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TYPOLOGIES OF INDUSTRIALIZATION: LESSONS FROM SPAIN1

Presented at the Economic History seminar Department of Economics and Business

Universitat Pompeu Fabra June 3rd, 2019

Albert Carreras Department of Economics and Business

Universitat Pompeu Fabra

Summary I will survey what do we learn with the various typologies of industrialization (Clark, Hoffman, Rostow, Gerschenkron, Lewis, Chenery, Adelman, and others) to understand the pitfalls, disappointments and successes of Spanish industrialization, from the XVIIIth to the XXIst centuries. There are, indeed, a number of lessons in positive and in negative. Out of these lessons -or lack of them- for Spain, I will survey what can we learn from the Spanish experience for the rest of the world. The Spanish experience has a lot to say looking at the industrialization experiences of Latin America, Middle East, Eastern Europe or China, as well as regards Southern Europe.

Introduction The progress of nineteenth and twentieth century Spanish economic historiography during the last two generations has been fueled by an aim common to all researchers: to place Spanish economic performance in a world-wide perspective. Between 1968 and 1975, some scholars achieved a first success in introducing Spain in a more general framework of research. This was the case of Nicolás Sánchez-Albornoz (1968) and his discussion of "dualism"; Gabriel Tortella (1972 & 1973) and the role of banking in economic development, or his reinterpretation of Spanish railway building

1 This paper has a long history. I have drafted and published preparatory pieces as Carreras (1988, 1995, 1997, 2010 and 2012). The current text was presented, by invitation of the organizers, at the session on “Theory and Empirical Performance. Economic paradigm and performance in the long run (18th to 21st centuries): To what extent are European development theories on industrialization valid from a World point of view?” organized by Dominique Barjot, Harm Schröter and Kazuhiko Yago at the XVIII World Economic History Congress, Boston, July 30th, 2018.

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through the glasses of Albert Hirschman economic development models; Josep Fontana (1971 & 1973) and the role of public finance and agrarian change on Spanish capitalist development -Prussian, French or British way?-; Jordi Nadal (1973 & 1975) and Spain in the industrial race -his thesis of the "failure of the industrial revolution"-; or Santiago Roldán and José Luis García Delgado (1973 a & b) and the First World War as a "catching-up" opportunity for Spain. The shock of these contributions, mostly concentrated in only five years (1968 to 1973), echoed in subsequent research. For fifty years we have been discussing around these "grand" (at the Spanish level) themes. Some of the most successful PhD's of the subsequent years pointed explicitly to reconsider the hypothesis established by the preceding generation. Let's remind the articles or books by Jordi Maluquer de Motes (1977), Antonio Gómez-Mendoza (1982), Leandro Prados de la Escosura (1982 and 1988), Sebastián Coll and Carles Sudrià (1987), Francisco Comín (1988) or Albert Carreras (1984 and 1991), to name only some of those explicitly framed as challenging or extending the "1973" paradigm2. The trepidation of the national debate allowed for the initial diffusion of some elements into the European economic historiography: Milward & Saul (1977), Trebilcock (1981), Pollard (1981), Berend & Ranki (1982), although in a limited way. The main recollection of first hand English written material is to be found in the book edited by Nicolás Sánchez-Albornoz (1987) where many of the names cited before contributed sectoral or regional essays. The most ambitious and provocative statement was put forward by César Molinas & Leandro Prados (1989) in "Was Spain Different?". Up to 1995 the discussion on Spain in industrialization typologies was very active3. The peculiarity of Spanish experience was stressed in many of the first-generation contributions. The "assault" of the second generation has produced much more "normality" -considering Europe as the normal evolution-. This is why the Molinas & Prados paper was puzzling. To the long-standing question they addressed, the answer given by them was affirmative. The main purpose of this paper is to explore this problem in two particular ways. Firstly, trying to overview the research that has been done on Spanish economic history in the framework of the "grand" theories -or typologies- of industrialization and economic growth as a crude test of how normal was Spanish economic performance (SEP) during the last two centuries. Secondly, deriving from Spanish economic performance a few potential "lessons" for the general understanding of the diffusion of economic development.

