attempt was in fact made in 1902 to

48
Haber, Industryand Underdevelopment, p. 33.
49 See El EconomistaMexicano, I8 Jan. 1902, p. 245; 2I June 1902, p. 203; 5 Sept. 1903
(English edition), p. 536; ii July 1908, p. 297.
50
Gregory Clark, 'Why Isn't the Whole World Developed? Lessons from the Cotton
Mills', Journal of EconomicHistory, vol. 47 (I987), P. I46.
20 StephenH. Haber
enter the international market, but was a resounding failure. The lack of
a merchant marine to ship its goods to foreign markets, the lack of
institutions to provide credit to exporters, the competition of producers
from the advanced industrial economies, and high tariff barriers in other
Latin American countries, all worked against Mexican industrial exports.51
A second obstacle to successful industrialisation was the low
productivity of Mexican labour compared with that in the advanced
industrial countries, and this again pushed up production costs. The
Mexican working class had its social roots in the peasantry; many workers
were only recently off the farm; some moved back and forth between the
factory and the field. They therefore worked with the rhythm of a
peasantry, not of an industrial proletariat. For this reason Mexican
industrialists did not have the same degree of control over labour as did
their counterparts in the United States, England or Germany. Though
they could force workers to work long hours, they could not instil in
them the attitudes and values that are essential to the development of
industrial discipline. Like European industrialists in the late eighteenth
and early nineteenth centuries, Mexican factory owners regularly
complained about the 'laziness' of their work force and their inability to
force the workers to submit to routinised work.52
This resistance on the part of the working class took two forms. One was
that workers openly resisted employers' attempts to increase productivity
or achieve greater discipline on the shop floor. There were even occasions
when entire shifts of workers abandoned their machines in order to attend
a fiesta at a nearby hacienda or barrio.53 The second was that Mexican
workers generally worked less intensively than did their American or
European counterparts. In the weaving departments of Mexico's cotton
textile mills in 910o, for example, the average worker operated 2.5 looms,

51 For a detailed discussion of this attempt to export manufactured goods during the
Porfiriato see Haber, Industryand Underdevelopment, pp. 39-43.
52 For a
typical analysis of the productivity of Mexican labour by a Mexican industrialist
see Jose Robredo, Punto de vista de los industrialesde hiladosy tejidosde la Repiblica (Mexico,
1925), p. 5I. For a similar analysis by a foreign observer see G. Jenner, 'Informe de Mr
G. Jenner sobre la inversi6n del capital ingles en Mexico', in Informesy documentos
relativosa comerciointerior,mes de setiembrei886 (Mexico, i886). This experience with the
slow transition to 'factory time' was not unique to Mexico. In Meiji Japan, for
example, people returning from study or work abroad regularly commented on the
laxness and lack of time discipline of Japanese workers compared to their Western
counterparts. The transition to modern conceptions of time and work, however,
appears to have proceeded more rapidly in Japan than in Mexico. See Thomas C.
Smith, Native Sourcesof JapaneseIndustrialization,I7fo-1920 (Berkeley, I988), pp. 225-8.
53 One of the more notorious cases of this occurred in the San Lorenzo cotton mill in
Orizaba Veracruz in 1923. For details on this case see Archivo General de la Naci6n,
Ramo de Trabajo, Box 560, file 6, doc. iI.
 Industrialisationin Mexico 21

