Chapter 8

THE MEXICAN REVOLUTION OF 1910:

ADVENT OF NATIONALIST ECONOMICS IN LATIN AMERICA

I N 1910 a revolution occurred in Mexico that would have far reaching consequences not only in Latin
America but also for what is now known as the Third World. The economic system that emerged
from the revolution would serve as a precedent for many nations which acquire their independence
after World War II.

The Mexican Revolution had the distinction of being the first revolutionary upheaval in the 20 th
century. It antedated the Russian Revolution by seven years. Unlike the Russian Revolution, however,
which was inspired by a communist vision of Karl Marx, the Mexican Revolution was a “nationalistic
upheaval which emerged from a Mexican situation and which was met essentially by the ideas and
methods derived Mexican experience.

The Revolution was directed not against capitalism but against tiny ruling elite, made up of the
landlord class, the church, and the military and foreign capitalists, all of whom had supported a
dictatorship for 30 years. It was led by democratic and nationalistic forces bent on “Mexicanizing”
Mexico, democratizing her oligarchic socio-political economic structure, and modernizing her economy
through industrialization.

Mexico had wage a revolutionary war for independence in the early 19 th century but, over time,
she came to be ruled by a succession of unstable, short-lived government until the dictatorship of
Porfirio Diaz who ruled for thirty years.

Diaz pursued a ways of contemporary dictators who preserve themselves in power by pandering
to the interest of powerful elite and foreign capital. While he succeeded in bringing to Mexico a period
of political stability and a measure of material progress, his was a regime which excluded the masses
from the process of decision-making and kept them impoverished. “The foreigners”, according to the
description of the Mexican society during the Diaz dictatorship, “were siphoning off the wealth, and in
the process, the nation’s resources lost their nationality.’ The description continues to say that “the
foreigners were not only exploiting Mexico but enjoying influence greatly out of proportion to their
numbers.”

Thus, on the eve of the 1910 Revolution in Mexico is deeply relevant to our study of nationalist
economics because it marked a new phase in the evolution of economic policies under the impetus of
nationalism.

In our discussion of the U.S. and Germany during the 19 th century, we noted that both countries
the principal thrust of their development policies was towards industrialization, and that this goal was
promoted, fostered and nourished by, among others, protecting domestic industries from the import
competition of foreign goods. The state consciously intervened in the market by placing hurdles in the
flow of imports through tariffs and imports prohibition. But it stayed out of industrial ventures.
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In the case of Japan, a new dimension of nationalism economics was introduced. There the state
played the role of an industrial pioneer and public entrepreneur by putting up industries which it own
and managed. But that policy was not a permanent one. The state eventually privatized its industries by
selling them to private business as soon as the latter demonstrate a readiness to operate as, and to
assume the function of, an entrepreneur. As such, the state role in Japan was essentially that of an
industrial pioneer. As soon as the pioneering function ceased to be necessary, the state withdrew from
direct ownership and operation of industries.

In the case of Mexico, however, state ownership of the means of production was an intrinsic
part of an economic philosophy which held the state to a primary responsibility for the progress of the
nation and to a continuing role as a leveling or equalizing force in the society. From the outset, the
Mexican Revolution spurred the idea that the State must stay out of business and that business must be
left to private sector. Business and industry were to become the active and continuing concern of both
the public and private sectors.

In this respect, Mexico’s mercantilism had more in common with description of mercantilism of
France during the time of Colbert in the 18 th century than with the mercantilism of Hamilton, Bismarck
and the Meijis.

Meanwhile, it is important to note that the Mexican Revolution pioneered in what is now known
as “mixed economic system”. It is a system characterized by the active co-existence of the state and
private capitalist in a common role as entrepreneur and operator of business enterprises. In this sense,
it may be describe as one which combines features of the capitalist and socialist systems. This particular
aspects of Mexico’s revolutionary philosophy stemmed from the fact that the Revolution was move as
much by a passion to see the state function as an equalizing factor in society as it was by the passion,
shared in common by economic nationalist, to see the state become as strong and powerful as possible.

The case for permanent role for the state as an economic activist was summed up by Mexican
academician who described what he thought were the “essential characteristics of the Revolution.”
These were: To entrust to the State, and not individual nor to private enterprise, the promotion of the
general welfare of the country; to make this general welfare the principal or only goal of the action of
the state so that its economic and technical resources as well as its moral influence would be used to
better the lot of the farmers and laborers, the teachers and the bureaucracy, and so forth.

It is not surprising, therefore, that Mexico’s mercantilism or economic nationalism, resulted in

virtually the same network of elaborate controls and regulatory restraints that characterized France
during the administration of Colbert in the 18 th century.

The following description gives the reader am idea of the government presence in the Mexican
economy and its role in the decision process:

The government is absolutely crucial in deciding who gets short-term and long-term
credits. It has the ability to encourage what it considers productive investment and choke-off non
productive investments. Any relatively large-scale Mexican entrepreneur must spend much of its
Chapter 8
time going through government channels for credits. There are in contemporary Mexico,
pervasiveness and vigor of governmental activity. What amaze me as an outsider, and other
observers, is the high degree of particularity and discrimination with which the financial tool
applied. They review every product, every project, every industry, and it is hard to see any
general government rules for those who does or does not get funds

Such an arrangement certainly violated the very soul of classical and laissez-faire economics
whose adherents could only have nothing but a bleak economic prospect for the revolution.

What actually were the results of Mexico’s revolutionary economics?

One of the most comprehensive works on economic development is the book by Benjamin
Higgins, professor of Political Economy at the University of Montreal. This book, described as a “classic
text in economic development”, has this to say about the impact of Mexico’s nationalist revolutionary
policies:

A typical underdeveloped agricultural country at the turn of the century, Mexico is now
well on the road to becoming an industrialized nation. Much of this transformation has taken
place in the last 4 (four) decades. It is in large measure the result of conscious policy is the fruit of
an unusually happy marriage between vigorous private enterprise and government initiative,
guidance and control.

An aforementioned comment is contained in Professor Higgins’ 1968 revised edition. Today 20

years after, Mexico ranked with Brazil as the leading economic power in Latin America. She and Brazil
are so strong that they can defy the U.S. government and their international creditors.

Another authority is even more specific. He says:

For the vast and growing body of Mexicans, the gratifying results of nationalist economic policy
are reflected in rising standards of living, more and cheaper food, wider job opportunities, and other
tangible benefits that seemed quite improbable in 1910 and still beyond their grasp as late as 1940….

Describing the impact of mixed economic system in terms of fact and figure, Higgins says that:

The result of the constellation of policies, measures, and events has been an
extraordinary high rate of growth, accompanied by an equally rapid structural change. Between
1939 and 1945, total output increased at an average rate of 8 percent per year. Since then the
rate of growth has tapered off somewhat, to an average rate of 6 percent per year. Since the
population is growing by some 3 percent per year, some figures correspond to an annual growth
of per capita income to about 5 percent during the war years and about 3 percent since….Thus,
Mexico is one of the few countries in Latin America to have achieved the target rates of growth
laid down by Alliance for progress.

There was another aspect to the nationalist economics of Mexico’s Revolution which, even more
than the system of a mixed economy which it launches, created a precedent that continues to have
Chapter 8
world-wide reverberations. This was the exercise by the state of its sovereign right to expropriate
foreign owned asset and enterprises.

Under the presidency of General Lazaro Cardenas, who assumed office in 1935, the Mexican
government expropriated assets and industries owned by foreign capital. Among these were lands,
railroads and mines, but the most important was the oil industry. These expropriations of the foreign-
owned oil industry created tremendous furor and carried wide international complications. These
expropriations led to an international boycott of Mexico, but the Mexican government remained
unfazed and undaunted. The boycott, far from disheartening and cowing, the Mexicans and their
government, only spurred them to further defiance, galvanized the national spirit, and unified the
people. As Higgins put it:“contrary to expectations, and indeed contrary to the objectives of the boycott,
it served as a further impetus to Mexican development. For the boycott compelled the Mexicans to
redouble effort to manage their productive assets themselves.”

Professor Frank Tannenbaum, a highly regarded expert on Mexican studies, and professor
emeritus at Columbia University, was even more explicit:

The answer that came from General Cardenas to the oil companies’ defiance of the
government was as dramatic as it was unexpected. To the Mexicans it meant that at last –at long
last—they were no longer afraid of the United States. They were free to breathe in their own
country. They have challenged the ever-present ogre and nothing happened. The exultation that
flooded the Mexican people, from the humblest Indian peasant who brought a chicken and some
eggs to the president to help pay for the oil wells, the bishop and the priests who permitted the
faithful to take up collection in front of their church doors for the same purpose, united the
nation for the first time in history. It was a symbolic dispersion of the threatening cloud that had
hung over all Mexicans, rich and poor, conservative and radical, humble Indian and aristocrats. If
one is to mark a date in Mexico when the nation felt itself in possession of its own house at last,
it was the day of the expropriation of the oil wells.

The precedent that the Mexican government established in expropriating foreign assets would
become a feature of nationalistic programmes of various Latin American government and Third World
states, notably in the Middle East, after World War II. The action of the Venezuelan Government in
Venezuelizing the oil industry is one example, and so was Egypt’s nationalization of the Suez Canal under
Nasser.

The Mexican revolutionary programme introduced a very substantial and precedent-setting

principle in the strategy of strengthening the state, and that was for the state to use its political power
to check economic power of foreign capital, even if this entailed expropriating the latter.