2 It is really amazing how intense was the concentration of intellectual innovation and debate among Spanish economic historians around 1973 -not only on the Late Modern times. As a consequence, they attracted quite a number of PhD candidates and greatly enhanced the public profile of the discipline. 3 Tortella (1994) and Comín (1995). This is why I felt necessary to summarize our knowledge in my 1995 and 1997 articles.

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I. Spain in the Typologies of Industrialization.4 The attraction of fashionable economic history can't be a justification for avoiding the task of filling some crucial gaps in our knowledge of the past. For a long time, the figures for the main variables considered in the theories presented by Hoffmann, Clark, Lewis, Rostow, Gerschenkron, Kuznets, Chenery, Crafts, Baumol or Abramovitz, or Adelman & Taft Morris were simply missing for Spain, or very misleading. This section of the paper will begin by reminding the Marxist debates on the transition to capitalism. It will continue pointing at the dual approaches, to follow presenting and criticizing the old figures -the only available up to 1976-. Afterwards I will turn to the Clark model of structural change. Fourthly to Hoffmann patterns of intraindustrial change. Later, to Rostow's take-off, from the viewpoint of the capital formation ratio and from the industrial output approach. This will lead us to Gerschenkron typology, followed by Kuznetsian modern economic growth. Chenery patterns will be focused with special attention to Crafts' reassessment of their use to late nineteenth century and early twentieth century Europe. After the comment on the convergence literature, the review of the typologies will end with Adelman & Taft Morris essays and book and their surprising conclusions about Spain -unclassifiable- and with Leandro Prados newest test that gave the same result twenty years later. I.1. From the Transition Debate to the Dual Economy. For many years among Spanish historians, the Typology (in capital letters) was the Marxist one. There were five modes of production: primitive communism, antique slavery, feudalism, capitalism and socialism5 . The Marxist historiography and the debates on its tradition were very much centered on the transition from the feudal mode of production to the capitalist mode of production, i.e., the "bourgeois" revolution6. A first flow of intellectual debate was centered around the particular features and the delays -or not- of the Spanish way to the transition. For some, Spain was still within a feudal régime by 1960 and the bourgeois revolution was a pending task. This was the official point of view of the Communist Party for some time. Others considered than the Franco régime was clearly capitalistic and that the bourgeois revolution was achieved during the mid-nineteenth century. The echoes of such a debate -very hot in the early 1960's in the intellectual and academic circles opposed to the Franco régime- are present in many of the titles and thesis of the books published by professional economic historians ten years later.7 The idea

4 This part of the paper was first written as a chapter of a previous essay (Carreras, 1988). I added some references when it was republished (Carreras, 1990, ch.4). More nuances and argument were added in Carreras, 1995 and further more in Carreras, 1997. 5 Not to be missed are Robert Allen’s lecture notes on the five Marxist modes of production. 6 The major reference book in this field was Maurice Dobb (1946). Other influential authors were to be found in Paul Sweezy et al. (1954). 7 G.Tortella (1973), J.L.García Delgado & S.Roldán (1973), S.Roldán & J.L.García Delgado (1973), J.L.García Delgado (1975 a), J.Braña, M.Buesa & J.Molero (1976), J.Maluquer de Motes (1977).

