MEXICO, GREAT DEPRESSION IN

The Great Depression had a profound and long lasting impact on Mexico's economy and society. Proof of this is the drastic redirecting of the Mexican government's economic, labor, and social policies in the 1930s from an essentially passive view of the responsibility of the state in economic matters to a direct commitment to promote growth. Mexican foreign policy also experienced a marked change during this decade. In particular, the nation's relationship to the United States made a 180-degree turn towards friendship, in contrast to the open hostility that prevailed in the 1920s.

The Great Depression in the United States was to the New Deal what Cardenismo was to Mexico. The term Cardenismo is associated with the period (1934–1940) in which Lázaro Cárdenas (1895–1970) served as president of Mexico. Cárdenas led the nationalization of the foreign owned oil industry in 1938, fomented a radical agrarian reform, encouraged the creation of national industrial unions, and promoted socialist public education. Most of these measures had been fought for during the Mexican Revolution of 1910 to 1920, but they had only been partially and timidly put into practice. In a sense, the impact of the Depression operated as an accelerator of the revolution itself.

From a Latin American perspective, the impact of the Great Depression in Mexico did not reach the dramatic character of Cuba's or Chile's experience. Those countries suffered more because of the extreme dependence of their economies on a single raw material, sugar in Cuba and copper in Chile. For Latin American countries, the "merchandise-lottery" of their typical exports, as the economist Carlos Díaz Alejandro put it, explained a lot about the performance of their economies as a whole. Mexico, like Brazil and Argentina, and to some degree Colombia, Peru, and Costa Rica, implemented programs of import substitute industrialization, processes that accelerated during the isolationist period of World War II and continued well into the 1960s.

In Mexico, the Great Depression had lasting effects in various key areas of the national economy: agriculture (particularly in regions linked to production for export); mining; various branches of manufacturing, especially the textile industry; and the reorganization of labor markets, especially with regard to the dislocation caused by unemployment and waves of migration, both internal and external

ECONOMIC DECLINE

Measuring the Mexican gross national domestic product (GDP) during the 1930s reveals little about the dominant economic situation because a large amount of the economic activity was not officially recorded, as in the case of subsistence agriculture, which did not follow the commercial channels. Nonetheless, the domestic product, as recorded, had negative growth figures between 1928 and 1939: -3.33 percent in 1929, -6.77 percent in 1930, and a surprising -16.22 percent in 1932. In the early 1930s, approximately one-fifth of the domestic product was composed of goods relating to agricultural or livestock. Mining and petroleum made up nearly 9 percent of the GDP, a proportion that dropped to approximately 7 percent in the latter part of the decade. Meanwhile, manufacturing and the public sector significantly increased their share of the total economic activity, rising from 11 percent to 15 percent and from 5 percent to 7 percent, respectively, of the GDP. This helps explain the emphasis that has been placed on both the process of industrialization brought on by the Depression and the small but significant increase in the state's influence on total economic activity. Yet, how did the Depression spread into the Mexican economy? The eye of the hurricane was located, no doubt, in the external sector.

The volume of Mexico's exports contracted 37 percent between 1929 and 1932. The impact of this contraction was magnified by the deterioration of the terms of trade (the relationship of export prices to import prices) an additional 21 percent, reaching a nearly 50 percent cut in the buying capacity of Mexican exports. Moreover, given the structural dependence of Mexican fiscal policy on export taxes, the decline of the external sector produced tremendous pressure on government income, which fell from 322 million pesos in 1929 to 179 million in 1932, despite every effort made to increase domestic revenues. This impact, however, should not be overemphasized. The army's expenses were still a large part of the government budget: The forced cuts in this sector represented one of the structural outcomes of the Depression. However, the state was not yet able to significantly influence overall mechanisms of economic development.

Agriculture. The majority of agricultural products were affected by the crisis, although those products having principally foreign markets, such as cotton, sisal (a plant grown for fiber), and coffee, were especially affected. As for corn, its production level was essentially tied to domestic factors, the most relevant of which was political instability arising from the uncertainty of land ownership. With several crops the drop in prices would nullify the increase in volume produced; such was the case with sugar, for which the price in 1931 was 42 percent less than it had been on average during the five-year period from 1925 to 1929, with coffee down 12 percent, corn down 23 percent, and wheat down 41 percent. Credit was simply frozen. Although the average bank interest rate was 12 percent, private and non-bank interest rose to more than 60 percent. The typical farmer could not count on any security.

The behavior of export oriented agricultural products was heterogeneous between 1928 and 1939. With such crops as sisal, a combination of long-term factors, including the substitution of synthetic fibers, determined the drop in international demand. On the other hand, cotton, one of the products most seriously affected by the crisis, was able to recover toward the later part of the decade.

Political instability in several agricultural regions was rendered sharper by the Depression and facilitated the implementation of Cárdenas's radical agrarian reform program. Although the precedent for the demand for land had been set during the armed revolution, the political and military defeat of the most important peasant leaders (Emiliano Zapata and Francisco Villa) had introduced an impasse in reform efforts, with the exception of states like Morelos, where the guerrillas never entirely disappeared. During the Great Depression—and this fundamentally in connection with commercial export crops—land lost its previous value, and this facilitated the expropriation projects of Cardenismo. It is no coincidence that the geography of the great Cardenista nationalization drive toward collective ejidos (nationalized land that could only be worked by agricultural families living on the land) corresponded to the commercial agricultural zones—cotton in La Laguna and Valle del Yaqui, Sonora; sisal in the Yucatán Peninsula; sugar in Los Mochis, Sinaloa, and Morelos.

Manufacturing and mining. The crisis was also manifested in the manufacturing sector through a predictable channel: a reduction in domestic demand. At the end of the 1920s, virtually all of the manufactured products in Mexico were being consumed domestically. The impact of manufacturing on exports was practically nil; thus, the fluctuations of international protectionism during the Great Depression had no direct effect on Mexican industry. One of the unique aspects of the crisis in manufacturing was the greater impact suffered by the subsector dedicated to the production of consumer goods compared to the subsector oriented toward the production of intermediary goods, especially cement and steel. These managed to sustain acceptable levels of production based on government support through public works.

The crisis generated a process of classical industrial concentration in several cases, such as tobacco and the brewing industry, already an important branch of Mexican manufacturing. As for its regional impact, the manufacturing sector most affected by the crisis was the cotton textile industry. Textiles was the oldest manufacturing industry in Mexico. Its origins during colonial times in the socalled wool mills or obrajes was in large part in response to the demand for cloth and clothing for the remote mining centers and farms. During the nineteenth century, the struggle between liberals and conservatives over protectionism and free trade exposed the limits of technological development in the textile factories. Always lagging in efficiency compared to industrialized countries, Mexico's textile industry principally served the domestic market. Thus, the textile industry experienced a type of turnaround through a drop in demand for cloth and clothing as a result of a drop in the income of the middle and lower classes. This drop began to cause warehouses to fill up. The decline in employment in this sector was relatively mild—around 15 percent between 1929 and 1932. Cuts were made, especially in the number of hours worked, with the customary forty-eight hour workweek sometimes cut in half. The years that followed were characterized by a combination of defensive solutions, such as the cut in working hours, throughout industry, with the active participation of the workers, usually at the shop floor level.

The pattern—a profound impact from the economic crisis, forced readjustments, and rapid recovery—repeated itself. In general, workers did not wait passively for the recession to end. Instead, Mexico experienced militant resistance to the recession. One important result of the decade's labor struggles was the approval and later implementation of a new Federal Labor Law, proclaimed in 1931, which included the legal right to strike, maximum work hours, and minimum wage limits among its provisions. Granted, these advances were long fought for by workers at the shop floor level, as Jeffrey Bortz has shown, but the catalyst for federal approval was the Great Depression (as it was in many countries around the world).

The railroads. A logical result of the contraction of the export sector—of mining in particular and of the trade of raw materials in general—was the reduction in the volume of freight transported by the railroads. Mineral products represented one-third of the total freight moved by this mode of transportation around 1929 and 1930, when the decline in activity became apparent. The remainder of the freight was divided more or less as follows: 25 to 27 percent was agricultural products, 9 to 10 percent was timber products, 7 percent came from processing industries, and the rest (20 to 23 percent) was inorganic products, such as oil, asphalt, lime, cement, and salt. The 14.3 million tons of freight transported in 1929 were reduced to 9.2 million in 1932; similarly, the figure of 21.1 million passengers transported in 1929 dropped to 15.2 million in 1932, or 28 percent less. The number of passengers per kilometer fell by an estimated 43 percent; train cars were often half empty, and the average income from passenger fares dropped by 20 percent. As one analyst put it, from 1930 to 1932 the administration of the railroads not only dispatched the trains, but it also dispatched thousands of workers. The drop in employment throughout the economy was undoubtedly the most significant negative result, from a social perspective, of the crisis. The difficulties of the labor market were reinforced by the massive repatriation of Mexicans from the United States.

The repatriates. The incoming wave of Mexicans expelled from the United States reached a minimum of 300,000. To put this figure in perspective, it is helpful to consider that Mexico's total population in 1930 was 16,526,000, of which only 5,352,000 were economically active, and of these a mere 692,000 were employed in industry.

There was tremendous insecurity concerning work on the part of Mexican residents in the United States. A conservative estimate places at 28 percent the average number of Mexican residents in the United States who had either resorted to repatriation or had found themselves without work and with few expectations of finding any. Reports from Mexican consulates in the United States become repetitive when evaluating the almost nonexistent job options, repeated city by city, county by county. For example, a special envoy in Phoenix, Arizona, reported that "in not one of the places belonging to this district does there exist even the remotest possibility that Mexicans will find work." In Galveston, Texas, people applying for jobs had to not only vouch for their nationality, but also provide proof of having paid taxes to the Unites States Treasury. The selection criteria for obtaining work put emphasis on the payment of taxes, both income and sales, as well as the location of purchases.

Most Mexican repatriates ended up with their paternal or maternal families, who had to share their scarce resources with their relatives. The majority of the special projects initiated by the Mexican government in agricultural settlements in the country's interior were failures. In addition, the incorporation of the displaced people created intense family tensions between the repatriates and the heads of households who took them in. Whereas the recently arrived family members had aspirations linked to a material culture based on a wage ethic (a car, a radio, clothes), those taking them in had expectations based on working the land. This tension caused many repatriates to decide to repeat the adventure of emigration to the north.

One of the paradoxical aspects of this mass exodus that has received little attention was the repatriates' loss of property in the United States. As job possibilities disappeared, principally in the suburbs of such cities as Los Angeles or San Francisco, the families who undertook the return to Mexico had to abandon land and homes that had been obtained after much effort. Many lost their houses and small properties because they could not make mortgage payments; others were forced to sell their homes and land at extremely low prices. That these purchases had been made in territory that had previously belonged to Mexico strengthened the immigrants' sense of frustration. The repatriation process vividly showed the international impact of the Depression. Nationalistic responses, both popular and elite based, appeared in every country, exacerbating the suffering of the "foreign" poor.

Oil. The oil industry was another important sector of the Mexican economy in which the Great Depression caused a decline. Mexico's oil production, built almost entirely by and for U.S. and British capital, had already gone through one period of spectacular growth and another of sharp decline during its brief existence. The period of its peak performance coincided with the increase in the price of oil from less than $1 per barrel to more than $3 between 1915 and mid-1920. From this point on there began a slow but persistent drop to approximately $1.15 per barrel between 1928 and 1930. Throughout the 1930s the price of oil increased slowly. It did not experience a new boom until the period between 1946 and 1958.

At the beginning of the 1920s, the Mexican oil industry was highly concentrated in the hands of a few multinational firms. The three giants—Huasteca Petroleum Company, the Compañía Mexicana de Petróleo El Aguila (British), and the Penn Mex Fuel Company—represented nearly three-fourths of production in 1918. Of course, the Depression had a major impact on new oil field exploration and the crude oil extraction rate. As a whole, whereas in 1920, the peak of the Mexican oil boom, the industry employed around fifty thousand laborers and other personnel, by 1935 the number had dropped to fifteen thousand. Even in 1938, the year the petroleum industry was expropriated, it had a mere 17,600 workers, 2,800 of whom were temporary.

Nationalization of the oil interests was made possible by such factors as the decline in the value of the fields, the closeness of the Cardenista project to the U.S. New Dealers (one of which, Josephus Daniels, was ambassador to Mexico during that time), and the growing fear of war in Europe. In addition, the support of Mexican workers for the measure was virtually unanimous, and oil became an important engine to internal industrialization.

GOVERNMENT RESPONSE

The severity of the impact of the crisis in numerous sectors of the economy affected the economic policies that the Mexican government implemented. Financial pressures on the budget, in particular, had two long-lasting effects: the postponement of payments to international financial creditors—that is, a moratorium on the public debt service; and the reduction and subsequent reorganization of the state's bureaucratic apparatus. Pressure to create new state-sponsored institutions followed and became the origin, eventually, of several developmental agencies and banks, such as those oriented towards agriculture (Banco de Crédito Ejidal), housing (Banco Nacional Hipotecario), and small enterprises (Nacional Financiera). Public education became a high priority through the Secretaría de Educación Pública, and agrarian reform was pushed forward through irrigation works and new highways.

These policies, which would later be defined as Keynesian, took shape as a pragmatic response to the Depression rather than as a result of some intellectual vision. After two years (1930–1932) of disastrous orthodox fiscal policies, the Ministry of Finance applied new anti-cyclical policies that resembled the orientation of the United States's New Deal. Years later, in lectures prepared for the department of economics at the National University, Mexico's secretary of the treasury from 1935 to 1946, Eduardo Suárez, would severely criticize the previous orthodox policy—the "balanced budget approach." According to that view, money "would have to be kept in refrigerators and isolated from any vibration with the same care given to keeping the platinum and iridium bar in the International Office of Weights and Measures in Paris that serves as the basis of the decimal metric system." Mexico, instead, joined the proactive policies of a group of countries in Latin America and elsewhere that responded to the Depression by increasing the state's intervention in the economy, taking advantage of the social mobilization that was taking place in the countryside and in the cities. However, the peculiarity of the Mexican case was that the import substitutive industrialization was combined with significant social reforms that were pushed forward from below.

See Also: CANADA, GREAT DEPRESSION IN; KEYNESIAN ECONOMICS; LATIN AMERICA, GREAT DEPRESSION IN; LATINO AMERICANS, IMPACT OF THE GREAT DEPRESSION ON.

BIBLIOGRAPHY

Aguila, Marcos T. "The Great Depression and the Origins of Cardenismo in México. The Case of the Mining Sector and Its Workers, 1927–1940." Ph.D. diss., University of Texas, Austin, 1997.

Aguila, Marcos T., and Alberto Enríquez Perea, editors. Perspectivas sobre el Cardenismo: Ensayos sobre economía, trabajo, política y cultura en los años treinta. 1996.

Bortz, Jeffrey. "The Genesis of the Mexican Labor Relations System: Federal Labor Relations Policy and the Textile Industry, 1925–1940." The Americas (July 1995).

Bortz, Jeffrey, "'Without Any More Law Than Their Own Caprice' Cotton Textile Workers and the Challenge to Factory Authority during the Mexican Revolution," International Review of Social History 42, no. 2 (1997): 253-88.

Calderón, Miguel A. El impacto de la Crisis de l929 en México. l982.

Cárdenas, Enrique. La industrialización mexicana durante la Gran Depresión Depresión. l987.

Carr, Barry. "The Mexican Communist Party and Agrarian Mobilization in the Laguna, l920–l940: A Worker-Peasant Alliance?" Hispanic American Historical Review 67, no. 3 (1987): 371–404.

Carreras de Velasco, M. Los mexicanos que devolvió la crisis, l929–l932. 1974.

Córdova, Arnaldo. En una época de crisis, 1928–1934: La Clase obrera en la historia de México. 1980.

Díaz Alejandro, Carlos. "Latin America in the l930's." In Latin America in the l930's: The Role of the Periphery in World Crisis, edited by Rosemary Thorpe. l984.

Freeman, Robert S. The United States and Revolutionary Nationalism in Mexico, 1916-1932. 1972.

Haber, Stephen H. Industry and Underdevelopment: The Industrialization of Mexico, l890–l940. 1989.

Hamilton, Nora. The Limits of State Autonomy: Post-revolutionary Mexico. 1983.

Knight, Alan. US-Mexican Relations, 1910–1940: An Interpretation. 1987.

Knight, Alan. "The Politics of the Expropiation." In The Mexican Petroleum Industry in the Twentieth Century, edited by Jonathan C. Brown and Alan Knight. 1992.

Knight, Alan. "State and Popular Culture in Revolutionary Mexico, 1910–1940." HAHR 74, no. 3: 393–444.

Meyer, Lorenzo. México y los Estados Unidos en el conflicto petrolero (l9l7–l942). 1972.

Meyer, Lorenzo. Su Majestad británica contra la Revolución Mexicana, 1900–1950: El fin de un imperio informal. 1991.

Schuler, Friedrich E. Mexico between Hitler and Roosevelt: Mexican Foreign Relations in the Age of Lázaro Cárdenas, 1934–1940. 1998.

Marcos T. Aguila