whereas British operatives worked 3.8, and New England operatives

worked 8.o. In the spinning department of the mills the results were
similar: in Mexico 540 ring spindles per worker, compared with 625 for
British workers and 902 for New England workers. When reduced to a
single measure of staffing levels - loom equivalents per worker - the data
indicate that Mexican textile mills employed almost twice as many
workers per machine as did British mills, and over two-and-one-half times
as many workers per machine as did New England mills.54
To an extent the disadvantages of lower capacity utilisation rates,
higher start-up costs, and lower labour productivity would have been
offset by lower labour costs in Mexico. Workers in Mexico's textile mills,
for example, earned on average roughly half of what British workers did
and less than one-third of what New England workers did. But it is clearly
not the case that these lower labour costs would have made up for
the higher capital and operating costs in the textile industry: Mexico's
costs of production were still almost 20 % higher than in Great Britain.55
Moreover, in less labour-intensive industries, like beer brewing, glass
making, steel and chemicals, the savings from lower wages would have
been even less significant than they were in the textile industry.
Mexican manufacturers therefore found it difficult to compete in the
home market against foreign manufacturers without the protection and
support of the government. Almost all of Mexico's major industries
received some sort of tariff protection or federal subsidy. Beginning in the
i88os import duties on manufactures jumped markedly, with the schedules
being revised upwards in 1892, 1893, 1896 and I906. By the end of the
Porfiriato, levels of protection were so high that one US commercial agent
reported that 'the Mexican tariff on cotton goods is the highest in the
world [sic], being exceeded only by those of Russia and Brazil. In some
classes of cloth the duty amounts to three times the value of the goods
abroad. '56 In other product lines levels of protection were extremely high
as well. In the dynamite industry, to cite but one example, a series of
different import duties and excise taxes produced a tariff of 80 % on
imported goods.57
In addition to protective tariffs, most of the country's major
manufacturing enterprises operated under some kind of federal con-
cession, which gave them tax-exempt status for a period of between seven

4 Clark, 'Why isn't the Whole World Developed?', pp. I5 1-2.

55
Ibid., pp. 146 and 50o.
56 William A. Graham Clark, Cotton Goods in Latin America: Part
One, Mexico, Cuba, and
Central America (Washington D.C., 1909), p. 38.
57 Calculated from data in The Mexican Yearbook, 1909-I910, El Economista
pp. 414-15;
Mexicano, 4 Jan. 1902, p. 217.
22 StephenH. Haber
and 30 years. In 1893 the government declared that all new industries
capitalised in excess of 250,000 pesos were exempt from direct federal
taxes and from customs duties on the machinery and other materials
needed to erect their factories. The required minimum capitalisation was
lowered to 0oo,ooo pesos in 898.58 A few enterprises were able to do even
better in their negotiations with the Diaz government. It sometimes
granted firms the sole right to tax-exempt status within a particular
product line. In effect, in order to promote industrialisation in an
extremely difficult environment, the government was setting up officially
sanctioned and subsidised monopolies.
Besides the development of inefficient, highly protected industry, the
other major feature of this wave of Mexican industrialisation was the
tendency of manufacturing to be extremely concentrated. Within any
given product line a few large firms controlled the lion's share of the
market. In steel, glass, soap, paper and dynamite production, single firms
held monopolies or near-monopolies. Cigarette manufacturing was
dominated by two horizontally integrated giants (there were actually three
firms, but the largest producer owned 5 % of the stock in the nation's
second largest, effectively reducing the number of competitors to two). In
beer and cement three big firms carved up the market. Even in cotton
textile production, which is usually characterised by near-perfect
competition, two firms claimed roughly 20 % of total national production
and almost all the production of fine, high-quality goods. A comparison
of four-firm concentration ratios indicates that Mexico's textile industry
was 6o % more concentrated than Brazil's and 280 % more concentrated
than that of the United States in I9I0.59
This non-competitive industrial structure evolved for two reasons.
First, as has already been discussed, technological considerations limited
the number of producers who could hope to prosper in Mexico's shallow
market. Secondly, the underdeveloped nature of Mexico's financial sector
meant that a small group of financiers skilled at manipulating both the
market and the state held an unusual degree of political and economic
power. They were therefore able not only to demand (and receive) high
levels of protection from the government, but were also able to employ
a wide arsenal of anti-competitive weapons designed to create barriers to
58
Matsuo Yamada, 'The Cotton Industry in Orizaba: A Case Study of Mexican Labor
and Industrialization During the Diaz Regime', unpubl. MA diss., University of
Florida, I965, p. 49.
59
For a more complete discussion of industrial concentration and the creation of barriers
to entry see Haber, Industry and Underdevelopment,chs. 4 and 6. For an analysis of
concentration ratios for the textile industry see Stephen H. Haber, 'Industrial
Concentration and the Capital Markets: A Comparative Study of Brazil, Mexico, and
the United States, 1830-I930', i
Journal of EconomicHistory, vol. 5 (199).
 Industrialisation in Mexico 23