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of a feudal Spain, governed by landowners with aristocratic privileges was fashionable before the economic boom of the 1960's. The success of the economic modernizing policies of that decade dissolved the foundations of those that interpreted the Spanish situation as one confronted with the agenda of a bourgeois revolution. Furthermore, according to historians the bourgeois revolution happened a century earlier!8. The article by Miguel Viñas (1972) represented a final point to that era. It was still published in an illegal, foreign made, opposition journal: Cuadernos de Ruedo Ibérico. The renewal of the Marxist historiography was spectacular during those same years. Particularly influential among the new Marxist historians was Josep Fontana (1971 & 1973). He switched toward a whole new set of problems centered around the crisis of the Ancien Régime, the formation of a national market and the emergence of the bourgeoisie during the first decades of the nineteenth century, introducing the current foreign economic historiography and -including industrialization typologies. In a country were the open academic debate was almost impossible because of the rigid censorship, and were the main contributions came through journals edited by Spanish exilees, Nicolás Sánchez-Albornoz contribution (1968) came as a total novelty9. His book on "Spain: a dual economy" introduced all at once the economic development literature in the Spanish historiographical debate. With quite a few years of delay, Spain began to be analyzed through the glasses of an economic development typology -the simplest one. Sánchez-Albornoz suggested the interpretation that Spain was, by mid-nineteenth century (one century before 1968, the publishing year), a dual economy just as many under-developed economies of mid-twentieth century. He argued that nineteenth century Spain was better understood if approached in this way. The tool box of development economists was to be applied to it. He gathered quantitative data, defined economic problems, and opened the way for further testing of his hypothesis. He posited the coexistence of the "Ancien Régime" and the "Capitalist Régime". His book induced a new generation of students to get acquainted with development economics while still maintaining elements of the Marxist tradition. Even his conclusion -during the nineteenth century Spain passed from an Ancien Régime economy, as any other European country of the early nineteenth century, to an underdeveloped economy "avant la lettre" 10 - was relevant in the ongoing debate in (under)development economics11. Josep Fontana and Nicolás Sánchez-Albornoz represented a bridge from the previous Marxist tradition to mainstream economic history -from debates around modes of production to new industrialization typologies designed precisely to challenge the previous Marxist ones12. Before 8 J.Solé-Tura (1967), M.Viñas (1972), M.Artola (1973). 9 His contribution was revisited in great detail twenty years later in a meeting at Oviedo University (Gijón, July 1988). 10 N.Sánchez-Albornoz (1968). The quotation is to p.23 of the second edition (Alianza, Madrid, 1977). 11 Braña, Buesa & Molero (1976) provide a systematic approach from the perspective of underdevelopment and center-periphery theories. 12 The book by J.Acosta (1975) was still written under the Marxist paradigm and was very much criticized by

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considering the new debates I will pay some attention to the statistical foundations for the study of the Spanish contemporary economy and to the research done outside the academic circles, in public or private institutions. I. 2. Clark and Kuznets in Spain. a. Old figures. The first set of Spanish historical estimates of industrial output, GDP and capital stock13 were published in 1945 by the CEN (Consejo de Economía Nacional, i.e., the National Economic Council). The indices of industrial output (1906-1942) were very crude estimates that overstated dramatically the mining sector. A new estimate was produced for 1929 onwards, with more accurate weighting and more series included. Later on, in 1954, revised series beginning in 1940 were published but without methodological description. In 1964 the CEN put an end to its research on this and related topics. The GDP figures (with the same chronological coverage that the industrial ones) were the combination of the industrial output and the agricultural output indices on a fifty/fifty basis. The outcome was combined again with the inverse of the nuptiality index (sic!) in order to smooth the fluctuations. Such a procedure was, of course, highly opened to criticism. Nevertheless, the CEN estimates entered in the international literature and didn't stimulate further research in Spain. For many years (three decades: 1945 to 1975) they were the only available and respected data. The only efforts to improve them concentrated on the post-Civil War period (1940 onwards) and only began in the early seventies14. The international yearbooks accepted Spanish figures because -I guess- there were no alternatives and because they were the official estimates and were supported as such throughout the period 1945 to 1975. The CEN estimates of Spanish GDP won a last credibility battle through Paul Bairoch figures. In his 1976 article on European GDP, 1800 to 1975 (Bairoch, 1976), he relied, for Spain, on Mulhall and CEN, and allowed for a delayed and uncritical acceptance of both. The very extensive use that has been made of his figures has diffused a too much crude approach to the evolution of long term Spanish economic performance. The last international use of these figures is Bradford De Long article on convergence (De Long, 1989). What is so embarrassing with these figures? First of all, the statistical basis and the procedures are

professional economic historians. The last "grand" Marxist interpretation of Spanish economic history is to be found in Moral, Carballo & Temprano (1981). 13 There is a consistent amount of essays that review and discuss the prehistory and the early history of historical national accounting in Spain. Pedro Schwartz (1977) edited a very useful and complete collection of these essays. After him it is still possible to refer to Tortella (1987), Carreras (1989) and Prados de la Escosura (2003 and 2017). 14 Comisaría del III Plan (1972) and Schwartz (1976).

