Simposio 20 - Disparidades Regionales en América Latina: perspectivas históricas

The Roots of Regional Inequalities in Brazil (1872-1920)

Eustáquio Reis (IPEA)

IPEA, RJ, Brazil

Leonardo Monasterio

UFPel, RS, Brazil

18

The roots of regional inequalities in Brazil, 1872-1920[*]

1. Introduction

Brazil is one of the most unequal societies in contemporary world. The Gini coefficients of the distribution of family income per capita remained practically constant in 0.6 during the last thirty years. Regional disparities in productivity levels are one of the main factors behind income inequality (Azzoni, 1997; Barros and Mendonça, 1993). According to the 1996 Census, labor productivity in industry was four times higher than in agriculture and at least 40% of industrial employment was concentrated in the state of São Paulo with 21% in the metropolitan area of the city of São Paulo.

The secular roots of regional disparities are widely discussed in Brazilian historiography (Leff, 1991; Leff, 1972; Leff 1973; Albuquerque and Cavalcanti, 1976; Cano, 1977; Furtado, 1968; Denslow Jr., 1977; Buescu, 1979; Castro, 1977; Bértola et al. 2006). The discussion, however, ostensibly lacks an adequate analytical framework, as well as a reliable empirical basis. Statistical evidence when available is restricted to sparse data at state or macro-regional level. The sharp economic differences inside Brazilian states, not to mention regions, are completely neglected.

The paper provides historical perspectives on regional economic inequalities in Brazil. Based upon municipal data on the occupational distribution of the labor force in Census years 1872 and 1920, it analyzes the changes in the spatial concentration of economic activities in Brazil. The New Economic Geography provides the analytical framework to show how geography, technology and institutions combined to give industrial preeminence to the city of São Paulo and why the industrialization of São Paulo had limited and delayed effects in the rest of the country. The conclusion discusses research extensions.

The argument in short is that prohibitive transport costs precluded Brazilian industrialization up to the last quarter of the 19th c. when railroads were introduced. The significant reduction in transport costs brought by railroads increased the market potential of the city of São Paulo thus triggering self-reinforcing forces of economies of scale and agglomeration externalities in manufacturing activities. Other consequences of transport costs reduction were the accelerated pace of human capital accumulation brought by subsidized international migration to São Paulo. Consequences for the rest of the country were diverse. Emerging manufacturing activities outside the regions of São Paulo and Rio de Janeiro were out-competed by the reduction of transport costs. Furthermore, subsidized international immigration segmented the Brazilian labor market by delaying internal migration and inhibiting the reduction of regional disparities of wages and income.

2. Historical Perspectives

Brazilian colonial history was a succession of export booms and busts starting with Brazil-dyewood in the 16th c., sugar in the 16th and 17th c., gold and diamond in the 18th c. Economic settlement was based upon slave labor, and was mainly concentrated in a narrow strip along the Atlantic coast due to the high transport costs.

Slavery is unquestionably the most influential institution in Brazilian history. The lack of distributive policies since its abolition in 1888 left her legacies stamped in the high levels of income inequality and in the low levels of educational achievements of Brazilian society today. Evidences on the importance of slavery in 19th c. Brazil are given by the share of slaves in the total population, which was 31%, in 1819, and 15%, in 1872. The spatial distribution of this share, as presented in Figure 1, shows that, in 1872, slavery had lost much of its demographic importance in the traditional sugar cane areas of the Northeast region, but was still predominant in the coffee areas of the South-Center region, as well as in the North region.

Transport costs are – together with slavery – one of the original sins of Brazilian historical development. The adverse combination of soil relief, climate, vegetation, and hydrology made transport costs prohibitive thus retarding the development of vast areas of the Brazilian hinterland (Silva, 1949; Summerhill, 1999).

From Rio Grande do Sul to Bahia, the Sea Mountain Range with its dense rain forests, intense rain falls concentrated in the summer, and strong declivity – approximately, 1,000 m in 100 km from the seashore – made settlement in the Central Highlands hardly feasible before the gold boom in the 18th c.. Except for the São Francisco river basin, the navigable rivers of the Central Highlands run westward towards the River Plate basin with a detour from European markets thus making their routes unfeasible in both economic and political terms. In the Northeast region, the Borborema Mountain Range, poor soil and arid climate combined to make unsustainable the settlement beyond the narrow seashore strip. Finally, in the Amazon region where river transportation was available, the unbearable tropical climate and the impenetrable vegetation restricted human settlements to riverine areas (Dean, 1995; Souza 1958; Goulart, 1959).

Figure 1

Source: Processed by the authors. Base upon 1872 and 1920 Census data at MCA1872-2000 level.

During the 16th and 17th c. long course transportation system was practically restricted to Indian and African slave shoulders, as horses and carts were unfit for the strong declivities of the Sea Mountain Range. The gold boom in the XVIII c. introduced mule troops to substitute slave shoulders, but only with railroads in the mid-19th c. wheels were first used in Brazilian long haul transportation.

High transport costs and the Portuguese mercantilist policies precluded the emergence of manufacturing activities during the 18th c. notwithstanding the strength of urbanization and capital accumulation generated by mining activities. The sprawled and anemic emergence of manufacturing activities during the 19th c. can also be credited to transport costs and slavery, which restrained consumption markets, and to the low educational levels of the Brazilian labor force.

In the last quarter of 19th c. Brazilian society underwent deep transformations. The driving factors were the expansion of railroad network and the coffee boom which pushed the agricultural frontier towards the hinterland of the Center-South (Table 1). In the labor market, major changes were the abolition of slavery in 1888 and the massive inflows of subsidized international immigrants in the ensuing decades. One year later, in 1889, the centralized monarchy was replaced by a federal republic. During the 1890s, the Center-South experienced an industrial takeoff.

Table 1
Extension of railroads (km), coffee output (million bags), gross inflow of immigrants (thousand), and establishment of industrial plants, 1850 to 1930
Extension of railroads (km) / Coffee output
(million bags) / Immigrants (thousand) / Industrial plants
Period / Brazil / SP % / Brazil / SP % / Brazil / SP % / Brazil / % SP
1851-60 / 191 / 0% / 27,4 / na / 131 / 5% / 24 / 8%
1861-70 / 678 / 21% / 29,6 / na / 99 / 2% / 54 / 6%
1871-80 / 3.182 / 38% / 37,6 / 11% / 219 / 6% / 125 / 9%
1881-90 / 9.382 / 26% / 54,6 / 37% / 601 / 37% / 398 / 20%
1891-1900 / 14.512 / 23% / 80,8 / 61% / 1.143 / 67% / 924 / 32%
1901-10 / 20.576 / 23% / 136,0 / 68% / 698 / 58% / 2438 / 31%
1911-20 / 27.428 / 24% / 140,1 / 68% / 802 / 60% / 9071 / 32%
1921-30 / 31.602 / 22% / 194,0 / 57% / 840 / 87% / na / na
Fonte:
Sources: Matos Extension of railroads (km), coffee output (million bags), gross inflow of immigrants (thousand), and establishment of industrial plants, 1850 to 1931

Table 1 shows that changes were particularly concentrated in the state of São Paulo. In 1867, the inauguration of 77 km of railroad connection between the port of Santos and the city of São Paulo brought significant reduction in transport costs. Table 2 presents rough evidence in this way, showing that before the introduction of railways the higher productivity of Western São Paulo (regions west of the city of Campinas, which is located 250 km from Santos) in relation to the Paraíba Valley was practically annulated by the high transport costs of mule troops. The introduction of railroads drastically changed the competitive positions of the two coffee regions.

Table 2
Coffee yields, transport costs and farm gate receipts with mule troops (~1838) and railroads (~1867) in the Paraíba Valley (RJ) and Western São Paulo)
Mule troops (~1838) / Railroads (~1867)
Paraíba RJ / Western SP / Paraíba RJ / Western SP
Coffee yield (kg/coffee tree) / 0,34 / 0,81 / 0,34 / 0,81
Coffee export price (mil réis/ton) / 253 / 205 / 347 / 276
Average distance to sea (km) / 120 / 245 / 120 / 245
Freight rate (mil-réis/ton*km) / 0,76 / 0,59 / 0,20 / 0,20
Unit transport costs (mil-réis) / 91 / 145 / 24 / 49
Transport cost (% export price) / 36% / 71% / 7% / 18%
Farm gate receipts (mil-réis/coffee tree) / 0,06 / 0,05 / 0,11 / 0,18
Source: Ellis (1951).

The consequences of railroads were, first, a striking expansion of coffee production in Western São Paulo. In two decades, São Paulo more than tripled its share in Brazilian coffee output (Table 1) and, inside the state, the share of the Western regions increased from less than 10% in 1854 to more than 50% in 1886 (Milliet,1982, p. 21-23).

Second, the city of São Paulo emerged as the most important hub in the Brazilian railroad network (Figure 2). The old coffee areas of the Paraíba River Valley suddenly lost their competitive advantage in transport costs, and Rio de Janeiro was displaced as the geographic locus of minimum transport cost. By the turn of the century, the transport cost advantages would also materialize in the manufacturing activities.

Figure 2

Railroads - 1910

Source: Atlas Geográfico Nacional (2005)

Third, the state of São Paulo, and the city of São Paulo in particular, absorbed massive inflows of foreign immigrants in the ensuing decades. The transition to federalism was fundamental to allow the state of São Paulo more freedom and financial resources to implement bolder immigration policies[1]. From 1891 to 1906, expenditures with immigration policies in the state of São Paulo was close to 62% of the federal expenditures under the same heading. During this period, the gross inflow of immigrants to the state of São Paulo was more than 1.13 million people which compares with a state population of less than 1.4 million in 1890. The share of subsidized – as opposed to spontaneous – immigration was higher than 72%.

The massive inflow of foreign immigrants brought a solution to the acute labor shortage problem posed by the reduction of transport cost. On top of that, it brought a sudden accumulation of human capital, as well as a substantial contribution in terms of financial capital and technology. In 1872, literacy rates both in São Paulo and Brazil were 10% of total population. In 1890, literacy rates in the state of São Paulo were 42% among foreigners and 12% among Brazilians. In the city of São Paulo foreigners represented more than 20% of population. Finally, as late as 1920, literacy rates were higher than 46% among foreign-born compared to 40% among native-born; for Brazil as whole figures were 33% and 50%, respectively.

Finally, with human capital and low transport costs, the city of São Paulo reaped the benefits of economies of scale and agglomeration economies to become the largest industrial center of Brazil. In 1919, it already responded for more than 10% of the number of industrial establishments and 21% of the manufacturing labor force of the country. In both dimensions, the share of the state of São Paulo for the largest size class of industrial establishment came close to 40%.

The consequences of the reduction in transport costs for the rest of the country were quite diverse. The increased allocative and technical efficiency of the state of São Paulo outcompeted manufacturing activities in other states. From 1907 to 1919, the share of the state in the value of Brazilian manufacturing output almost doubled to approximately 32%. The main losers were the metropolitan area of Rio de Janeiro and the state of Rio Grande do Sul, which experienced reductions from 30% to 21% and from 14% to 11%, respectively (Cano, 1977, p. 251).

Furthermore, subsidized international immigration aggravated the segmentation of the Brazilian labor market by delaying internal migration and inhibiting its role in the reduction of regional disparities of wages and income (Graham and Hollanda, 1971; Graham, 1972). Figure 3 shows that the share of domestic immigration in the flow of immigrants entering São Paulo remained practically irrelevant up to the 1930s when they show a significant increase. From 1890 to 1930, approximately 2 million foreigners entered São Paulo compared to only 500 thousand Brazilians. Federalism together with subsidized international migration acted, in this way, to reconcile the diverging regional interests of Brazilian agrarian elites, thus preserving prevailing patterns of income distribution (Reis, 1979)

Figure 3

São Paulo: Number of Brazilian and foreign immigrants, 1890-1940 (in thousands)