AnalysesNorth & Latin America

The Continental Mine: How exploitation turned Latin American richness into a curse

by Lorenzo Vasquali
written by Lorenzo Vasquali 10 minutes read

By Lorenzo Vasquali, Analyst KEDISA

 

Spanish expeditions first hit the Americas in 1492, when Christopher Columbus landed in the West Indies. Soon after that Spaniards started ravaging the land with steel and gunpowder, smallpox epidemics swoop the continent; and the indigenous population became slave to the Crown of Castile. Like mosquitoes looking for blood, Spaniards cursed Latin America with an infection they would never get rid of: the seed of exploitation.

In 1519 Cortés sacked Tenochtitlan, Mexico. Valuables were immediately taken, gold artifacts were fused into ingots to be shipped back to Spain and, within the following two years, the mighty Aztec empire had fallen to the hidalgo and his men, who then proceeded to divide land and indigenous people among themselves to employ them for labor, a system known as encomienda. De Ayolas perfected the extractive technique in 1537, when he came to meet the Guarani up the Paranà River (Paraguay) and started replacing their elites by forcefully marrying into them. The Guarani, being sedentary and agrarian, were the epitome of what the conquistadores were looking for: rich and dense populations that could be exploited through their own social hierarchies and brought just above survival, extracting as much value as possible. In 1569 Francisco de Toledo stepped even further, reorganizing indigenous people of the Andes in villages called reducciones (reductions), spread over a thin line of territories, where they had one purpose only: mine all the silver they could out of the mountains for their encomenderos[1]. These institutions (encomienda, mita, repartimiento, trajin) plagued the New World and, in the words of Acemoglu and Robinson, “though [they] generated a lot of wealth for the Spanish crown and made the conquistadores and their descendants very rich, they also turned Latin America into the most unequal continent in the world and sapped much of its economic potential”.

The system was originally meant to export the existing ruling system of European feudalism, establishing a social contract where encomenderos provided protection and education, while the natives paid a tribute to the Crown in the form of metal, labor and agricultural products, but encomienda’s horrors and abuses were denounced as early as 1515[2] and they left the region inevitably scarred forever. However, early applications of encomienda go back to the Reconquista of the Iberian Peninsula, where Moors were allowed to keep residing within the recaptured confines of Spain at the price of a (heavy) tax. As a consequence of this, the southernmost part of Spain was forced to redirect high percentages of the value produced in the region towards the monarchy in the capital, and, when the Crown of Castile started to confiscate lands from Muslim feudal lords to redistribute them to Christian nobles, the process of diversion of resource from the region and to the center became even more prominent[3].

Andalusia kept being one of the wealthiest regions of Spain as long as Spain kept being one of the wealthiest and most influential nations in Europe, but as the country lost importance on the international scenario so did Andalusia. Most overseas trade came to be controlled by other parts of Europe until, eventually, even the trade monopoly with the colonies was lost, leaving the region to rely only on its agricultural sector, crippled by the heavy feudal heritage. When in the 19th century the Industrial Revolution lead the western world into modernity Andalusia was able to employ its agricultural potential to start exporting food, but it remained traditional and displayed a deep social division between a small class of wealthy landowners and a population made up largely of poor agricultural laborers and tradesmen. Meanwhile, the North of the country was developing its industries and its wealth soon started to dramatically leave the southern provinces far behind[4][5]. Finally, when Franco installed a military regime and the Spanish Civil War broke out, Andalusian main cities and industrial districts were bombed and seized within the first few days of the conflict. The armed repression was also particularly bloody in the region, hindering the key production factor for agriculture: labor. In addition, Andalusia and the southern region of Spain experienced a major fall back in literacy and overall education with comparison to the capital and the northern provinces, by 1930 these regions ad an average degree of literacy lower than 50%, while the northern counterpart averaged around 70%. To this day, scars of this negligence are still very much visible, with all the southern regions averaging around €9,000 a year in income per capita, while the capital and the North well exceed €12,000[6].

Similar patterns of regional exploitation, lack of industrialization and overdependence on agriculture can also be observed in other developed countries. The United States of America and Italy are two such examples. In the US, following the end of the civil war and the beginning of the so called “Reconstruction Era”, reintegration became a tumultuous affair for Confederate states. The Union burdened the historically agrarian South with highly extractive institutions such as martial law, heavy property taxes and land redistribution, were these taxes not paid. In most cases this ended up favoring northern investors, as the lower strata of society simply did not have the money to buy confiscated properties[7]. As a result, industrialization was delayed in States such as Arkansas, Mississippi and Alabama and yet the region has far smaller output capabilities than its northern counterpart[8].