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completely flawed. Secondly, these dubious data are misleading. The broad historical conclusions obtainable out of them may be wrong. For instance, following Mulhall-CEN-Bairoch, Spain suffered a reduction of its GDP per capita between 1860 and 1890, and following to CEN, during the years 1914-1929 Spain didn't grow at all. Both assertions have been completely changed by later research. b. New figures. In 1976, the same year than Bairoch published his estimates, Julio Alcaide, a chief economist of the Banco de Bilbao (well-known because of being the main private institution providing reliable economic data, mainly on a territorial -provincial- basis), published a new estimate of Spanish GDP for 1900-1972 (Alcaide, 1976). Alcaide corrected the CEN procedures using the same information. He discarded the nuptial index and used simple statistical techniques to smooth GDP figures. His main point was to use the population censuses in order to derive sectorial estimates (agriculture, industry and services) of active population, output and labour productivity, always on a yearly basis (which implied a lot of interpolation). The Alcaide figures allowed, for the first time, a systematic consideration of Colin Clark (1940) patterns of sectorial change, later confirmed and refined by Simon Kuznets (1966). A simple version of them can stand as follows: modern economic growth goes hand in hand with structural change, and this consists in an increasing reduction of the proportional size (in terms of population engaged and in terms of gross value added) of the primary sector to the advantage of the secondary, first, and the tertiary, later. The relative growth of the secondary (mining, manufacturing, public utilities and building) until reaching its peak values corresponds to the key period of modern economic growth. How were the Alcaide figures? For the GDP approach, we have a primary sector reaching almost half of the Spanish GDP in the first years of the twentieth century, while the secondary is at the fifth and the tertiary takes the remaining portion. The relative size of the secondary remains unchanged to 1919. Since then to 1930/1931 there is a dramatic increase from 20 to 31 per cent of the GDP. No more positive changes will take place for two decades. In 1951, and beginning at the same level than in 1931, a new rise begins which ends in 1974 at 41 per cent. Nevertheless, the main increase was achieved by 1965 at a 38.6 per cent level. These two periods -the twenties and the fifties and sixties- appear as the critical ones in Spanish industrialization as perceived through the Colin Clark glasses. We can have a complementary vision from the occupational statistics. According to them (and I should remember their census origin), towards the beginning of the century, the agrarian sector occupied exactly two thirds of the working population, while industry only 15.3 per cent (Alcaide, 1976). Though the normal trends were visible by 1910 and 1920, the critical changes took place between then and 1930. Industrial workforce increased from 21.4 to 30.9 per cent, while the agrarian was falling from 58.2 to 47.3. The Civil War (1936-1939) meant a clear reversion of the trend and allowed a 6.5 per cent points reduction in the industrial

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population, while the agrarian increased 7.3 per cent points. The recovery was slow, and was only completed by 1960 -but between 1950 and 1970 the industrial workforce advanced from 26.2 to 37.3 per cent (the estimated 1965 figure was 35.5). So, the main increases in gross value added and in manpower are very simultaneous and explain the bulk of the changes in Spanish twentieth century industrialization. As the initial levels were very low for industry and very high for agriculture, it was assumed that the nineteenth century was indeed a failure as regards promoting industrialization -I use Nadal's terms that became topical just then. The episodes of industrialization were interpreted along the following lines. The boom of the twenties seemed to be, initially, the delayed outcome of the highly profitable Spanish neutrality during the First World War15 and, afterwards, the consequence of effective economic growth policies during the Primo de Rivera dictatorship (1923-1930) as it was forcefully argued by Juan Velarde (1968) and Muñoz et al. (1978). The world depression and the Spanish turmoil of the thirties (the Second Republic and the Civil War) suddenly interrupted these developments. The boom of the fifties and early sixties was viewed as the outcome of the industrializing policies of the Franco régime and, increasingly, as the ending of the autarchic setting and the opening of the Spanish economy -allowing for a share in the high growth rates of the European economy during those years. Some doubts were casted on the Alcaide estimates16. First and foremost, his technical procedures. It was impossible to replicate his calculations and, too often, to understand the actual steps that he was following. The obscurity of the estimating methods was doubled by the discretionarity used in the smoothing of the CEN series, easily visible in the untenable estimates for 1901-1906. Moreover, the estimates of service gross value added were surprisingly high, always surpassing the industry estimates. It seemed plausible that some misallocation of active population had to be corrected. Finally, the estimates of the GDP and its components were current figures deflated by a crude estimate of the GDP deflator (the wholesale price index up to 1936, and a 70/30 combination of wholesale and retail indexes from then onwards). The surprising industrial boom of 1919-1921 could only be explained as an artifact of the deflator, and there was no evidence on the literature of such a boom in these precise years. Nevertheless, Alcaide figures were far better than CEN ones -much more detailed and more usable by economists and historians. They won a quick and widespread consensus among Spanish economists. Surprisingly enough, no use of them was made out of Spain. Their internal success contrasts with their external failure. Inside Spain the main resistance to use and believe Alcaide's estimates came from economic historians. They were constructing since, roughly 1970, new sets of data that could, actually, led to better and longer estimates of GDP. So, they set apart the old

