Working paper no.?:
The Political Economy of (Re)distribution with Low Growth:
Uruguay 1900 to 1973
Javier Rodriguez Weber and Rosemary Thorp
This paper aims to analyse the political economy setting of modern Uruguay in historical terms, as an input into the Leverhulme-funded project on ‘The sustainability of recent improvements in equity in Latin America’. The project has as one of its main contentions that current work on this recent phenomenon has neglected the political economy of this process, crucial for evaluating political and economic sustainability. In general, to understand the political economy of a country we believe in the importance of history: in the case of Uruguay, we find it particularly important that today’s policy and business attitudes, the shape of many institutions and many structural characteristics of the economy can only be understood in terms of Uruguay’s rather unusual past, and exploring that is the central goal of this paper.
In seeking to understand the widespread phenomenon of improvement in the distribution of income in the last decade or so in Latin America, Uruguay has a special and challenging place, given its long history of relatively good distribution in Latin American terms and a remarkably long period building and sustaining an exceptional welfare state and strong union structure. But its growth record was also tragically slow through several decades, and the favourable trend in equity was eventually reversed. Today, however, the country has joined the ranks of the fast growers of the first decade of the twenty-first century – and, if belatedly, is also showing a return to its old pattern of improving equity. It therefore raises particularly interesting issues for the project. Why the stagnation, and was it causally related to the policy efforts to improve distribution? How come such a steady progress in distribution and welfare terms was possible? Backed by what kind of political economy? What does this analysis teach us about the likelihood that today’s improvement can be sustained and do the lessons suggest questions for our other case studies? Or do our other studies suggest aspects that contain lessons for Uruguay?
In this paper we take the story up to the civil-military dictatorship which took power in 1973 and produced a severe rupture in the political economy of the country as well as in all social and political relations. A second working paper will take the analysis up to the present day. We hypothesize that in order to understand today, we need to start by building a clear historical political economy. We find that some defining characteristics of the export sector and its relation to the rest of the economy were already laid down by the path of the nineteenth century, and important characteristics were already in place affecting the potential for growth or lack of it. Given the characteristics we explore below, the initial distribution of income in the years following Independence was probably less unequal than was typical of Latin American countries at this date, but the distribution worsened as the production structure shifted in response to the world market. But the early history of the Republic also fostered a ‘social propensity to value relative equity’ which has marked out Uruguay (and continues to do so despite the rupture of 1973, which created more inequality). The support for a welfare state and a degree of progression in the income distribution has accounted over time for less inequality than in most other Latin American countries.
The challenge is to understand the political economy both of growth, or its absence, and redistribution. We show in this paper that in Uruguay the economy and society endured a long period of stagnation, which finally resulted in a huge political shift and a radical change of model, ending for a period of several decades the tendency to an improving distribution, the latter driven, we will argue, largely by policy choices and against the productive structure. We shall explore how various elements interacted: the resource endowment, the international market, the political strategies and choices of the traditional export oligarchy, and the policy choices of the urban-based actors who opposed them. All these combined to shape a pernicious dynamic pushing the economy towards stagnation.
The first and second sections provide the necessary background for this analysis. Section I discusses the ‘exceptionality’ of Uruguay in terms of the post-Independence structure of the economy and its twentieth century evolution. Section II takes up a different and crucial aspect of exceptionality: the ‘propensity for relative equity’. The roots of aspects of the political economy go far back: we show briefly how the nineteenth century already shaped actors and possibilities, taking 1850 as our starting point, then trace more fully the twentieth century story. Section III explores the political economy of the traditional export sector and its relations with the rest of the economy. Section IV explores the political economy of the post-1930 period, with significant efforts at industrialisation, and Section V explains the crisis which erupted at the end of the period. Section VI concludes with a summary in comparative perspective and a reflection on the challenges posed.
Section I. The evolution of growth and distribution over the century.