entry to would-be competitors. How then, did the obstacle of a poorly

developed capital market affect the development of Mexican industry?
As has already been discussed, by the time that this wave of
industrialisation was underway in Mexico, the cost of entry to the market
in manufacturing was much higher than it had been in late eighteenth and
early nineteenth centuries when Great Britain began what came to be
known as the First Industrial Revolution. By the late nineteenth century
the state of manufacturing technology was such that entry into the mass
production of most industrial goods required capitalisations running into
millions of dollars. What had evolved in Europe over a long period of
time, financed through an extended process of reinvestment of profits,
now had to be purchased all at once. Entry costs were raised even further
by the fact that the technology and capital goods that had to be imported
were expensive to ship, to insure in transit, and to set up once they arrived
in Mexico.
Manufacturers therefore had to raise initial capitalisations running into
the millions of pesos, but the ability of the economy to mobilise capital
was restricted. A government-affiliated industrial finance bank could have
been used to channel capital into manufacturing, but this had already been
tried from I830 to 1842 with very limited success. The idea was never
revived, even after the conditions for industrialisation became more
propitious. The private banking system could likewise not be counted on
to serve as a source of finance capital. Mexico's banking system, still in its
infancy, was designed to do nothing more than facilitate commerce. As
late as 9Io0, the entire banking system still numbered less than 50 firms
- most of them extremely small enterprises with capitalisations in the area
of only $250,000. Almost all of these banks were legally constituted only
to serve as sources of short-term credit, meaning that they could at most
provide working capital to manufacturing companies.60
Most of the investment capital for Mexican manufacturing therefore
came from the nation's most prominent merchant-financiers. They were
the only group in Mexico with sufficient liquid wealth to finance the very
expensive plant and equipment that had to be imported. Given the large
capital requirements of the enterprises and the perceived risk in
manufacturing, no one financier would commit all his resources to any
single project. Instead, several financiers would combine to form a joint
stock company. Since the number of major financiers was relatively small
- no more than 25 - the overall effect was that a tight clique controlled
Mexico's most important manufacturing companies.
60
For a detailed discussion of banking institutions during the Porfiriato see Hilda Sanchez
Martinez, 'El sistema monetario y financiero mexicano bajo una perspectiva hist6rica:
el Porfiriato', in La banca,pasadoy presente: ensayosdel CIDE (Mexico, 1983).
24 Stephen H. Haber

The two most salient characteristics of this class of merchant-financier-

industrialists were that few of them were Mexican by birth and fewer still
knew anything about manufacturing. Of the nine men who made up the
first board of directors of the Fundidora Monterrey steel mill, for example,
only one had any relevant technical experience.61 These were not the
tinkerers of the English Industrial Revolution or the production-
orientated engineers and scientific managers of US industry. They were
financiers whose principal talents lay in making deals to maintain their
monopoly positions and in manipulating the economic apparatus of the
state to provide them with protection from foreign and domestic
competition. Their presence on the boards of Mexico's major manu-
facturing enterprises therefore reinforced the tendency of Mexican
industry to collude rather than compete.
These merchant-financier-industrialists were well positioned to shape
government policies to their liking. Indeed, they were the economic
backbone of the Porfirian state: they subscribed to the government's
treasury bonds, they sat on the boards of the nation's most important
financial institutions and they represented the government in international
financial markets when it borrowed money abroad.62In fact, it was not so
much a case of the state representing the interests of these financiers as it
was that these financiers were the state. They controlled the emission of
paper money through their ownership of the Banco Nacional de Mexico
- there was no government-run central bank. They shaped national
monetary and exchange-rate policy through the seats they occupied on the
Comisi6n de Cambios y Monedas, and they held the strings on the flow
of international loans to the Mexican government through their
connections to the major banks in Madrid, Geneva, Paris and New York.
This class of merchant-financier-industrialists used their political and
economic power to pursue rent-seeking strategies. At the same time,
poorly developed capital markets kept other groups from challenging
their hold on industry. That is, rather than make innovations in new
processes or techniques as entrepreneurs in some follower countries did
(Germany stands out as a case in point), Mexico's entrepreneurs sought to
limit competition and earn monopoly rents. Given the fact that their
entrepreneurial talents and experience were in commerce and money-
lending - not in production - and given the fact that demand for many of
their products was highly inelastic, this strategy made sense from the point
of view of maximising returns to the firm. Indeed, returns to
manufacturing were low (many enterprises, including some of the
61
Fundidora Monterrey, 'Informe Anual', 1902.
62 Mexico's most
important financiers operated on an international scale and had
connections to the big foreign banks. See Sanchez Martinez, 'El sistema monetario'.
 Industrialisationin Mexico 25

