Post by Juan Ignacio Pérez Eyzaguirre (Universidad de Chile) based on the article “Industrial production in Chile during the First Globalisation (1860-1924)” published in the Revista de Historia Industrial – Industrial History Review
DOI: https://doi.org/10.1344/rhiihr.43576
The stances regarding pre-Great Depression industrial development can be encapsulated in three overarching hypotheses (O’Rourke & Williamson, 2017). Firstly, associated with the “Dutch disease” thesis, emphasis is placed on the influence of exogenous shocks on the growth of industrial production, contending that, consequent to adverse international shocks such as wars or global economic crises, economies within the region tended to undergo industrialization, whereas during periods of export expansion the converse trended to occur (ECLAC, 1969). A second hypothesis, coined as “endogenous industrialization,” regards the industrial growth of this era as a consequence of export-driven expansion (Bulmer-Thomas, 2003). Conversely, a third hypothesis associates industrial development with the enactment of proactive industry protection policies by the State, predominantly via tariff safeguards (Hirschman, 1968).
In this context, this study endeavors to assess various hypotheses concerning Chilean industrial development during the period 1860-1924, illuminated by new quantitative evidence of both aggregate manufacturing production growth and production by sector. These findings underpin the notion of endogenous industrialization preceding the Great Depression, suggesting a close linkage between industrial production and periods of expanding commodities exports, while adverse events such as the First World War are posited to have profoundly impacted the industry, with industrial production levels of 1913 only rebounding by 1941. Conversely, the outcomes suggest that industrial development policies—specifically customs reforms—may have exerted limited influence on Chilean industrial production until the late 1920s. In essence, effective import substitution is argued to have only materialized post the Great Depression.
Figure 1: Chilean industrial production, 1860-1945 (in 1909 chilean pesos)
To construct consistent series of industrial production, a distinct methodology was employed for the period 1909-1924, during which annual data on industrial production in current values were available, compared to the period 1860-1909, for which direct data on industrial production were lacking. For the former period, price indices were developed for each of the 12 sectors into which industrial production was categorized, facilitating the separate deflation of each sector. Regarding the period 1860-1909, branch and sub-branch indicators were formulated using tailored methodologies for each. In certain instances, direct information (e.g., frozen lamb meat) or the apparent consumption of specific products (e.g., flour, bread) was utilized. For another set of products and/or industrial sectors, physical import indices of raw materials employed in various industrial activities—such as sugar, beer, textile manufacturing, metalworking, printing, candle making, and apparel production, among others—were reconstructed. For the remaining industrial sectors, labor force dynamics were employed, although in several cases, an independent estimate for industrial production in the Valdivia province, where data were available, was constructed.
The results provide a close relationship between industrial production and the performance of the export sector in the period prior to World War I. In this regard, phases of industrial production growth are linked to the expansion of domestic demand, particularly to the advancement of urbanization, an indirect manifestation of export-led growth, which is consistent with other estimates made for the same period.
The research also suggests that the impact of World War I on industrial production may have been even more devastating than the most pessimistic estimates. With a decline in industrial production of over 40% between 1913 and 1914 and modest performance from the latter year onwards, it is impossible to continue arguing that the onset of this conflict marked the beginning of the import substitution industrialization process. The extremely slow recovery of industrial production after 1914 can be better observed in a long-term perspective by connecting the series with that constructed by Díaz, Lüders & Wagner (2016) from 1924 onwards; through this process, industrial production levels of 1913 are only recovered in 1941, that is, 28 years later!
The adverse repercussions of the First World War are closely linked with the traits cultivated by the Chilean manufacturing sector during the primary-export era. These include a reliance on foreign capital, technology, and inputs, alongside the presence of truncated value chains, primarily dominated by branches focusing on final consumer goods rather than intermediate goods (refer to Figure 2). Consequently, beyond the external shock’s impact on public investment and consumption, it becomes imperative to acknowledge the industry’s external dependency on infrastructure, specifically the extensive utilization of imported inputs.
Figure 2: Structure of industrial value added by type of goods produced, 1909-1924 (as percentages).
Sources: Industrial Census of 1909 and Anuarios Estadísticos of 1913, 1918, and 1924, respectively.
The underperformance of the manufacturing sector post-1914 is striking, particularly given the subsequent enactment of numerous reforms to customs. Nevertheless, a significant proportion of these duties were specific rather than ad valorem, leading to a gradual erosion of the effective protection provided by the tariffs, even amidst tariff schedule reforms. This trend is exemplified in the period between 1913 and 1921, during which the average effective tariff rate plummeted to less than half, only returning to the 1913 level by 1926 (refer to Figure 3). Consequently, characterizing this era as the genesis of import substitution industrialization is fallacious, as the elevation of effective protection levels under tariff rates only began to exhibit consistency from the Customs Tariff of 1928 onward, coinciding with the establishment of sectoral development entities like the Industrial Credit Institute. Therefore, while the industrialization paradigm indeed started to gain traction in public discourse towards the end of the 19th century and gained momentum in the initial decades of the 20th century, it did not translate into tangible industry support policies until the late 1920s.
Figure 3: Average Tariff Rate Collected on Imports, 1909-1930 (in percentages)
Source: Díaz, Lüders y Wagner (2016).
Images
Carlos Cousiño’s Beer Factory, Santiago de Chile, 1902
Sugar Refinery in Viña del Mar (Chile): Mold Section, 1902
References
- Bulmer-Thomas, Victor. 2003. The Economic History of Latin America since Independence. Cambridge: Cambridge University Press.
- ECLAC (Economic Commission for Latin America). 1969. América Latina. El pensamiento de la CEPAL. Santiago, ed. Universitaria.
- Díaz, José, Lüders, Rolf & Wagner, Gert. 2016. La República en cifras. Historical statistics. Santiago, Ediciones UC.
- Hirschman, Albert. 1968. “The Political Economy of Import-Substituting Industrialization in Latin America”, The Quarterly Journal of Economics 82(1): 1-32.
- O’Rourke, Kevin y Williamson, Jeffrey. 2017. The spread of modern industry to the periphery since 1871. Oxford University Press.
The Great Spurt 