In this section we map out the evolution of the economic structure, documenting the important elements we need in place for the rest of the paper. We begin with the economy and with demography. We can identify at least seven elements of the productive and demographic structure where Uruguay is an outlier in Latin American terms. First, while GDP growth was rapid and well on trend for Latin America between 1850 and 1930, the stagnation of the economy was pronounced from the mid-50s up to the Dictadura, and to the mid-80s. As many countries struggled with the debt crisis and structural problems, Uruguay ceased to be unusual. In GDP per capita terms the stagnation was complete after the mid-50s (table 2), with a negative per capita growth of 0,2% 1955-73.
Table 1
GDP rates of growth, dollars of 1990Argentina / Brazil / Chile / Colombia / Mexico / Peru / Uruguay /
Venezuela
1870-1913 (*) / 5,8% / 2,3% / 3,3% / 2,3% / 3,4% / 5,0% / 3,9% / 2,9%1913-1955 / 3,0% / 4,5% / 2,2% / 4,8% / 3,0% / 4,1% / 2,8% / 7,1%
1955-1973 / 3,8% / 7,0 / 3,6% / 5,1% / 6,8% / 5,1% / 0,8% / 6,0%
1973-2002 / 1,0% / 3,3 / 4,2% / 3,5% / 3,4% / 2,0% / 1,7% / 1,7%
(*) Peru 1896-1919
Source: calculated from Bértola & Ocampo 2010 Table AE1 pp. 306-7
(Bértola & Ocampo have corrected Maddison’s data).
Table 2
GDP per capita rates of growth, dollars of 1990Argentina / Brazil / Chile / Colombia / Mexico / Peru / Uruguay / Venezuela
1870-1913 (*) / 2,3% / 0,2% / 2,0% / 0,5% / 2,2% / 3,7% / 1,0% / 1,5%
1913-1955 / 0,8% / 2,1% / 0,6% / 2,5% / 1,1% / 2,4% / 1,2% / 5,2%
1955-1973 / 2,1% / 4,1% / 1,3% / 2,2% / 3,4% / 2,2% / -0,2% / 2,2%
1973-2002 / -0,4% / 1,3% / 2,6% / 1,4% / 1,3% / -0,1% / 1,1% / -0,9%
(*) Peru 1896-1919
Source: calculated from Bértola & Ocampo2010 Table AE2 pp. 308-9.
A second distinguishing characteristic of Uruguay is its relative wealth, particularly unusual given its small size (a population of 132,000 in 1850 while its neighbour Argentina had eight times as many people – Sanchez-Albornoz 1986). GDP per capita in 1990 dollars (with all the problems of comparability this involves) puts Uruguay at the level of Argentina at the end of the nineteenth century, after which Argentina moved ahead, but even by 1973 Uruguayan per capita income was greater than that of five out of the seven largest economies of the region (table 3). This reflects its high degree of urbanisation at the beginning of the twentieth century, its third element of exceptionality – already more than half the population lived in towns. By the middle of the twentieth century, Uruguay was the most urbanised country in Latin America – 78% urban in 1950 compared with 65% in Argentina, 58% in Chile and 36% in Brazil (Merrick 1994). From an early date the country was strongly centred on its port and capital city, Montevideo, with many immigrants – in 1860 48% of the population were foreign (Pellegrino 2010 table 2). The first figure for the urban population is 1908, by which time the most conservative estimate available (cities over 2,000) is 46% of the total, with Montevideo alone having 24% of the total population of the country.[1] At the turn of the century a figure for cities over 20,000 gives Argentina as 24% urban, a figure matched just by Montevideo in the case of Uruguay. By 1930 when comparable figures are available, the urban population is 35% (cities over 20.000), only exceeded by Argentina at 38% (Merrick 1994 p31).