monopolies, were perennial money-losers or made very irregular profits),

and would have been lower still if firms had not pursued anti-competitive
strategies.63
A detailed discussion of how Mexico's financiers carried out strategies
designed to limit competition is beyond the scope of this article, but in
general it usually involved closing off access to some important factor of
production, like technology (through the control of foreign patent
rights), raw materials or government protection. Where they could, firms
also tried to close off access to the distribution and marketing networks.
These strategies were usually accompanied by an attempt to buy out any
competitors or would-be competitors.
Since there was not a well-developed capital market in Mexico, these
strategies could provide market dominance over the long run. This was
not the case in countries that had well-developed capital markets, like the
United State or - to cite a Latin American case, Brazil - since the high
prices imposed by a monopoly attracted competitors who could use the
national capital market to finance the creation of a rival firm.64 This is, in
fact, what happened to most of the giant consolidations formed in the
United States during the great merger movement of the I89os. An
analysis of paper manufacturing in the two countries elucidates the point.
In both countries single firms (the San Rafael y Anexas paper company in
Mexico, and the International Paper Company [IPC] in the United States)
came to control the market in the 89os through strategies of mergers and
consolidations with rival firms at the same time that they integrated
vertically in order both to capture the economies of speed in paper
manufacturing and to cut off access to raw materials to would-be
competitors. Both firms also concentrated on the production of newsprint,
the product line with the largest market, (though they produced other
goods as well). In the United States, the monopoly rents that IPC earned
attracted competitors who were financed by the stock and bond markets.
Within seven years of IPC's founding, 20 new producers entered the
market, driving IPC's share of the market down from 64 % in 1900 to
48 % by 1905.65 In Mexico, the lack of a well-developed capital market and
the cohesiveness of the merchant-financier families who dominated the

63
For an analysis of the profitability of Mexican manufacturing during this period see
Haber, Industryand Underdevelopment, ch. 7.
64
Brazil had a much better developed banking system and far larger and more complex
stock and bond markets than Mexico did. Over the long run this allowed Brazil
to overtake Mexico's early lead in industrialisation and also gave rise to lower levels
of industrial concentration than existed in Mexico. See Haber, 'Industrial Con-
centration'.
65 Naomi Lamoreaux, The Great Merger Movement in American Business, 1894-1-90
(Cambridge, Eng., I985), pp. i26-7.
z6 StephenH. Haber

economy enabled San Rafael to hold on to its control of the market over
the long run. It was not until 1936 that San Rafael's monopoly was
broken, when the Mexican government, for political reasons, decreed that
the distribution of newsprint was a strategic industry that should be
controlled by the State, not by a private firm. It therefore created a
government distribution monopoly, though San Rafael continued to
control production.
In short, during the 20 years between i890 and i910 Mexico underwent
a rapid process of economic modernisation and growth. A national market
was created by the building of a rail network, the mining sector was
revitalised, a petroleum industry was created, agriculture became
increasingly commercialised and industry moved into a wide variety of
new products that had never before been produced in Mexico, driving
imported goods from the market and pushing the nation's artisans to the
wall. But the contradictions and obstacles inherent in the rapid
industrialisation of an economy like Mexico's prevented self-sustaining
industrialisation from taking hold. The market was still too small to
support capital goods industries (it could barely sustain consumer-goods
producers in many lines of production), the industries that did exist were
unable to compete without extensive support and protection from the
government and a group of rent-seeking financiers came to control the
manufacturing sector.

The end of the Pax Porfiriana, I9io-j93o

It could be argued that the process of economic growth from i880 to 910o
would have eventually overcome the obstacles which stood in the way of
self-reinforcing industrialisation. The continued growth of the economy
might have broadened and deepened the market, expanded the banking
sector and formed a national capital market, built an educational system
adequate to the task of developing engineering and industrial design
capabilities, and continued to break down pre-modern forms of
agricultural production. While this could have happened in theory, the
reality was that the uneven process of economic growth in Mexico set off
a revolution against the Dfaz dictatorship from both above and below, not
only ending the model of growth of the Porfiriato, but also producing a
slowdown in industrial growth for the next 25 years.
Contrary to much of the popular mythology about the effects of the
Mexican Revolution (much of it motivated, as John Womack has pointed
out, more by ideological presuppositions than by an analysis of the
empirical data),66 the Revolution of 1910-17 did not destroy Mexico's
66
John Womack, 'The Mexican Economy During the Revolution, 1910-1920:
Historiography and Analysis', Marxist Perspectives,vol. I (1978), pp. 80-I23.
 Industrialisationin Mexico 27
industrial plant, nor did it send the industrial barons of the Porfiriatointo
exile, never to return. Mexico's physical plant, especially the large firms
that had the political and financial resources to protect themselves, came
through the fighting in one piece. Thus, output quickly reached its
Porfirian levels once the fighting stopped in 1917. Mexico's industrialists
were also still present after the Revolution, and in fact were even
mobilising politically to defend their interests as early as 19I7 against the
new state taking shape.67
The Revolution did, however, significantly affect the confidence of
Mexico's industrialists. It was not that the post-revolutionary govern-
ments were anti-industrial or anti-business - they were in fact made up of
businessmen - but rather that the rules of the game had been rewritten by
the Revolution. The industrialists no longer controlled the reins of power
the way they had done during the Porfiriato; urban labour, which had
played an important role in the defeat of the peasantry during the civil war
of I914-17, now played a much larger role within the state, extracting
important concessions in the 1917 Constitution such as the right to
organise and strike, an eight-hour day, a six-day work week, and equal pay
for equal work. The political climate was also unstable: it was not entirely
clear what direction Mexico would follow during the I920s, whether there
would be a renewed round of violence moving the Revolution to the left
in an attack on private property or to the right against the progressive
compromises of the Constitution of I917.
The result was a marked deceleration in new capital spending by
industrialists, a dramatic fall in the value that financiers placed on their
assets, and a jump in financial rates of return as investors began to demand
sizeable risk premiums to keep their money in Mexico. An analysis of
capital spending by Mexico's major steel, cotton textile and cigarette
manufacturers, for example, reveals that firms began to run their already
established plants into the ground after the Revolution. The book value
of the physical plant of the country's major textile manufacturer (the
Compafi?a Industrial de Orizaba) fell by i6 % between 1920 and 1924, and
of the major cigarette producer (El Buen Tono) by 21 % between i918
and 1924. Even in the steel industry, where there was considerable new
investment between 1919 and I921, the brakes were soon put on new
capital spending, resulting in a drop in book value of five per cent between
192I and 1924. Data from the federal tax register of the cotton textile
industry, which covers all cotton spinning and weaving firms, indicate a

67 PrimerCongreso Nacional de Industriales,Resenaj memoriadelprimercongreso nacional

de industriales
reunidoen la Ciudadde Mexicobajoel patrociniode la Secretariade Industria
Comercioy Trabajo (Mexico, 1918).
28 StephenH. Haber
similar decline, with the value of capital in equipment and buildings per
active mill falling by 3 % between 1922 and 1925.68
The lack of capital spending was driven by the pessimism of investors,
who were revaluing their assets downwards. An analysis of the ratio of
market-to-book values for the three firms discussed above indicates that
investors perceived that their assets were worth only 5o % of what they
had perceived them to be prior to the Revolution. Along with a decline
in the value of assets came concomitant jumps in stock yields, as investors
began to demand a sizeable risk premium in order to stay in the Mexican
market. The average yield on common stock in Mexico's major industrial
companies increased from 4.6% per annum during the period between
1896 and 1910 to 9.4 % per annum between 19 8 and 92 5. Similarly, real
financial returns to investors increased sixfold; jumping from 3% per
annum during the period 9go 01-0o to 8.7 % during the period from 9 8
to 1925, the result of dramatic fall in the real market values of stocks
a
between 1910 and 1918, which produced sizeable capital gains for those
willing to invest in the market afterwards.69There is also evidence that the
1920S were a period of capital flight in Mexico, as investors began to keep
more of their cash assets abroad.70
The pessimism of the investment community in Mexico was borne out
in the latter part of the 1920S as Mexico began to enter the Great
Depression. Beginning in 1926 the prices of Mexican exports went on a
downhill roller coaster ride. Between 1926 and I928 export revenues fell
by ten per cent, from $334 million to $299 million. The drop accelerated
thereafter, with exports eventually falling to only $97 million in 1932. This
drop was not compensated for by a similar drop in import prices. Not only
did the volume of exports decline by 37 % between 1929 and 1932, but the
terms of trade deteriorated by 21 % as well. Thus, the purchasing power
of Mexican exports fell by over 5o% in just three years. The negative
effects of the collapse of the export sector, which had significant effects on
employment and demand, were exacerbated by pro-cyclical monetary and
fiscal policies.71 Though the estimates are rough, the available data
indicate that real per capita Gross Domestic Product fell by 5.9 % in 1927,
0.9% in 1928, 5.4% in 1929, and 7.7% in 1930. In I93 there was a slight
recovery, with an increase in GDP of 1.5 %, but it was not long-lasting.
68 For a detailed discussed of the effects of the
Revolution, as well as a discussion of how
these values were calculated, see Haber, Industr, and Underdevelopment, ch. 8.
69
For a detailed discussion of the sources and methods employed in this analysis see
Haber, Industryand Underdevelopment, pp. 144-8.
70
Joseph Sterrett and Joseph Davis, The Fiscal and Economic Conditionof Mexico (New
York, i928), p. i90.
71
Enrique Cardenas, La industrialiiacionmexicanadurantela Gran Depresidn(Mexico, 1987),
chs. 3 and 4.
 Industrialisationin Mexico 29