Italy followed a similar course just around the same period: in 1850 differences in development and economic prowess between the North and South of the peninsula could be explained as a result of regional administrative policies, and GDP per capita levels were comparable between the two regions. However, following the Unification at the hands of the Kingdom of Sardinia in 1861, tax rates were decided by the northern elite, who was less concerned with the southern citizenry’s welfare and appropriated from the South relatively more than the southern elite could under autarky. Interests in fortifying the northern industry, and Turin with it, ultimately played an important role in shaping the gap existing in the peninsula[9].

Since a pattern of correlation is emerging from these findings, and causation, if partial, seems to be within the realm of possibilities, it is worth noting that some countries in Latin America experienced an extended period of and cultural dynamism. In fact, contrary to presented evidence about extractive institutions, between 1600 and 1780 some of the Spanish colonies experienced jumps in real wage per capita to such an extent that, by 1700, real wages of unskilled laborers in Mexico and Perù were very similar to those in Madrid. Other major indices of economic development, such as the urbanization rates, literacy and numeracy confirm this picture. However, in the case of Mexico and Perù, data indicates economic trends extremely reliant on mining operations, with expansions and contractions in the overall economies following such trends[10]. Furthermore, investments in human capital were seriously limited and could never really keep up with countries in the Old World. Joerg Baten and Jan Luiten van Zanden (2008) found a very strong positive correlation between investments in human capital (estimated as book production per capita) and per capita GDP growth during the nineteenth-century “Great Divergence” [11]. When in the 1780s bottlenecks related to the factors of production of the mining and agricultural sector arose these two countries fell drastically behind very fast, the Wars of Independence did the rest.

As for the other colonies and Latin America as a whole, by 19th century the institutions of colonial exploitation still existed either in their original forms or in modified versions that better suited the elites. In other words, the elites were content with how the Spaniards ruled and the population had no mechanism to free themselves: exemplary case of Rentier Effect. When Napoleonic wars struck Europe, many colonies thought to seize the opportunity of a weakened Spain and declared independence but, as a result, new governments became even more tyrannical over the population. Military coups succeeded one another, political instability led to insecure property rights which, in turn dramatically hindered economic development [12].

Bibliography

Primary Sources

Other Sources

[1] Casual Scholar, “Why Is Latin America Still Poor,” YouTube Video, YouTube, January 6, 2022.

[2] “Life in Encomienda – Women & the American Story,” Women & the American Story, June 9, 2021.

[3] “Mudejar | Spanish Muslim Community | Britannica,” in Encyclopædia Britannica, 2022.

[4] “Economic Integration and Industrial Location: The Case of Spain before World War I on JSTOR,” Jstor.org, 2022.

[5] Guillermo Esteban-Oliver, Adrià San José, and Jordi Martí-Henneberg, “Heritage as a Source of Studies into Industrial History: Using Digital Tools to Explore the Geography of the Industrialization,” Frontiers in Digital Humanities 4 (October 4, 2017.

[6] Daniel Caballero, “De Norte a Sur: La España Autonómica de Ricos Y Pobres,” abc (ABC.es, October 27, 2019.

[7] Guilherme de Oliveira and Carmine Guerriero, “Extractive States: The Case of the Italian Unification,” SSRN Electronic Journal, 2017.

[8] Jeff Desjardins, “Interactive: Visualizing Median Income for All 3,000+ U.S. Counties,” Visual Capitalist, August 22, 2017.

[9] Oliveira and Guerriero, “Extractive States”

[10] Leticia Arroyo Abad and Jan Luiten van Zanden, “Growth under Extractive Institutions? Latin American per Capita GDP in Colonial Times,” The Journal of Economic History 76, no. 4 (November 17, 2016): 1182–1215.

[11] Joerg Baten and Jan Luiten, “Book Production and the Onset of Modern Economic Growth,” ResearchGate (Springer Verlag, February 2008).

[12] Casual Scholar, “Why Is Latin America Still Poor,” YouTube Video, YouTube, January 6, 2022.

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