Table 3
GDP per capita in dollars of 1990Argentina / Brazil / Chile / Colombia / Mexico / Peru / Uruguay / Venezuela
1870 / 1.468 / 694 / 1.320 / 676 / 651 / 553 (a) / 2.106 / 406
1913 / 3.962 / 758 / 3.058 / 845 / 1672 / 1.024 / 3.197 / 786
1929 / 4.557 / 1.051 / 3.536 / 1.589 / 1.696 / 1.892 / 3.716 / 2.438
1945 / 4.546 / 1.284 / 3.552 / 1.894 / 2.060 / 1.948 / 3.635 / 3.631
1955 / 5.460 / 1.834 / 3.929 / 2.416 / 2.633 / 2.720 / 5.199 / 6.593
1973 / 7.966 / 3.758 / 4.957 / 3.546 / 4.831 / 4.001 / 5.034 / 9.788
1985 / 7.020 / 4.929 / 5.034 / 4.261 / 6.123 / 3.695 / 5.601 / 8.334
2002 / 7.120 / 5.471 / 10.514 / 5.360 / 7.127 / 3.892 / 7.000 / 7.543
2008 / 10.977 / 6.423 / 12.979 / 6.737 / 8.038 / 5.454 / 10.619 / 10.278
(a) 1896
Bértola & Ocampo 2010 Table AE2 pp. 308-309.
Urbanisation and small size together meant a small rural population in absolute numbers. Although the majority of rural workers were extremely poor, their low absolute number meant a structure of production and income where classic rural poverty did not weigh heavily. This combined with the food and labour market characteristics described in section 2 to shape a relatively equal income distribution in Latin American terms at the start of our analysis: the fourth exceptional characteristic. Distribution worsened as the production structure shifted in the second half of the nineteenth century, as we discuss in section 2 below. Uruguay was however still some 10 points of the Gini coefficient below Argentina, Brazil and Chile by 1890 (table 4).
Table 4
Income distribution: Gini coefficient (a). Selected yearsArgentina / Brazil / Chile / Uruguay
1890 / 0,574 / 0,514 / 0,521 / 0,424
1900 / 0,459 / 0,457
1910 / 0,521 / 0,472
1920 / 0,574 / 0,597 / 0,577 / 0,464
1930 / 0,482 / 0,591 / 0,638 / 0,465
1940 / 0,508 / 0,584 / (b) / 0,455
1950 / 0,400 / 0,578 / (b) / 0,438
1960 / 0,419 / 0,572 / 0,462 / 0,380
1970 / 0,361 / 0,628 / 0,460 / 0,363
1980 / 0,411 / 0,584 / 0,532 / 0,406
1990 / 0,437 / 0,605 / 0,551 / 0,416
2000 / 0,504 / 0,612 / 0,552 / 0,433
FUENTE: Bértola et. al 2011 and information supplied by the authors.
(a)As is well known, comparison of income distribution between countries and over time present enormous difficulties. These figures should only be taken as suggestive.
(b) Preliminary work by Rodriguez Weber indicates that in Chile inequality declined between 1935 and1945 and was stable in the following years, except for a fluctuation associated with an inflationary period 1952-1960.
With urbanisation and the tiny indigenous and rural populations went early progress in education and health: the fifth element of exceptionality. Table 5 shows Uruguay with an education Gini already higher in 1870 than Chile. Measures of life expectancy do not go back to that date in Latin America, but by 1950 Uruguay has the most favourable data (table 5) . These aspects lead to a sixth element: the size of the early slow down in population growth. Between 1850 and 1900 population grew at 4% a year, a combination of immigration and a high natural rate of growth, exceeding even Argentina. Between 1900 and 1930 the rate of growth of population fell to 1.9% - the biggest fall recorded. In the Southern Cone only Chile was now lower, at 1.3% (Merrick 1994 p122).
Table 5a
Distribution of years of education: Gini coefficient (a)Argentina / Brazil / Chile / Uruguay
1870 / 0,455 / 0,443 / 0,382 / 0,428
1880 / 0,460 / 0,447 / 0,407 / 0,425
1890 / 0,465 / 0,449 / 0,432 / 0,418
1900 / 0,478 / 0,452 / 0,457 / 0,412
1910 / 0,480 / 0,454 / 0,473 / 0,405
1920 / 0,460 / 0,455 / 0,475 / 0,391
1930 / 0,422 / 0,453 / 0,437 / 0,364
1940 / 0,382 / 0,455 / 0,389 / 0,347
1950 / 0,335 / 0,454 / 0,365 / 0,334
1960 / 0,308 / 0,447 / 0,336 / 0,317
1970 / 0,285 / 0,425 / 0,277 / 0,292
1980 / 0,271 / 0,406 / 0,249 / 0,267
1990 / 0,249 / 0,316 / 0,232 / 0,245
2000 / 0,235 / 0,274 / 0,220 / 0,225
Table 5b (a)
Distribution of Life Expectancy: Gini coefficientArgentina / Brazil / Chile / Uruguay
1920 / 0,512 / 0,321
1930 / 0,434 / 0,287
1940 / 0,419 / 0,252
1950 / 0,197 / 0,326 / 0,287 / 0,187
1960 / 0,173 / 0,284 / 0,268 / 0,169
1970 / 0,155 / 0,248 / 0,217 / 0,167
1980 / 0,130 / 0,196 / 0,134 / 0,147
1990 / 0,116 / 0,170 / 0,108 / 0,125
2000 / 0,101 / 0,145 / 0,091 / 0,118
Source: Bértola et. al 2012, and information supplied by the authors.
(a) Such data may be used for comparisons with more confidence than the previous table
The seventh in our list of exceptions concerns the trade structure and the vulnerability it brought. A trade structure which had worked well in the nineteenth century (Uruguay’s meat could arrive in the British market before New Zealand’s) became less favourable with transport improvements, and by the 1930s Uruguay was already marginal to the UK’s trade in meat. The Ottawa treaty of 1932 gave a strong preference to the British Dominions. Such marginality was not exceptional; indeed it was common to many, particularly the smaller countries of the region: what was exceptional was Uruguay’s marginality in relation to her close competitor, Argentina.
II. The propensity to value equity.
The exceptionally favourable outcomes we have here described in welfare and distribution all helped to reinforce the Uruguayan sense of pride in difference in regard to equality, which brings us to our final element of exception: the propensity to value equity. Uruguay has been extremely unusual in Latin America in the twentieth century in this regard. Only Costa Rica has had anything approaching the unusual set of values and political choices observable in Uruguay. This characteristic has been much reflected upon and analysed. Summarising a rich literature,[2] we can say that Uruguay’s colonial experience was distinctive, the territory being of little interest to the colonisers, with no mineral resources, and having a small indigenous population.[3] At Independence the country was left thinly populated and the population was unusually white and relatively free, given the almost non-existent reach of the state and the lack of feudal labour relations. It had a poor and relatively weak colonial aristocracy, who suffered severely in the Independence Wars and became early on the basis for the professional and political elite we highlight in the next section, without the base in land which elsewhere characterised the early post-Independence political elites.[4] Land was distributed rather freely following Independence, and every primary school child in Uruguay today learns that in1815 Artigas signed a Reglamento Provisorio providing for a land distribution in which ‘los más infelices fueran los más privilegiados …..[5] The relative absence of an indigenous population sharply distinguished by racial and ethnic characteristics was significant: in the embedding of inequality in much of Latin America the overlap between class, wealth and skin colour cemented the rigidity of the exclusions even after the early colonial view of race no longer prevailed.
The result was on the one hand a relatively independent rural population, unusually homogenous, with food, some access to land and free of the authority of ‘patrones’ typical of the Mancha India. On the other hand, the dispossessed rural elite now found its way in urban professions – journalists, writers, lawyers, politicians – and was relatively independent of the traditional export interests. Come the 1870s, the military took control of government and the state, to enforce a state presence that took authority over the population – and in that degree aided the land-owning elite that still remained – but also took its distance from such groups. From the 1880s the civilian governments that took over had their roots in the urban-intellectual groups that had significant autonomy from traditional rural oligarchies. At the same time immigration multiplied by eight the population of Uruguay and represented the highest rate of European immigration in Latin America in the second half of the nineteenth century. The weight of immigrants in the population was significant, as immigrants tended to be less bound by traditional values than the native-born population, and to be more in favour of merit and equality of opportunity.[6]
This was the seedbed – the fertile terrain – for a set of values unique in Latin America, which in due course allowed the emergence of the remarkable leader, José Batlle y Ordoñez, with his subsequent domination of the Uruguayan political scene. His first government took office in 1903, and even today, some consider that the government of the Frente Amplio is rightly considered ‘the third Batllismo’ (see table 1 of the Appendix for an account of the governments and policy regimes over the twentieth century).
Batlle was without doubt ‘exceptional’ in his own right, and his individual role is widely recognised, but structural features allowed the emergence of Batllismo and facilitated it having a role far beyond the person. What Batlle did was to push the specifics of a social justice agenda in a competent and compelling fashion: early legislation followed on education, universal suffrage, the defence of women, children and the elderly, and Batllista governments even struggled with the imposition of taxes on inherited wealth and property. The latter point is telling: the Batllista value was for equality of opportunity, so Batlle did not wish to tax earned income, but unearned and inherited wealth. The egalitarianism thereby fostered saw equality as deeply rooted in democracy. Social legislation was always aimed at creating responsible and informed citizens – for example legislation on the eight-hour day was motivated by the desire to leave time to allow people to inform themselves as citizens and participate in civil affairs.
A significant event for Batllismo was the defeat at the polls in 1916. This taught the Batllistas a lesson about the need to negotiate towards consensus. The 1919 constitution encapsulates the heart of the Batllista agenda though it did not accept all Batlle’s programme;[7] it was a result of negotiation and agreement between parties, but still embodying the tight connection in Batllismo between fairness and democratic values.
It is argued today that over time there was a negative dimension to the propensity for equity: a society relatively uninterested in change and innovation. To innovate to stand out, to be different; this is not ‘a good thing’. Whether this today is a key ‘exceptionality of Uruguay’ in the Latin American scene is a matter for a different research. We only argue here that this last exceptionality has been of huge significance for the political economy of the country over time. We begin to demonstrate this in the next section with an account of the political economy of the rural sector, and in section IV the urban economy and society.
III. The political economy of agriculture and the principal traditional exports 1850-1950.
In this section we explore the role of the agrarian sector and Uruguay’s main primary exports in the forces leading to eventual stagnation, the political economy behind such forces and the consequences for income distribution. Income distribution may be thought of as ‘primary’ and ‘secondary’, where secondary reflects policy actions, though the distinction becomes blurred in a dynamic setting, since past policy in part shapes the present so-called ‘primary’ distribution of income. However, if we adopt the normal convention of a somewhat arbitrary ‘starting point’[8], both initial primary distribution and growth can be said to be shaped as of the start of our period by resource endowment, the international market and the historical legacy of factors such as land holding and labour relations coming out of the colony. The mid-nineteenth century found Uruguay with an economy and society hardly egalitarian but more equal than, say, Mexico or Brazil or any of the Andean countries. The possibility of relative equality was driven by the fact of virtually free food in the rural sector, and by the prevalence of violence: meat was a by-product of the production of hides and virtually a free good, and problems of security meant that many hands were useful as guardians if not producers. Between 1850 and 1905, however, a transformation occurred in the sector. In this transformation, three aspects were intertwined and interacting. First, there was a sharp increase in the productivity of natural pasture, for reasons we explore below. This allowed the traditional pattern of Uruguayan development to become firmly entrenched. Second, with this went an increase in the social divisions characterising the country. And third, these two changes together had political consequences. We now explore these three themes together. We conclude that at this period increasing inequality was being driven by shifts in the primary distribution, but such shifts were aided by aspects of policy – the use of force and the building of infrastructure.