In 1932 real per capita GDP fell by an incredible I6 %. Over the six-year
period real GDP per capita fell by 30.9%.72 The results, as one might
expect, of this downturn were contractions in industrial output, nominal
wages, employment, profits and new investment. In fact, many of
Mexico's major industrial firms came close to bankruptcy during the
depression.73
It was not until the mid-I93os, therefore, once a general economic
recovery began, that a new round of industrial development took place.
Several factors were behind this recovery. One was government deficit
spending, which not only pushed up aggregate demand, but also served
to remove some of the remaining obstacles to industrialisation. Extremely
significant here was spending on a federal highway network (the road
system increased from 1,426 kilometres in 1930 to 9,929 kilometres by
i940),74 which created demand for producer goods like cement and steel,
as well as linked markets, and spending on irrigation systems in the north
of the country, which increased agricultural productivity. The second was
the agrarian reform, which redistributed wealth in the countryside and
therefore, over the medium term, redistributed incomes as well, thereby
increasing the size of the market. Thirdly, though there was a good deal
of conflict between the government of Lazaro Cardenas (1934-40) and
industrialists, one of Cardenas' accomplishments was the restoration of
social peace in Mexico. Industrialists may not have wielded political
power in the Cardenas government, but Cardenas did create a stable
political environment through the formation of a national party, thereby
restoring the confidence of the industrialists in the viability of the State.
Mexican manufacturers no longer had to fear the vagaries of an unstable
political system. Finally, there was a recovery of the price of Mexico's
major exports, silver and oil, which revived the economy through the
same mechanisms that had earlier forced it to contract. Overall, from 1933
to 1939 real per capita GDP grew by 24 %, or roughly three per cent per
year.7
With the increase in demand, the return of profits, and the creation of
a stable political system, industrialists, Porfirian as well as a new group of
immigrant entrepreneurs, began a new round of investment in manu-
facturing. Not only did investors revalue their assets upwards (the ratio
of market-to-book values increasing twofold for the older, major firms
between 1932 and 1938), but spending on new plant and equipment
72 Calculated from data in Instituto Nacional de Estadistica
Geografia e Informatica,
Estadisticas historicasde Mexico (Mexico, I985), P. 311.
73 For a detailed discussion of the effects of the depression on employment, wages, profits,
and investment see Haber, Industryand Underdevelopment, ch. 9.
74 Instituto Nacional de Estadistica Geografia e Informatica, Estadisticas historicas de
Mexico, p. 566. 75 Calculated from ibid., p. 311.

