INDUSTRIALIZATION

Before 1870 markets were still too small, the energy supply too unreliable, and transport costs too high to permit more than a handful of large-scale factories to be built to serve the home market.

Victor Bulmer-Thomas, 199471

In 1862, there were more than 20,000 artisan shops in Mexico, while only 207 factories operated. Toward the end of the nineteenth century, artisan production began to decline as railroads brought inexpensive imports into the Mexican interior and Mexican factories began production. Few artisan shops evolved into modern factories since their owners lacked access to capital, had little political clout to influence public policy, and often relied on a very limited supply of family labor.72

Given the lack of an institutional framework to transfer capital from lenders to borrowers, industrial firms were generally financed by families channeling funds into a new industry from some other existing business, such as commerce. Since immigrant families dominated large-scale commerce, they financed much of Mexico’s early industry by reinvesting commercial profits.73

To stimulate industrial investment, entrepreneurs received tax exemptions, federal subsidies, production monopolies, and protective tariffs. Between 1893 and 1911, Limantour rewarded industrialists who supported Diaz by setting high import tariffs on products they produced, while everyone else was left out in the cold. Since those who benefited from these inducements faced no competition, their profit rate was unusually high. to protective tariffs, domestic manufacturing expanded just as foreign manufacturers were most aggressively pursuing Mexican markets.74

In the 1880s, tariffs were repeatedly reduced on certain raw materials, while duties were increased on such products as textiles, beer, cement, and iron and steel to encourage their production in Mexico. Several other factors favored industrialization. Displaced artisans and agricultural laborers provided an abundant supply of inexpensive labor. Railroads allowed factory-produced goods to be distributed nationwide. As the value of the silver-based Mexican peso declined relative to the gold-based North Atlantic currencies, imports cost more, thus encouraging domestic production. Finally, between 1877 and 1900, industry benefited from the introduction of new manufacturing technology and steam and hydroelectric power.75

Between 1895 and 1910, manufacturing increased by 106 percent. During that period, the number of industrial workers only increased from 45,806 to 58,838, indicating an increase in productivity associated with new technology. Consumer-oriented industries produced textiles, beverages, clothing, paper, soap, footwear, and food and tobacco products. Factories produced cement, bricks, paints, chemicals, and iron and steel for use in extractive and manufacturing processes.76

Mexican textile factories, which employed 32,147 workers in 1910, were the largest modern enterprises in Mexico. Rail transport made larger mills profitable, and electrically powered looms

Figure 13.2

Cigarette factory

Source: Reproduced courtesy of the Benson Latin American Collection, the University of Texas at Austin

And spindles replaced water powered ones. French investors, who supplied almost 80 percent of the capital in the industry, facilitated this expansion. The expansion of the textile industry did not lead to increased employment since the number of handloom weavers declined from 41,000 to 12,000 between 1895 and 1910.77

The textile industry produced inexpensive cotton cloth for Mexico’s expanding work force, successfully combining foreign capital, transport, and imported technology. In 1901, it transformed 43,040 tons of cotton into cloth, up from 5,842 tons in 1854. In 1899, 32 percent of the textile products consumed in Mexico were imported, while in 1911, only 3 percent were imported.78

During the Porfiriato, as had been the case since colonial times, most industry was located along the axis from Veracruz to Mexico City, where it had access to transportation, markets, political influence, and hydropower. However, by the dawn of the twentieth century, a new industrial center had emerged—Monterrey. The city enjoyed an ideal location for industry, since rail lines linked it with both the United States and central Mexico. Water from the Santa Catarina River and nearby deposits of iron ore and coal enticed industry to locate there. The Nuevo Leon state government spurred industrialization by granting tax exemptions of up to twenty years for new investments. An impressive financial sector, which developed in the 1890s, financed new industry. In 1901, the city proudly inaugurated La Fundidora de Fierro y Acero, Mexico’s first iron and steel mill.  to the Fundadora and other industries, Monterrey received the nickname “the Pittsburgh of Mexico.”79

Unlike the rest of Mexico, Monterrey’s industry largely remained in Mexican hands. In 1900, Mexican capital, much of which came from wealthy commercial families, comprised 80 percent of the city’s industrial investments. Isaac Garza (1853—1933), the patriarch of the most prominent of these families, married into the Sada family. In 1891, Garza-Sada interests began producing beer in Monterrey. Within a decade, the brewery workforce increased from fifty to more than 500. In 1899, to supply bottles for their brewery, the Vidriera Monterrey was established. By 1909, this factory was producing 24,000 bottles a day. These firms continued to expand, eventually creating Mexico’s most famous industrial empire, which was based on beer, glass, and steel.80

Garza-Sada success resulted, in part, from bucking some prevailing trends. Rather than associating with foreign capital, they retained Mexican control, and to demonstrate their patriotism, they named their brewery for Cuauhtemoc. To encourage the training of Mexican technicians, they paid them the same wages foreign technicians received. By 1900, when most other industries remained dependent on foreigners, their entire staff, including brewers, mechanics, and electricians, were Mexicans.81

Often, in response to individual influence, the government granted special tax and tariff exemptions, monopoly privileges, and concessions to exploit natural resources. These privileges, granted to individuals, were so valuable that they gave the recipient a virtual monopoly in a given industry, thus discouraging efficiency and preventing competition. In 1902, the New York Times reported, “Nearly all of the principal branches of industry in Mexico are now controlled by trusts and combines, the greatest of them being the Guggenheim Exploration Company. . .”82

Mexico’s lack of energy sources hampered industrialization. Domestic coal and hydropower only partly met industrial energy needs. Some coal was imported. At the very time energy needs were increasing, the supply of wood, the traditional fuel source, was becoming exhausted. It became increasingly costly to bring in wood from ever-greater distances as nearby supplies were exhausted. As historian Fernando Rosenzweig noted: “Deforestation occurred around the large cities where demand was greatest and along the principal transport routes.”83

By 1910, Mexico’s manufacturing base contributed 10 to 12 percent of the national economy and employed roughly 10 percent of the labor force. Between 1876 and 1911, as more items were produced locally, consumer goods fell from 75 percent of Mexico’s import bill to 43 percent. In 1910, Mexican manufacturing produced $713 (in 1970 U. S. dollars) per worker, far above the production of agricultural workers. When the Revolution broke out, Mexico was well ahead of other Latin American nations in developing its paper, cigarette, glass bottle, and basic chemical

Industries.84

Despite its impressive gains, Porfirian industry failed to achieve the synergy found in the industrialized nations. Typically, almost everything in a factory was imported. Thus, for example, a new textile factory would incorporate imported construction materials, spindles, and looms. Only in the latter part of the twentieth century would Mexico produce the capital goods needed to construct

Factories.85

Low demand presented the single biggest obstacle to industrialization. Peasants’ low income largely excluded them from the cash economy. The oversupply of industrial labor and its repression eliminated upward pressure on wages. For individual industrialists, this meant higher profits. However, for the nation as a whole, it limited further industrialization. Despite Adam Smith’s notion of the invisible guiding hand, as historian Alan Knight noted, “Individual profit will not redound to collective development.”86