15 As it was suggested by Roldán and García Delgado (1973) and García Delgado and Roldán (1973) seminal books and in some subsequent contributions, as in García Delgado (1984). 16 Some of these doubts were addressed by J.Alcaide (1997) and (2000).

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CEN tradition and underwent a complete reexamination of published but unused (or underused) statistics with the explicit goal of placing Spain in the typologies of industrialization. The next episodes are to be understood within this framework.17 3. Hoffmann resurrected. One of the outstanding proponents and practitioners of this new approach was Jordi Nadal, the author of "The failure of the industrial revolution in Spain"18, a work done in the interpretative tradition of Rostow and Landes. In the conclusive chapter of "The failure..." he published a first attempt to place the Spanish experience in the context of European industrialization (Nadal, 1975, chapter 8). Because of the lack of data, he couldn't produce an index of industrial output and had to use more fragmentary data. The Hoffmann typology appeared more adequate mainly because it was less data demanding (Hoffmann, 1931 & 1958). Nadal's efforts focused on a little sketch in the Hoffmann tradition. He only could estimate the ratio of the value added of the cotton industry to the iron and steel industry circa 1900-1913. He obtained a ratio of 5.63 that was taken as representative of the consumer/producer goods industries. His interpretation was that Spain made every effort to enter in the group of the "second comers" during the years 1830-1860; but fifty years after, Spain still was in the first stage of industrialization. Meanwhile, the other second comers had entered in the second or even in the third stage. So, Spain had a failed industrial revolution. I replicated the exercise with more data and for many more years. To compensate for the absence of reliable information on furniture, shoe-making and dressing, I decided to include, on the producer side, only the metal-working industries (engineering and transport equipment). So, I compared the output of the food, tobacco and textile industries with the output of the metal-working sectors. To check my simplification, I calculated both enlarged and reduced options for Italy in 1938 and 1951 (the same years chosen by Hoffmann) and I found little differences: 1.2 and 1.1. were the resulting values according to the Hoffmann complete index, while 1.10 and 1.05 for my simplified choice. The replication also included more years: 120, from 1861 to 1981, and this made a complete difference. It is worth noting that all calculations were made with gross value added weights corresponding to 191319. 17 It is worth reminding how proudly J.Alcaide (2003) considered himself vindicated by L.Prados de la Escosura (1995 and 2003) new GDP series. 18 A series of papers discussing his contribution ten years after the publication of the full length Spanish version of his Fontana Economic History of Europe chapter were published in Información Comercial Española, 623, 1985, pp. 5-116. 19 For a more detailed explanation, see Carreras (1983) and Carreras (2003).

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Figure 1. Stages of Spanish industrialization according to Hoffmann typology, 1861-1981.

The outcome of this exercise appears in figure 1. Spain was, towards 1861, in the first stage of Hoffmann typology. This position was not firmly established until two decades later, when Spain entered more clearly in the first stage without departing from it for long periods. Following Nadal point of view, the striking fact was the very long delay until passing to the next stage -at least more than sixty years-, especially if we consider that the Spanish position was all but disappointing by 1861. Let's remember that, following Hoffmann argument, Belgium, France, Germany, Austria, Russia and Sweden were the countries that entered in the first stage between 1820 and 1860. So, Spain seemed a frustrated second comer as far as all these countries -except Russia- had entered the second stage before the turning of the century. The second stage was attained in the first half of the nineteen twenties. Progress seemed very quick during this decade, and here we find a close parallel with the results found with Alcaide's figures -but with another typology in mind. The thirties and forties are years of regression and stagnation, and only at the very end of the forties an evolution starts that will eventually conduce

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to the third stage towards 1959-1961 -a very significant moment in Spanish economic history as it stands for the stabilizing and liberalizing of Spanish economy and the end of Autarchy. Here again, as in the Clark-Kuznets case, the main changes appear to be in the first half of the sixties, though the next ten years are of even increased reduction of the Hoffmann ratio. The experience of the twentieth century seems very clear, but it becomes difficult to precise the start of industrialization for Spain: is it placed before 1861 or should it be assigned to, let's say, 1870-1885?. Let's turn to Rostow typology to answer this question. 4. A Rostovian case? It is worthless to summarize here the Rostow typology and the complete destruction of all the evidence that could support his case. The last episode in this intellectual battle was a matter of the mid-eighties, between 1982 and 1985, when the research developed by Charles Knick Harley and Nick Crafts completely destroyed the evidence of take-off in the country that was supposed to be the "model" of a take-off, i.e., Britain. Nevertheless, for a quarter of a century, the world economic historiography was debating about Rostow typology. It will be worth the effort to pay some attention to the place that Spain had in the Rostow model. Strictly speaking, Spain didn't enter in Rostow typology, but in 1972 he gave a lecture in Spain -a country ruled in those days by a group of people who gave an enthusiastic support to Rostow ideas20. The lecture was actually published (Rostow, 1973), and there he made an interesting attempt to analyze the experience of Spanish industrialization according to his perspective. Rostow suggested that the Spanish take-off could have taken place between 1840 and 1870, thanks to the diffusion of mechanized cotton textile industry, the railways and the growth of foreign trade. Afterwards, Spain got acquainted quickly with the technologies typical of the "drive to technological maturity" -steel, chemistry and electricity- but, and this was the main difference of Spanish experience, it took Spain ninety years, instead of forty as in all the successful cases, to pass through this stage. Put in Nadal terms, this would be not the failure of the first industrial revolution, but the failure of the second industrial revolution. Rostow, trying to explain the proximate causes of this delay, pointed to: a) the failed modernization of Spanish agriculture, unable to rise agrarian incomes and to enhance markets for industrial goods; b) the limited integration within the international economy, and c) a series of negative political impacts (from the loss of the Antilian colonies to the autarchic period). Interestingly enough, he suggested that Spanish history during those years (1870-1960) had an intimate connection with later developments suffered by Latin American countries. Actually, toward the end of the fifties, Spain got all at once: it closed the way through technological maturity and entered completely in the stage of high mass consumption. Rostow concluded by asserting that Spain was closing the gap with Western Europe, a gap that begun one hundred and seventy five years ago (he was lecturing in 1972, so he implied the very last years of the eighteenth century).

20 Laureano López Rodó (1972) was the most prominent of them.

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Many years later the analysis of Rostow resists very well the new evidence gathered by two generations of economic historians. Most of the argument appear to me as particularly well taken: I agree especially with the assertion that the industrial development of the nineteen sixties was not the Spanish take-off, as it has been widely diffused in many places -included some supposed followers of Rostow thesis-. A very different assertion from Pierre Vilar -and published the same year (annus mirabilis!)- has had an enormous success: "Spanish industrialization is, actually, a fact of the last years [the sixties]" (Vilar, 1973). An opponent to this view was Luis A. Rojo, a distinguished Spanish economist, who said (only four years before Vilar and Rostow): "though it may irritate to many people, the fact is that Spain industrialized between 1939 and 1959"21. Both Vilar and Rojo were too much impressed by the facts closer -in time and space- to them, but it is also a fact that their opinions won significant acquiescence from large segments of the enlightened opinion. So, we have three candidates to a "take-off" prize: 1840-1870 (Rostow), 1939-1959 (Rojo) and 1960-1973 (Vilar). