Within the revolutionary leadership, political factions oriented toward a broad variety of urban populations prevailed, to the exclusion of campesinos, such that the development policy of choice in those critical early years after the Revolution was urbanization-led industrialization, not rural development.
Diane Davis, 1994 47
The destructive effects of the Revolution on Mexican industry were so short and mild that Porfirian industrial growth largely merged with post-revolutionary growth. Unlike the landed elite, the barons of industry remained wealthy and powerful after peace returned.48
Mexico did not take advantage of the First World War to industrialize, as other Latin American nations did, since raw material exports were booming and attention was devoted to restoring damage wrought by the Revolution. Industrialization was also delayed by the need to reestablish effective rail and banking services. Finally, even though their properties had been largely unaffected by the Revolution, industrialists remained reluctant to invest in new areas. As a result, the government stepped in as an investor of last resort to stimulate industrialization.49
To promote industry, during the 1920s the government sharply increased tariffs. Tariffs on clothing and textiles, which ranged between 40 and 100 percent, were the highest. Government-mandated subsidies for the cotton used to produce textiles provided a further incentive for production. These measures greatly increased mill owners’ profits, some of which were passed on to labor, causing the number of strikes to decline.50
During the 1920s, foreign corporate investment began to supplement domestic investment in industry. By 1929, U. S. corporations had invested $6 million in manufacturing. Such investment was favored by the U. S. State Department, which felt it would benefit the United States by permanently linking the two countries. Calles was also a strong advocate of foreign direct investment (FDI).51
One of the pioneers in Mexican industrial investment was the Ford Motor Company, which began assembling autos in 1926. Ford’s Mexico “plant” was essentially a warehouse where a few mechanics bolted together knocked-down kits. Many of the potential benefits that Mexico might have reaped from such an operation were signed away by Calles. He agreed to lower freight rates, customs duties, and tax rates for Ford and indicated that the company would have no labor problems.52
During Calles’s term, British American Tobacco and the International Match Company also began operations in Mexico. However, throughout Latin America, most U. S. firms found it easier to manufacture in the United States and supply the still minuscule Latin American market from there. As a result, in 1929, manufacturing accounted for only 8 percent of U. S. capital invested in Latin America.53
The presence of foreign manufacturers became highly controversial. Critics called such investment a “menace” to Mexico that would lead to foreign domination and corrupt Mexican culture. They felt it would be better to forgo such investment and grow more slowly, but on a sounder basis. Advocates of foreign investment felt foreign capital would create more jobs and increase wages. They felt American companies, with their enormous increases in efficiency and output, held the promise of seemingly endless improvements in material well-being.54
Up until the Depression, industrialization continued at about the same rate it had under Diaz. From 1901 to 1910, manufacturing had increased by 3.1 percent a year. From 1922 to 1935, it grew at 3.8 percent a year. Traditional industries continued to dominate. In 1926, only 0.8 percent of manufactured products were exported. Most industry remained in the hands of artisans. The average number of workers per industrial establishment was only six. As had been the case under Diaz, the government protected industry from foreign competition. With the exception of the well-organized textile industry, the government also protected industry from the unwelcome demands of labor. Industry continued to be stymied by the export-dominated economy not producing a dynamic consumer market.55
By drastically reducing the amount of foreign currency Mexico received from its exports, the Depression forced Mexico to produce what it could no longer afford to import. In addition, as President Ortiz Rubio noted in his 1930 Annual Address, he increased tariffs “to stimulate various sectors of the national economy.” The Depression shocked Mexican leaders out of thinking they could rely on raw material exports forever. To secure a reliable supply of manufactured goods, they decided they would have to produce them domestically. The fatalistic notion of “natural comparative advantage” was rejected. It became official dogma that it was not the Creator’s design that Mexico produce raw materials while other countries industrialized. Policy makers felt that with modern technology and transportation systems, Mexico could manufacture what it needed.56
One of the declared goals of the Six-Year Economic Plan for 1934—1940 was “stimulating the creation of new industries which will serve as a profitable substitute for imports, or which will permit the use of resources which are not currently used or which are being poorly exploited.” A variety of government polices stimulated Mexico’s still-weak industries. Between 1929 and 1933, the peso was devalued by 64 percent, making it much more expensive to import manufactured goods. The 1936 Law of Industrial Saturation closed entry to branches of industry with excess capacity. In 1937, there was a 26 percent tariff increase. After the 1938 oil nationalization, there was further devaluation of the peso. Government deficit spending increased the demand for industrial goods. Cardenas also granted new industries a five-year tax exemption.57
During the 1930s, other changes made investing in industry more attractive. As income became more evenly distributed, the market for locally produced goods increased. The prices of industrial goods rose more rapidly than those of agricultural goods, so landowners invested not in increasing their agricultural production but in industry.58
Between 1932 and 1940, as a result of both policy shifts and changed conditions in Mexico, industrial output increased by 6.1 percent a year, with industry for the first time becoming the most dynamic sector of the economy. With profits soaring, Mexican industrialists began to update their facilities. Output per industrial worker increased 37 percent in the 1930s. Between 1929 and 1940, manufacturing increased from 11.9 percent of gross domestic product to 24.2 percent, while agriculture declined from 23.7 percent to 14.6 percent.59
Almost all of this industrialization was financed domestically. Both the old landed classes and the new political class invested their wealth in industry. Most foreign investors remained on the sidelines while Cardenas was in office. However, General Motors and Chrysler did open plants during his term.60
World History
