Cardenas faced a dual challenge—rebuilding the Depression-ravaged economy and making it responsive to Mexican needs rather than foreign ones. During his administration (1934—1940), the share of the federal budget devoted to economic development increased from 22 to 38 percent. Unlike his predecessors, Cardenas felt that social justice would facilitate economic development rather than retard it. Reflecting this, during the Cardenas administration, social welfare expenditure rose to a record 18 percent of government spending.16 Cardenas stated he wanted
The state to intervene to determine what the nation should produce and to organize commercial distribution. This will undoubtedly benefit the country enormously. Thus the state will determine the income share received by capital, the share received by labor, and the share received by the Government.
Cardenas nationalized the rail lines in 1937 and set low rail rates to stimulate development. After the 1938 oil nationalization, he set low domestic oil prices as a subsidy to industry. Since the Depression interrupted foreign and domestic credit, he established government-run banks to supply the credit necessary for development. Allowing the peso to decline in value relative to the dollar increased the cost of imports, thus making domestic production more attractive. Eduardo Suarez, his Finance Minister, was an admirer of British economist John Maynard Keynes, so not surprisingly the government relied heavily on deficit spending. Unlike his successors, Cardenas directed capital to both the “traditional” and the “modern” sectors.18
During the Cardenas administration, there was a sharp drop in foreign investment as the oil industry and railroads were nationalized. Cardenas’s nationalism deterred new foreign investment. In 1940, U. S. investment totaled only $300 million, down from more than $1 billion in the 1920s. In 1939, the principal investors were the state, which accounted for 39 percent of new investment, and Mexican citizens, who accounted for 46 percent. Foreigners accounted for only 15 percent of investment. In 1940, 47 percent of the U. S. investment remaining in Mexico was in mining, while the remaining investment was mostly in transportation, communications, and utilities.19
Even though he was a nationalist, Cardenas did not oppose foreign investment. As long as investors did not expect special privileges, they were welcome. In May 1938, just after the nationalization of the oil industry, Cardenas stated:
Mexico, underpopulated and extensive, has opened its doors to all foreigners who come to our land without humiliating superiority complexes and without seeking special privileges to promote agriculture, industry, science, and the arts with their labor, their capital, and their scientific knowledge.20
Rather than relying on exports, as Mexico had for the previous half century, economic recovery resulted from increased internal demand, stimulated by the land reform and wage increases. Between 1932 and 1939, annual economic growth averaged 6.2 percent. During the Cardenas administration, manufacturing increased by 51 percent, commerce by 41 percent, and construction by 40 percent.21
By 1940, the state had emerged as an important economic actor, with a major if not exclusive role in finance, railways, petroleum, electrical energy production, road building, and the expansion of irrigation works. Public expenditure per capita during the Cardenas administration was 41 percent above the previous six-year period.22
Cardenas’s policies set the stage for unprecedented subsequent expansion. Hacienda labor became more mobile. With land reform, the old order crumbled, and rural people began to examine their options. Some farmed for themselves, others decided the city had more to offer and sought industrial jobs. Increased investment in education and health care, although slow to pay economic dividends, was crucial to subsequent development.23 As anthropologist Oscar Lewis observed, consumption patterns shifted:
More and more people sleep on beds instead of on the ground, wear shoes instead of huaraches or going barefoot, use store-made pants instead of home-made white cotton calzones, eat bread in addition to tortillas, grind their corn in the mill instead of by hand, drink beer instead of pulque, use doctors instead of curanderos, and travel by bus or train instead of on foot or by burro.24
World History