LAS 24
30 Stephen H. Haber

occurred as well. On an aggregate level, real expenditures on private fixed

capital formation were I67 % higher in 9 39 than they had been in 1932.
Part of this increase in capital spending was the result of modernisation
programmes undertaken in older industries. The value of the physical
plant of the Fundidora Monterrey steel mill, for example, increased by
35 % between 1934 and 1937. The value of the physical plant of the major
cotton textile producer, the Compafifa Industrial de Orizaba, almost
doubled during the same period, increasing by 98 %.76 Of equal
significance to the renewed investment programme of older industries was
the creation of new firms. Basically, these new companies did not enter
into competition with the old established giants. They left beer brewing,
steel-making, paper milling, and other capital-intensive, vertically
integrated operations to the companies that had dominated those lines of
manufacture since the Porfiriato. Instead, the new entrants to the market
concentrated on new products, like rayon knitwear, cotton knitwear, silk
and high-grade cotton shirtings, hosiery and other goods that had been
imported up until then. In fact, of the 692 firms listed in the 1938 tax
registry of the textile industry, well over half were involved in the
manufacture of these new products.77
Manufacturing, in fact, came to lead the economy at this point, with
value added in this sector growing I45 % faster than GDP as a whole.78
In fact, for the next forty years manufacturing was the engine of growth
of the Mexican economy. In this round of Mexican industrial development
new obstacles to growth presented themselves, and many of the old
obstacles continued to persist. As had occurred in the earlier period, these
shaped both the rate and structure of industrialisation, and prevented,
once again, a self-sustaining process of industrialisation from taking hold.

Conclusions

Although Mexico did not become an industrial society until the second
half of the twentieth century, a significant amount of industrialisation was
achieved in the nineteenth century - particularly during the 20 years from
I890 to 1910. Even as early as the I83os Mexican policy-makers and
entrepreneurs attempted to copy the experience of Western Europe by
introducing modern technology and modern organisational arrangements
in the cotton-textile industry. Mexico's low level of nineteenth-century
industrial growth was not therefore a product of not wanting to
industrialise.
76 Cardenas, La industrialiacio'nmexicana, p. 144; Haber, Industryand Underdevelopment,
ch.
10.
77 Secretaria de Hacienda y Credito Publico, 'Directorio de las fibricas de hilados y
tejidos registrados' (Mexico, I938).
78
Cardenas, La industrialiacion mexicana, p. 1o.
 Industrialisationin Mexico 3

The problem for Mexican industry during the early and mid-nineteenth
century was that the economic environment was not conducive to
manufacturing growth on a large scale. Internal tariffs, the lack of reliable
and inexpensive transport and widespread brigandage precluded the
creation of a national market. Insecure property rights, a corrupt judiciary
and political instability made contracts difficult to enforce and gave rise to
an uncertain institutional environment. Finally, low household incomes
precluded the development of deep and secure markets.
During the three decades associated with the dictatorship of Porfirio
Diaz these obstacles were overcome, but by this point new constraints on
industrial growth presented themselves. These obstacles were largely
internal to firms. In the nearly ioo years since the onset of the Industrial
Revolution important developments had occurred in manufacturing
technology, which both raised the minimum-efficient scale of production
and increased fixed capital costs. The Mexican market, in the meantime,
had not grown in step with this technological revolution, nor had there
been the kind of change in labour productivity and attitudes about work
that had occurred in Western Europe. In addition, Mexico had not created
institutions designed to mobilise the capital needed to finance this new
technology. Mexico was therefore unable to adapt much of this new
technology without either creating non-competitive production and
marketing arrangements or resorting to government subsidies and
protection. The result was an impressive amount of industrialisation by
Latin American standards, but a relatively unimpressive industrial
revolution by the standards of the North Atlantic economies.
It is conceivable that had the model of growth of the Porfiriatopersisted,
many of these obstacles to industrialisation might have been overcome.
Incomes might have risen, educational levels might have improved, the
banking system would have continued to expand and the internal market
would have grown. Continued economic growth might have created its
own demand, eliminating the obstacles that stood in the way of
industrialisation. Indeed, Mexico's industrial entrepreneurs were banking
on this to happen. It was for this reason that they often invested ahead of
the market, erecting industries which were too large for the demand they
faced and losing money over the short run in the hope that when the
market expanded they would be in a position to take advantage of it.
This, however, did not happen. In fact, the very inequalities that were
an integral part of the Porfirian model of economic growth produced a
Revolution. The Revolution, while it did not destroy the nation's
industrial plant, created significant uncertainty among the industrialist
class. These events, coupled with the onset of the Great Depression,
produced a slowdown in the rate of growth of industrial investment until
2-2
32 StephenH. Haber
the middle of the 1930s. It was therefore not until the middle of the
twentieth century, almost a century after the first rumblings of
industrialisation began in Mexico and nearly 50 years since the first large-
scale industrial enterprises were established, that Mexico began to make
the transition to an industrial society in which manufacturing led the
economy.