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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
1
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.
1870-1913 (*)
1913-1955
1955-1973
1973-2002
Table 1
GDP rates of growth, dollars of 1990
Argentina Brazil Chile Colombia Mexico
5,8%
2,3% 3,3%
2,3%
3,4%
3,0%
4,5% 2,2%
4,8%
3,0%
3,8%
7,0
3,6%
5,1%
6,8%
1,0%
3,3
4,2%
3,5%
3,4%
2
Peru
5,0%
4,1%
5,1%
2,0%
Uruguay
3,9%
2,8%
0,8%
1,7%
Venezuela
2,9%
7,1%
6,0%
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 1990
Argentina 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
Argentina Brazil
1870
1
1.468
694
GDP per capita in dollars of 1990
Chile
Colombia Mexico
Peru
1.320
676 651
Rial and Klazco (1981).
3
553 (a)
Uruguay
2.106
Venezuela
406
1913
3.962
758
3.058
1929
1945
4.557
4.546
1.051
1.284
3.536
3.552
1955
5.460
1.834
1973
7.966
1985
2002
845 1672
1.024
3.197
786
1.589 1.696
2.060
1.894
1.892
1.948
3.716
3.635
2.438
3.631
3.929
2.416 2.633
2.720
5.199
6.593
3.758
4.957
3.546 4.831
4.001
5.034
9.788
7.020
4.929
5.034
4.261 6.123
3.695
5.601
8.334
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
(a) 1896
Bértola & Ocampo 2010 Table AE2 pp. 308-309.
5.454
10.619
10.278
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 years
Argentina
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.
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(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 coefficient
Argentina
Brazil
Chile
Uruguay
1920
0,512
0,321
1930
0,434
0,287
5
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
2
Real de Azúa, 1961, 1984; Reyes Abadie, et al. 1966; Rama 1987, Barrán & Nahúm 1979/1987;
Filgueira 1994, Chasquetti & Bouquet 2004; Caetano 2011, and many others.
3
The Guarani presence is still strong even today in the north of the country, and there the classic
exploitation was observable, and gave rise in due course to the Tupamaros guerrilla group.
4
José Batlle y Ordoñez is an emblematic example of this, nephew of a important aristocrat of the
Colonial period ruined by the wars of Independence.
6
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
‘The most unhappy became the most privileged….’ From the Criterio para el reparto de tierras según
el Reglamento Provisorio de la Provincia Oriental para el Fomento de la Campaña y Seguridad de sus
Hacendados, signed by Artigas in September 1815. It continues: “en consecuencia, los negros libres,
los zambos de esta clase, los indios y los criollos pobres, todos podrán ser agraciados con suertes de
estancia, si con su trabajo y hombría de bien propenden a su felicidad, y a la de la provincia”.
Subsequent political events meant this Regalamento was never implemented as such, but the point is
the unusual criteria it used and promulgated.
6
In Argentina a similar phenomenon occurred and provided an important part of the political base of
Peronism, but the domination of immigrants was not as strong as in the case of Uruguay. Argentina’s
Cuyo region had a significant population with a strong Colonial inheritance, a phenomenon absent in
Uruguay.
5
7
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
7
Batlle wanted a Collegial arrangement: the constitution introduced not this but a two-headed system
called the Consejo Nacional de Administracion (CAN) with the Consejo controlling non-traditional
areas of the state, above all the economy, and the president retaining control over the ministries of the
Interior, Defence and International Relations.
8
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.
The process of transformation began with the civil war of 1838-51, known as the
Guerra Grande. An important aspect of the war was that it led to the ruin and thus
displacement of significant numbers of oligarchic families from their traditional
livestock activities into careers in law and politics, so promoting a division between
the distinct elements of the ruling classes based in the economy and in the
professions. Once peace was established, immigrants from Europe settled in the
South-West, the most fertile region of the country. They facilitated a major change:
the introduction of sheep alongside cattle. With sheep, production per unit of land
became more intensive in both capital and labour, the latter in particular requiring
skills which only the immigrants could supply, leading to a group of better-paid
workers and thereby for a few a means of social mobility. From this period dates a
significant division of the rural economy – between the relatively modern ranches of
the south-west, with many immigrants, and the traditional North where hombres
sueltos roamed free and threatened security.9
Despite the constant threat from insecurity, this transformation now contributed to the
social base of the military government (1875-1890), which moved to install property
rights both by law and in reality, using new institutional resources, such as the codigo
rural, and techniques such as enclosures, and beginning also to introduce measures to
discipline rural workers and eliminate the hombres sueltos.
The next step was selective breeding to improve the quality of livestock: this had been
impossible before enclosure, and now led to the production of better quality animals,
for exports of refrigerated and frozen meat. The process was stimulated by the arrival
of the first meat-packing plants in Argentina in 1880.10 The transformation reached its
peak by 1910, at which point new technology was allowing the maximum exploitation
of the potential of natural pasture.
The institutional changes outlined here were promoted by the Asociación Rural de
Uruguay – ARU – formed in 1871, originating with entrepreneurs of the progressive
south-west, the shores of the river Uruguay. The Association’s agenda was centred on
At this point ‘the state’ was fragile and indeed almost non-existent so the notion of ‘the initial primary
distribution ‘ can be regarded as an acceptable simplification
9
Literally ‘free men’, these were men displaced from their livelihoods, and/or ex-combatants, living on
the edge and typically by banditry, though they supplied seasonal labour as ‘gauchos’. They owed
allegiance to no one – not landlord, church or state.
10
The first plant would not be set up in Uruguay until 1905 – it could only be profitable once the
supply of meat had grown.
8
9
property rights, the need for increased security, and increased productivity through
cross-breeding programmes and fencing.
In conclusion, as a result of technological change and the international market on the
one hand, and state action on the other, the rural economy and society in 1900 was
more unequal than in 1850, not only in income terms but also in terms of capabilities,
in the phrase of Sen. However, the state was not only stronger vis-à-vis the bandits
and rural labour force, but also vis-à-vis the rural upper class. The latter aspect was
not obvious during the military and civilian governments of the later years of the
century, when the ranchers had significant influence, but circumstances changed with
the arrival in power of a political faction interested in changing some of the
characteristics of the rural sector.
A critical moment
During the decade of the 1910s the political economy of the rural sector in Uruguay
lived a critical period which would condition developments for a number of decades.
First, by 1910 livestock production had reaped the maximum possible benefit out of
the new technology and institutional arrangements. The results were remarkable. At
the same time that the country exceeded New Zealand in the productivity of the soil,
selective breeding had also significantly diminished the difference in productivity per
unit of stock (Moraes 2008). Second, the consolidation of property rights in the
countryside and the adoption of selective breeding represented the triumph of the
programme of the ARU. The Association now became centred on conserving these
victories rather than seeking further change: indeed, in response to proposals for
change it adopted a defensive position (Barrán & Nahúm, 1967/1978, vol. 2 pp. 209
and ff).
This defensive position was understandable, given the increasingly frequent attacks
on the ARU position since 1890. In that year, an economic crisis precipitated a
controversy over the central place of the livestock sector in the future of the country.
Various actors, an outstanding one being the popular Colorado leader, José Batlle &
Ordóñez, were intent on pointing out the vulnerability of the sector to the fluctuations
of the international economy. The same critics questioned the labour market
consequences of the model, with its resulting growth in rural poverty. In addition, the
Batllistas thought that the private holding of land was illegitimate, although it had to
be accepted as a matter of fact.
Thus, at the beginning of the twentieth century, as José Batlle acceded to the
Presidency, the control of the state passed to a political group critical of the livestock
model. As a result, both the first presidency of Batlle and that of his successor
Williman – much more conservative in other respects such as labour policy – tried to
modify the rural model in favour of crop production rather than livestock. To this end
the Batllistas proposed taxes to raise livestock production costs to the point where it
10
would become profitable to subdivide property and dedicate a growing part to crops,
thus combatting both the ills they saw as central to the livestock model: livestock and
large estates (Barrán & Nahúm, 1979/87, vol 2 pp. 77ff). However, neither the
defensive anxieties of the ARU nor the views of the Batllistas actually focused on
what were in reality already the central problems: that of pasture, and the unsuitability
of Uruguay soils for crop production rather than grazing. A few were beginning to see
that pasture was indeed a relevant bottleneck, and the first efforts were made to
confront the problem with the creation of new Faculties of Agronomy and Vetinarian
Sciences at the UDELAR, the Universidad de la Republica (and the only one in
Uruguay at that date). New research institutes also came into being, created by the
state and directed by foreign scientists contracted for this purpose11. This might have
been the nucleus of a National Innovation System, with as its central figure the
economist and historian Eduardo Acevedo, minister in Batlle’s second government
(1911-1915) (Moraes 2008 pp. 152ff).
However, this was the context in which the Great War of 1914 struck the second
government of Batlle a huge blow, with various consequences. In the first place, the
fiscal crisis provoked by the War, arising from the impact on customs revenues,
destroyed the plans of the Minister Acevedo for creating a series of research institutes
to analyse among other things the issue of pasture. Faced with the fall in income, the
government cut expenditure, and 66% of the cuts affected the development projects of
Acevedo (Barrán & Nahúm 1985, vol 6 p158). So ended extremely prematurely the
first national attempt at analysing the agronomic and geological characteristics of the
country in an effort to derive long-term solutions.
In the second place, the crisis provoked by the War reinforced the government’s
conviction of the necessity for structural change to reduce the vulnerability to
international fluctuations. This consideration led the government to renew its
offensive over a land tax, which would provide a fiscal base independent of external
shocks and in addition was legitimised by Georgist ideology on the social character of
land. The measure was thus aimed at nothing less than the transformation of the rural
model.
The ranchers’ reply was not slow in coming. In a context in which high prices were
disguising the extent of the problems posed by pasture and the oligopoly of the meat
packing plants (which we explore below), the ranchers turned their guns on a
reformism which questioned the rural order. Angry at the lack of aggressiveness of
the ARU, always disinclined to active political participation, a spur was given to new
efforts at sectoral politics. The result was the birth in December 1915 of the Rural
11
Finch (1992) points out that between 1905 and 1913 at least 55 foreign scientists, mainly German
and North American, worked in the country (cited by Álvarez & Bortagaray 2007,
11
Federation of Uruguay, with the express objective of fighting the Batllista
‘inquietismo’ 12.
The Federation lost no time in becoming active in the electoral campaign for a
Constituent Assembly to be elected in 1916. The specific proposal from the Batllistas
was the creation of an electoral college with executive powers, but the election – the
first with secret vote - became effectively a plebiscite on the reform proposal. Acting
as if it were a political party, the Federation challenged the population, above all rural
workers and land owners, to vote for the candidates opposed to the College, arguing
that property rights were at stake. Together with the opposition and an element within
the Colorados opposed to the reform, they won a majority. Batllismo and its socialist
allies had been defeated. Batlle’s succesor, Feliciano Viera, called a halt to the
reforms. The Federation and other conservative elements praised his wisdom, and
Viera progressively distanced himself from Batllismo.
The following decades were to demonstrate that a solution to the problem of pasture
was extremely difficult. We cannot therefore conclude that a different political
situation would have prevented the stagnation of the livestock sector. But we can
conclude that the conjuncture of the 1910s definitely complicated the situation. The
reduced financing of efforts to find a technical solution, the illusion of prosperity
created by booming prices during the war, and the tensions between the principal
actors, ranchers and government, slowed down efforts to solve the stagnation of the
sector for half a century.
The lengthy search for a solution to the supply of pasture.
Between 1917, when the Executive commissioned the Agronomy Faculty to make a
study of indigenous plants, and 1935 when the National Commission for the Study of
the Problem of Pasture was created, there was no systematic effort towards a solution.
There were individual efforts, such as that in the mid-1930s when the firm Estancias y
Cabañas Alejandro Gallinal funded research by the national university (UDELAR).
This led to a diagnosis suggesting that the best route available was to make better use
of natural pastures. This approach reached the peak of its influence in the 1950s,
when Esteban Campal, one of the agronomy students participating in the original
work, was an under-secretary in the Ministry of Agriculture. To this end, technical
aid was sought from the World Bank and FAO, and trips made to the USA, Australia
nd New Zealand. However, the proposal for better use of natural pasture rapidly lost
weight before the alternative presented by the New Zealand assessors, who favoured
the introduction of the artificial pastures which had given their country such good
results (Campal 1969: 43).
. 258).
12
Anxiety - the expression used by the first president of the Federation, José Irureta Goyena, to refer to
the reform initiative.
12
However, the New Zealand techniques were not to give the same results. The New
Zealand solution had been developed in response to specific challenges, different
from those of Uruguay, and over a long period of research and experimentation – a
concrete solution to a specific problem and not necessarily capable of being
extrapolated to other circumstances. Thus we see a classic Hirschmanite situation: the
overwhelming authority of foreign advisers plus their ignorance of local conditions
produced a perverse result13. By the 1960s, with a countryside already depopulated,
artificial pasture, even with the help available, was giving a lower return than that of
natural pasture. People rationally chose to rent more land rather than adopt the New
Zealand solution and improve productivity. Uruguay needed to learn from New
Zealand, not the specific techniques, but the manner in which to search for a solution:
through the construction of a system of innovation for the sector.
Another negative factor was the nature of demand. Before 1930, the meat-packing
industry was heavily concentrated. Two U.S. frigorificos – Swift and Armour –
controlled some 80% of the processing. This situation of oligopoly now became
stronger, aided by the transport arrangements for meat. It must be remembered that
the refrigerator ship was the key technological innovation necessary to export frozen
and chilled meat from the Rio de la Plata: a specialised boat was needed. Competition
between the meat packing plants was limited by the fact that the transport companies
had an agreement by which they assigned quotas to different enterprises (Finch 2005).
The response to the problem of low prices in the 1920s appears to have pushed the
ranchers into accepting – or ignoring – the Batllista characteristics of the answer
found. The solution, for once agreed between government and ranchers, consisted in
the creation of a National meat packing plant – the Frigorifico Nacional, state-owned
and with ranchers represented in its directorate, which was to raise the price of
livestock through competition with the North American firms. Thus the ranchers
agreed to a Batllista solution, accepting the statism of which they had been so critical,
perhaps because in this case the institution was designed to defend their interests,
which were, in their opinion, those of the nation (Finch 2005: 147). However, the
scope for the Nacional to have an impact on the price was limited since their market
was restricted to the domestic market where they had the advantage of the monopoly
on the supply of Montevideo. The possibilities of export were limited by the shipping
quotas.
However, an even more important limiting factor, from the side of demand, came with
the 1929 world depression and the fall in prices. The resulting changes in the
international scene resulted in the Ottawa Treaty, in which Britain gave preference to
its dominions and colonies. From then on, the possibilities of export were limited to a
percentage of the sales between July 1931 and July 1932 - a particularly unfavourable
A tendency repeated often in Latin American historical political economy – and noted in the popular
song ‘Maldicion de Malinche’.
13
13
base year. As a result, Uruguay’s market share in the world meat market fell from
13% in 1924-1928 to 7,3% in 1934-1938 (Moraes 2008: 121).
In summary, whether because of transport restrictions, or, much more important, the
institutional changes in the international meat market, the fact is that demand did not
provide any incentive to resolve the forrage problem. This came on top of the
institutional problems already described. When the Second World War had an impact
on demand conditions, the problem of the shortage of pasture became
overwhelmingly evident. But, as we have seen, the technological solution adopted did
not resolve the problem. This, combined with rising labour costs coming from the
introduction of collective bargaining at the start of the 1940s, and the scarcity and
fluctuating nature of the supply of livestock, produced a serious crisis in the industry
in the decade of the 1950s (Finch 2005). Once the Korean War was over, the fall in
wool prices and the crisis which this provoked in Uruguayan exports worsened the
situation.
With so many elements, it is difficult if not impossible to decide how much weight to
give to political and technical aspects in the country’s incapacity to solve the pasture
problem through so many decades. Certainly the resolution of the problem had to
await the invention of ‘direct sowing’ – an innovation in sowing technique developed
in the US which did not break up the soil and so minimised the problem of erosion. At
the same time it is clear that the political situation did not help. In particular, the
relevant producer associations, especially the Federación Rural, and the Batllistas,
the most influential political force in the first half of the twentieth century, utterly
failed to collaborate. Both theories of technological change and historical examples
teach us the importance, may be even the necessity, of synergies between the private
and public sectors to reach an original technical solution such as that required by the
problem of pastures. Such collaboration did not occur in Uruguay, or only in tiny
instances. The most active professional association of the period, the Federación, saw
its mission only as defensive opposition to Batllista reformism. The Batllistas, for
their part, were more interested in promoting crop production than in finding a
solution to central problem of the livestock sector. This stand reinforced the position
of the livestock sector. Meanwhile, in the bitter tone and the constant lack of
confidence evidenced for example in the writings of Campal, Batllista technician and
public servant, at the beginning of the 1950s, we see how the hostility continued up to
mid-century (Campal 1969).
IV.
The urban economy and society 1930-1955: industry, labour and welfare.
In this paper we are seeking to understand the historical political economy which
shapes today’s political economy of distribution and growth. The previous section has
focused on a key element: the role of the primary sector in stagnation. We now turn to
the urban sector, and above all the emerging industrial sector. In this section we take
first the period of growth, up to the mid-50s. First we give an overview of policy from
14
the 1930s through to the 1950s, as it affected the urban sector in our areas of interest –
growth and distribution. We next look at outcomes: the growth of industry to the point
where it became the motor of growth for over two decades. We explore the results of
wage policy in the growth of wages, and the intangible but crucial side of the spread
and entrenching of practices of clientelism. In the following section we document the
subsequent slow-down of industrial expansion and analyse the growing chaos leading
to the coup of 1973.
Stimulus to the urban economy and increased protection for industry and for labour.
Uruguay’s early growth of industry pre-1930 was already high for such a tiny
economy, stimulated by the early Batllista policies of development of infrastructure,
the immigrant demand for manufactures, and revenue tariffs which adjusted relative
prices (Finch 1981, p162). By the time of the Depression of the early 1930s,
conservative elements had taken over the reins of government with the electoral
victory of President Terra in 1931 and his coup of 1933.14 But it is all part of the
paradox of Uruguay that even a government soon strongly opposed by Batllista
elements, still accepted an ample role for the government, in infrastructure, public
works and even an empresarial role.15 The emblematic case of the latter was the
creation of ANCAP in 1931, a state enterprise for the commercialization of fuels, and
production of alcohol and cement (Jacob 1983). This sense of an underlying
consensus, even though formal opposition could be vocal, led a later analyst to
describe ‘Terrismo’, as it became known, as ‘Batllismo para tiempos de crisis’ Batllismo for crisis times (Filgueira 1994, p38).
‘Terrista’ policies favoured traditional export interests; however, as elsewhere in
Latin America at this time, policies also aided the incipient industrial sector, even if
without deliberate intent. The first measures aimed at survival faced with severe crisis
in the balance of payments were those common throughout the continent: devaluation,
cessation of debt service, control on capital flows and restriction of imports. All this
indirectly helped the urban economy. Less orthodox was the raising of taxes, the
expansion of public works, and the creation of ANCAP as early as 1931. In 1934 the
unemployed were aided with food handouts in order ‘to pass a winter with out
hunger’ (Jacob 1983 p105). Public spending on social aspects as a proportion of GDP
was kept at the increased level of the 1920s. The most significant measure of
Terrismo from our perspective was probably its enlargement of the social security
system, incorporating workers in industry and commerce into the pensions system.
Social security as a proportion of public social spending rose from some 40% in the
1920s to 60% a decade later (Azar et. al. 2009, Table VI).
Real wages fell, however, as a consequence of the combination of the crisis, the
measures taken in response, and political realities. Unemployment weakened the
ability of the workers to resist wage cuts both in the private and public sectors, while
In fact the process of ‘acercamiento’ and incipient search for consensus began as early as 1916, with
the defeat of the first Batlle government. Batllismo had to learn to negotiate with conservative elements
of the Colorado Party in order to sustain its role and influence in the all-important Consejo Nacional de
Administracion (CNA, formed in 1919 through negotiation in the Constituent Assembly and designed
to create a double-headed Executive Power, with the Consejo controlling non-traditional areas of the
state, above all the economy, and the president retaining control over the ministries of the Interior,
Defence and International Relations).
15
Terra had himself been a member of the Batllista group and was elected as such in 1931.
14
15
the new political orientation led to repression of a union movement already weakened
by ideological divisions (Jacob 1983, Porrini 2005, pp. 132-135).
With the return to democracy with the new constitution of 1942 and the election in
1943 of a Batllista President, Juan Amézaga, and with the recovery in international
prices of Uruguay’s leading exports with the war, the new government took further
the protection of industry, using differential exchange rates and import quotas, as was
the common practice in Latin America in the early post-war period. It also opened a
new period of preoccupation with the quality of life of workers – already the subject
of a special study in 1939 by a parliamentary commission at the insistence of the
communist deputy Eugenio Gómez.16 The vision was that the state was a necessary
agent to bring into equilibrium the asymmetry in power between employers and
workers. The key symbol and instrument of this vision was the law for the creation of
Councils to negotiate wages and salaries and also ‘asignaciones familiares’ or child
benefits, a curious conjunction but one reflecting the need to bring together the
agendas of social democracy on the one hand and the Catholic Church on the other.
The law was approved in the same year with little opposition (Finch 1989, Bertola
2004). The law created tripartite councils for each sector covered,17 with
representatives of the state, the employers and the workers. The councils began work
in 1944 after elections to choose the worker representatives. The first task was the
definition of sectoral minimum wages.
The outcomes.
We look at outcomes in terms of growth, distribution and the evolution of a
particularly important informal institution, that of clientelism. The share of the
industrial sector in GDP is shown in table 6. Before 1930 the sector was already
unusually significant. An authoritative estimate puts the share for 1913 at 11% of
GDP in a market of some 1,7 million people, many of whom were far too poor and
distant to participate (Bértola 1991 Table IV.3). But the undoubted motor of the
economy was the primary sector (Bértola 2000). Uruguay despite its small size was
now to join the larger economies of Latin America in that the industrial sector would
take a leading role (Bértola 1991, Bertino et al. 2003). Between 1930 and 1959 the
manufacturing sector grew at 4,4% a year, while GDP grew at 2,2%. In more detail,
between 1930 and 1943 industry grew at 3,1% while GDP virtually stagnated at 0,1%.
Between 1943 and 1954 industry grew at 8,4%, and GDP at 5,7% (Bértola 1991: table
iv.4). In the first period growth was a response to the diversion of demand and the
policy stimulus with the various measures responding to the crisis which we outlined
above. In the second period manufactured foods in particular benefited from the rise
in external demand, further assisted by the state with the use of differential exchange
rates and exemptions.
The strength of Uruguayan democracy was evident in its acceptance of the communist party – illegal
in most countries in Latin America in the 1940s.
17
As yet important sectors were not included: the public sector, rural and domestic workers.
16
16
Table 6
Percentage share of value added in manufacturing in the GDP (a)
1935
1940
1945
1950
1955
1960
Argentina
22
24
26
24
25
27
Brazil
14
16
17
20
21
25
Chile
17
17
22
22
23
24
Perú
14
15
14
15
16
17
Uruguay
21(b)
17
18
20
23
24
Venezuela
15
15
12
13
14
Fuente: MOxLAD.(http://moxlad.fcs.edu.uy/index.php), constant prices of 1970
(a) We have not given here the earlier data for Uruguay cited in the text, as we wished
to present only strictly comparable figures.
(b) Exaggerated by the fall in GDP of this year
Turning to wages and distribution, it seems clear that the Councils played a significant
role in the marked increase in real wages up to 1955 shown in table 7 (Bértola 2004,
Notaro 2011), and that government representatives played an important part in this,
especially during the Presidency of Luis Batlle Berres18 (Lanzaro 1986). Social policy
in broad terms was also strengthened, with a strong increment in social spending as a
proportion of the total, as we see in table 8 (social security rose at the expense of
health and education) and food subsidies were increased. Table 9 puts Uruguayan
social spending in a comparative perspective, and shows its very high level by the
1950s.
Table 7
Real Wages. Five-year average. Index 1930=100
Period
Index 1930=100
1920-1924
81
1925-1929
93
1930-1934
105
1935-1939
99
1940-1944
95
1945-1949
107
1950-1954
132
1955-1959
134
1960-1964
138
1965-1969
130
1970-1975
119
Source FCS-UDELAR Banco de Datos de Historia Económica
http://www.fcs.edu.uy/categoria.php?CatId=111
Nephew of José Batlle y Ordóñez, and central protagonist of the period known as ‘neo-Batllismo’.
The conclusion on the role of government representatives is based on the fierce criticism coming from
business of the outcome of the councils’ deliberations, which was systematically an increase in real
wages.
18
17
Source:
Social
Social
spending/ spending/
total
gross
Year
public
domestic
spending
product
(%)
(%)
1910
21,00
2,40
1920
32,60
2,80
1928
46,70
4,50
1938
47,70
7,20
1942
43,80
6,80
1947
45,30
5,80
1955
61,80
10,00
1968
63,60
14,00
Based on Azar et. al. 2009 Cuadro VI
Social
security/Gross
Domestic
Product
(%)
Education/
GDP
(%)
Health/ GDP
(%)
1,00
1,06
1,89
4,54
4,55
3,83
6,50
8,55
1,04
0,91
1,28
1,56
1,32
1,22
1,66
3,08
0,34
0,73
1,28
0,86
0,93
0,75
1,16
1,25
The result was an improvement in income distribution. The Gini coefficient fell from
0.46 in 1930 to 0.38 in 1960 (Table 4 above). The wage councils not only pushed up
the wage level, but they reduced differentials between employees, and diminished the
gender gap, introducing a maximum permitted gap between the wages of men and
women in the same category – measures which it appears were effective (Bértola
2004, 2005; Maubrigades & Camou 2009, Camou 2010).19
Table 9
Public social sector spending as per cent of GDP
1950-1959
Argentina
Education and
Social
Health
security
1,9
0,9
Brazil
E+
SS
H
0,8
2,2
Chile
E+
SS
H
3,5 9,7
Colombia
Uruguay
Venezuela
E+H
SS
E+H
SS
E+H
SS
0,9
0,6
3,6
7,3
2,2
0,6
8,4
4,1
1,1
1960-1969
3,1
2,3
1,0
3,1
4,6
11,9
1,7
2,0
5,0
1970-1979
3,7
4,6
2,3
6,4
6,7
7,1
3,6
2,1
4,9
9,2
5,3
1,1
1980-1989
5,6
6,4
3,0
6,9
6,1
8,1
4,8
2,2
4,6
10,5
5,9
1,6
1990-1999
6,6
9,1
5,9
7,8
5,5
7,4
5,5
3,6
5,3
12,2
5,0
2,3
2000-2006
7,1
9,8
6,5
9,9 6,7 6,9
5,2
5,8
6,9
13,0
6,7
2,4
Source: Data base built by Azar, P. y Fleitas, S. (2012) with data from the UN Yearbook, Government Financial
Statistics (IMF), World Development indicators (World Bank), local sources.
While at least in the short term the growth and distribution outcomes were positive
(we come in the next section to the period of renewed stagnation), there was another
side to the story which was not healthy: the evolution of the institution of clientelism.
What began in the Batllista thinking and desires as the righting of an asymmetry
between labour and capital, and recognition of rights of marginalised categories,
became all too easily in practice, without proper accountability, a source of ‘booty’ –
diverse privileges for sale for political allegiance. At bottom lay a naiveté as to the
state which characterised the whole of Latin America at this period (for example it
runs through the early thinking of the Cepalistas). Even had the need for
19
The evidence on the gender gap is based only on two large firms, but each was dominant in its sector
(Swift in meat-packing and Campomar in textiles). (Maubrigades & Camou 2009, Camou 2010).
18
accountability to control a system of benefits, licences and subsidies been recognised,
would the state have had the competences and institutional quality to manage it? It
would have required huge leadership and vision, as well as investment in the tools of
accountability.
Without this, both the expanding industrial sector and the growing social security
system became rife with clientelism. The seeds were there in the 1931 creation of
ANCAP. The agreement reached between the Batllistas and the independent Blancos
specified that for every five functionaries appointed, the Batllistas would name three
and the Blancos two. A graphic picture of how the pension system was affected
comes from an article written in 1965, which explains how each form requesting, say,
an early pension20 had to be passed by some six sections of the ‘Caja’ responsible for
the sector, and each time the paper would only navigate to the top of the pile as a
‘favour’. One favour was only sufficient for one hurdle. The functionaries treated
their offices as political clubs, and the director of a caja would typically have at least
ten secretaries to deal with all this work. The article cites the former director of the
Caja de Industrias, Juan Carlos Fures, as having had no less than 44.21
By such means the notion of the state as protector was being extended. In the first
epoch of Batllismo the state was seen as ‘the shield of the weak’. Gradually now the
state became the protector of all who sought it, but as part of the political game. For
example the policy of ‘anticipated pensions’, payable before their due date, put in
place in the 1930s to assist the unemployed, now continued in a context of full
employment (Filgueira 1994). Every need, from a telephone to a pension, was easier
to obtain with the support of an influential politician of the ‘correct’ party. By the
1950s, clientelism had simply become the ‘normal’ method of obtaining benefits from
the Batllista system. (Rama 1971, Panizza 1990. Clearly, such a situation benefits
those best placed to articulate their demands, and in the ‘correct’ manner. And
rapidly, subsidies were being given in accordance with the level of costs – any idea of
encouraging improvements in productivity seems to have been completely absent.
There were technical people pointing this out, who went unheard.22 It became
completely normal for laws and decrees to be passed favouring individual enterprises.
Rama documents that between 1925 and 1978, 71 foreign trade regulations were
approved to benefit a single textile firm, and 39 to benefit one firm in the rubber
20
For example, someone who had never worked could apply for a pension if he or she could produce
an acceptable letter showing that he or she was a person with a profession – eg tailor. Or a woman with
children could apply after ten years of work.
21
Marcha no.1260, 25-5-65. Marcha was the principal current affairs journal of the time.
22
Zurbriggen (2006 p. 109-110) contains the testimony of a former functionary who had the task of
determining the exchange rate for the various manufacturing export industries: “The Banco de la
Republlica had no explicit criterion for defining the exchange to be used by firms exporting national
products. The legislation was typically modified to suit particular situations or the national interest.
The mechanism for fixing the rate for wool or meat lacked any discrimination, whereas for
manufacturers the arrangement was personal…..We would visit the exporting firm and analyse its
costs of production … we would add 10% and that was the basis for the exchange rate allocated….one
of my first tasks when I joined at the end of the 1940s, was to analyse the costs of three firms
producing leather handbags…. The least efficient gained the most, since the margin for all was
10%….the employees saw very well the absurdity of the situation and people often sent memos to
management…I sent a memo and got no reply, and that was not the first time that happened.”
19
products sector (2003 p. 96). Many of the regulations were designed explicitly to
benefit just one firm.23
The financing of all this was possible because of the buoyancy of international prices
for Uruguay’s products. Specifically, the fund created to manage exchange scarcity in
the 1930s – the ‘Fondo de Diferencias Cambiarias’ now became awash with money,
its resources growing at an annual rate of 34% between 1945 and 1951. The
expenditure from the Fund rose in the same period from 6% of all public expenditure
to 22%, and was used for a wide range of subsidies and benefits. In the process the
state became every day more a prisoner of particular interests – business, unionists,
politicians, bureaucrats (Rama 1990, Oddone 2010, Zurbriggen 2006, Panizza 1986).
It will be obvious that such a situation was not sustainable, and it is to the unravelling
of the whole story that we now turn.
V. Crisis at the end of the period.
Foreign Exchange Crisis, Stagnation and Inflation
As so often in the history of the entire continent, the exhaustion of a particular
development ‘line’ happened abruptly via the external sector. Table 10 shows how the
terms of trade turned around in the second half of the fifties with the fall in export
prices, and continued unfavourable for the next two decades. The immediate crisis
led to political change, with the election of 1958 which saw the Partido Colorado lose
to the Partido Nacional and a new grouping, the Movimiento Nacional de Acción
Ruralista. A major change of policy followed. The key step was the Law of 1959,
enacting devaluation, the elimination of multiple exchange rates, and to compensate,
rises in import tariffs. The latter was intended to be temporary, since the package was
intended as a move towards more market friendly policies. However, there was no
response to the new policies. The depth of the supply-side problem has been indicated
above. The fall in international prices was now aggravated by these structural issues,
with the failure to resolve the crisis in pasture and rising labour costs. The processing
of exports also fell; for a time import-substituting industry sustained the rate of
growth of the industrial sector but by the sixties the stagnation of incomes and the
reduced capacity of the country to use export revenues to subsidize industry, both
directly and through protection, led to a recession here too. And a continuation of
import substituting industry to the point of international competition would in any
case have required technical capacities and scales of production which did not exist.
Rama cites the following paragraph from a resolution approved in 1937: “With respect to the papers
relating to the application for a new valuation for Saccman ceramics, and taking into account that Sr.
Horacio Acosta y Lara, owner of the national firm making the product, has requested an increase in the
valuation, and considering that the low price on the basis of which the tariff was fixed affects adversely
his interst and puts him at a disadvantage with respect to the foreign competition…..”
23
20
Table 10
.GDP
Industry,
average
Change in
.Terms of
average
annual
consumer
trade
annual
growth rate
price index
(1913=100)
growth rate
by period
(%)
(%)
(%)
1920-1924
60
2,32
6,00
-0,48
1925-1929
81
3,13
5,97
0,03
1930-1934
66
-2,42
-0,11
-1,34
1935-1939
101
3,32
7,14
2,07
1940-1944
91
-0,15
1,79
3,25
1945-1949
87
4,85
8,01
8,95
1950-1954
105
5,63
9,49
8,57
1955-1959
71
-1,53
-0,12
17,44
1960-1964
84
0,43
1,41
27,17
1965-1969
71
0,18
0,38
73,11
1970-1975
75
1,27
1,35
58,20
Fuente: Banco de Datos de Historia Económcia. Facultad de Ciencias
Sociales – UDELAR http://www.fcs.edu.uy/seccNUA.php?tipoSecc=11
The consequence of stagnation was a sharp distributive battle. Exporters were
strengthened in their bargaining position by the scarcity of foreign exchange and used
strategies such as withholding stocks, or the forbidden practice of exporting cattle on
the hoof to Brazil, to press for devaluation. When devaluation came in 1962 it spurred
inflation. The unions were still increasing their power, culminating in 1966 with the
formation of the Central Nacional de Trabajadores (CNT). The result was that
inflation became the prime distributive mechanism, with a high fiscal deficit as part of
the circularities, while lack of investment opportunities and unstable relative prices
led to capital flight and increased speculative activities. Banks diverted funds to
consumer finance, which helped sustain the spiral (Cancela & Melgar 1986; Astori
2001).
The lack of employment opportunities served to increase clientelism around public
posts – to the point where in 1960 the poet Mario Benedetti described the country in a
famous phrase as ‘una gran oficina pública’. “It doesn’t matter that there are also a
few waiters, farm workers, port workers, a few timid smugglers. What really counts is
the mental framework of Uruguayans, and this is that of the public sector office
worker.”24 Even with ample allowance for poetic license, this is graphic. The total
number of people dependent on the state for their livelihood rose from 16% of the
population in 1955 to 25% in 1969 (Rama 1990, table 5.3).
“Si mi intención fuera dar a este capítulo un color satírico, tendría que empezar diciendo que el
Uruguay es la única oficina del mundo que ha alcanzado la categoría de república…. El Uruguay es un
país de oficinistas. No importa que haya también algunos mozos de café, algunos peones de estancia,
algunos changadores del puerto, algunos tímidos contrabandistas. Lo que verdaderamente importa es el
estilo mental del Uruguayo, y ese estilo es de oficinistas.” Mario Benedetti, en El País de la Cola de
Paja (1960). (“ If my intention were to give a satirical flavour to this chapter, I would have to begin by
saying that Uruguay is the only office in the world which has reached the status of a
Republic…..Uruguay is a country of bureaucrats. It doesn’t matter that there are also a few waiters,
farm workers, port workers, a few timid smugglers. What really counts is the mental framework of
Uruguayans, and this is that of the bureaucrat.”
24
21
Seeking a New Solution: contested alternatives and the victory of authoritarianism
There was of course some sensitivity to the need for deeper solutions. It was now that
the New Zealand solution to the pasture problem was attempted – unfortunately, as
we have argued above, a misdirected effort at attacking a structural problem. A more
well-founded effort was the creation of CIDE, the Comision de Inversiones y
Desarrollo Economico – a public policy initiative, formed in 1960 as a Planning
Institute and hugely influential in its search for consensus around a progressive
agenda of planning, land reform, tax reform and education reform, all directed at
securing funds under the Alliance for Progress (CIDE 1963, 1966, Iglesias 1966,
Garcé 2002). CIDE was the peak moment of ‘developmentalism’ in Uruguay, with the
creation of a National Plan. But the Plan, while formally accepted by the government,
led to little real implementation (Garcé 2002).
The common perception was that the plan failed in part because of the growing
polarization of the country, which led eventually to the emergence of the guerilla
movement, the Tupamaros, and savage repression. Strikes and social disorder were
growing, leading to two major events coinciding with the election of 1966. First was a
reform of the constitution giving more power to the president, and second the victory
of the Partido Colorado, this time with a retired military, Oscar Gestido, who died
after one year in office, leading to the assumption of power by Jorge Pacheco Areco
and a distinct shift to authoritarianism. This began with the shutting down of various
newspapers and journals, and in 1968 to the suspension of basic rights under a state of
emergency. Reinforced by this, two weeks later a drastic freeze of wages and prices
was announced (Cancela and Melgar 1986, 40-41), opening a period of serious social
polarization and political violence, as guerrilla activity increased and the use of
torture became a regular occurrence.
Meanwhile, between one extreme and the other, the traditional parties of the left
negotiated alliances with elements of both the two main parties, initiatives which
would in 1971 result in the formation of the Frente Amplio. However, in that same
year, and following a massive escape of Tupamaros from gaol, Pacheco ordered the
Armed Forces to confront the guerrillas. This it did, with notable and terrible success,
but the continuing unrest led to the Coup of 1973 and the dissolution of parliament.
Much has been written on the period covered in these two sections. As will be clear
from our own analysis, we have found particularly fruitful the stress by both Martin
Rama and Gabriel Oddone on the quality of institutions and the way the state was coopted by particular interests. However, placing the analysis in its long-run context
leads us to balance such a neo-institutionalist analysis with an emphasis on the
underlying structural problems originating in Uruguay’s severe dependence on the
international market, the obstacles constraining both supply responses within the
sector and diversification, and the political economy emerging from the export
structure and demographic and social features, as well as specific historical events, a
political economy which led to an export sector with very limited penetration into
policy-making.
What we also perceive is another negative point – what did not happen, which was the
kind of prioritization of capabilities and technological development which could have
opened up possibilities outside the rural sector. This was unlikely in the wider Latin
22
American context of the time – but Uruguay actually reduced its spending on R and D
in this period, and its numbers of graduates. Government spending on R and D as a
percentage of total public spending was 0.2% at the end of the 1950s, lower than in
the 1920s. The number of university graduates in engineering was 6% of the total
number of graduates in the 1950s and around 8% in the 1920s (Hernandez and Rey
2009 tables 16 and 17).
VI. Summary and conclusion on the challenges of this political economy
We have told two intertwining stories of the ‘shaping’ of the political economy of
growth and redistribution in Uruguay before 1970. The first concerns the society’s
‘propensity for redistribution’. This had its structural roots in the colony and the
underlying characteristics of geography and demography. Although the history of the
country was hugely influenced by the political and social vision and leadership of one
man – José Batlle y Ordoñez - the strength of impact of his mission and drive was
made possible by structural characteristics, by the demographics of a small highly
urban population and the impact of this on the cohesion of the labour force. Urban
wage earners constituted a very high proportion of the population, an overlapping of
interest which persisted even once some growth of informality and underemployment
began. The urban political and technical elite lacked a base in land holding, while the
important livestock sector shared a growing sense of alienation from government,
adopting a defensive role rather than seeking constructive change. Space was thus
created for Batlle to lead a party – the Colorados – without heavy political ties to the
economic elite. And Uruguay’s immigrants, though not the most educated of their
home countries, were typically more skilled and better educated than the local
population, so lifting education levels. These factors together provided a political base
quite unlike that of Argentina, where despite some similarities to Uruguay (relatively
high income, education, levels of urbanisation and immigration, early power of
unions) fragmented elites in conflict over relative prices asserted their political
leverage and led to divisiveness. Once Perón assumed power, the divisiveness was
taken to a high level.
The second concerns the export economy and the kind of interests it generated. The
interface with the evolving state and policy making was, in most LA countries, crucial
for the political economy of policy making. The countries most effective in
industrialising at an early date and moderating the typical perversities of importsubstituting industrialisation – Brazil, Chile, Colombia – had export elites that played
contrasting but largely positive roles in constructing a political economy to support
diversification and the move to a new and more complex model of growth. In Brazil
and Colombia the coffee sector was domestically owned, and coffee merchants sought
domestic opportunities for the investment of surplus: this gave them from an early
date an interest in industrialisation and in controlling and moderating the policy biases
in protectionist policy via the exchange rate and tariffs and resulting inefficient
industrial production. In Chile, the very exclusion of business elites from the principal
sector, copper, gave them an interest in diversification and the rationalisation of
protectionist policies which was able to build on relatively efficient institutions dating
from the nineteenth century. None of that happened in Uruguay, where the export
elite made little effort to penetrate the policy making process, for reasons we have
explored above. Meanwhile tiny size made the contradictions of excessive protection
‘bite’ all the harder.
23
Thus once the external market produced crisis in the export sector by the mid-1950s,
the options were very constrained and the policy competences were limited. The
propensity for equity however had allowed collective bargaining and strength to
unions. But redistribution without adequate re-shaping of underlying structures
proved unsustainable. The economic and political chaos led to a change of
government but no effective new direction, and in 1973 to a military coup and a sharp
swing to neo-liberal policies. With the coup, the Batllista project of a ‘model
country’ came to a tragic end – the result of the failure of the country and its elite to
transform the structural characteristics which made Uruguay extremely vulnerable to
changes in international conditions over which the country had no control. When
conditions had been favourable, the country proved incapable of taking advantage.
The problem was institutional weaknesses making the state a prisoner of
particularistic interests both corporate and political. Moreover the leadership lacked
the information, technical capacities and rigour necessary for the creation of ‘high
quality’ public policies. These lacks were due at least in part to the characteristics of a
distributive model which favoured benefits and the whole system of lavish ‘early
pensions’ – often unjustified – over education and complex investment in
technological capacity. It was a distributive model that favoured today without
recognition of the fact that tomorrow does indeed come.
It is critical to get right the attribution of credit and blame in the period where
redistribution is boldly attempted and the effort collapses in inflation, stagnation and
social disorder and terrible repression. Today a bold progressive government is
reviving the redistributive agenda and it is crucial to learn the lessons from this
previous attempt. We conclude with a strong statement: the ship came to shipwreck
for many interacting reasons. Fundamental to the disaster was the structural
vulnerability to international prices, unresolved over many decades, where supply side
obstacles prevented both expansion of the traditional exports and diversification into
other options. Then, the problem was not redistribution per se, but redistributive
policies practised in a context of institutional weakness, lack of transparency and
monitoring, and at a time when clientelism was rife, generally in Latin America.
Unthinkable at the time were the policies which might have rescued the model and
allowed space for redistribution with growth: investments in technology and
capabilities, and in an energetic search for ‘niche’ markets. Instead the country saw
the crazy policies to ‘help’ industry which have been documented, policies which
were not part of redistribution, but meant that the industrial sector could only
aggravate stagnation, once the scope for subsidy came to an end, so deepening the
distributive conflict, ‘resolved’ by inflation and leading to understandable social
disorder. In all this the absence of export elites with an interest in and capacity for
overseeing and constructively reshaping policies was notable – another ‘structural’
element that contrasted with experiences such as Brazil or Colombia.
24
APPENDIX
Principal political periods, 1903-1973
1903-1916
1916-1933
1933-1942
1942-1958
1958-1967
End of the phase of civil wars. Batllismo, led by its founder (José Batlle y Ordóñez), is
the dominant political actor and launches a reform project with the object of constructing
a ‘model country’. The viability of the project is threatened by the effects of the 1914-18
war, and Batllismo launches an offensive seeking new forms of financing. In 1916 the
party is defeated in an election for the Constituent Assembly. Following this there is a
halt in the reforms, but they are not dismantled.
Birth of political democracy with the Constitution of 1919. Batllismo finds that it has to
negotiate with more conservative sectors of its own party (the ‘Colorados’) in order to
prevent the victory of its traditional opponent: the Partido Nacional or ‘Blancos’. No
major reforms are carried through (except the efforts of the ‘second Batllismo’ 19311932); however, social spending rose.
The Terrista period: President Terra, chosen by the Batllistas, leads a coup against them
in 1933, backed by conservative sectors of his party (the Colorados) and the Partido
Nacional. A new constitution is adopted (1934) with corporatist influences coming from
Italian fascism. The system of social security is expanded to include workers in industry
and trade. Terra is succeeded in 1938 by his brother-in-law Baldomir, who in 1942
effects a further coup in order to reform the terrista constitution of 1934, opening the
way to a restoration of democracy.
NeoBatllista period. Luis Batlle is its principal figure. During these years the economic
and social role of the state grows in a marked way. A deliberate policy of
industrialisation is followed and the ‘Consejos de Salarios’ are created in 1943. During
the presidency of Batlle Beres (1947-1951) real wages grow and inequality falls. In 1952
a new constitution is adopted, creating a ‘Colegial Executive’, the original project of José
Batlle y Ordóñez, defeated in 1916.
Disenchantment with the final years of the neoBatllista government – marked by
stagflation – lead to the Partido Nacional gaining office in 1958 (in alliance with a new
political force, ‘ruralismo’) the first time in almost 100 years. Two periods of
government by the Blancos now follow, with different orientations in terms of the
economy. The first is liberal (1958-1962), the second ‘desarrollista’ (1962-1966). Neither
succeeds in controlling inflation or recovering growth. Stagflation plus the international
context feed distributive conflicts. The formation of the ‘Central única del trabajadores’
(CNT) en 1966 strengthens the unions. Armed movements of the extreme left start to
appear, as yet not in significant strength (the Tupamaros).
25
1967-1973
Constitutional change. The colegial form of the Executive is abolished and
Presidentialism adopted. Social polarization grows. The president dies in 1967 and the
Vice-President, Jorge Pacheco Areco, assumes office. Within a short space of time he
closes down the left-wing press. Six months into his office, he names a cabinet of
entrepreneurs and in June 1968 he takes emergency powers and shortly after, freezes
prices and wages. The wage councils no longer meet. Social conflict grows: student
deaths follow demonstrations against the emergency powers (1968) and the common
practice of torture in police stations is confirmed by a parliamentary investigation.
Guerrilla activity grows. In 1971 the Frente Amplio is formed, a coalition of left-wing
groups opposed to the government. Pacheco’s group wins the election in that year and
Juan María Bordaberry takes office, son of a former president of the Federación Rural,
supporter of terrismo and founder of the ruralista movement. In 1973, with the backing
of the Armed Forces Bordaberry dissolves Parliament and instals the ‘dictadura cívico
militar’.
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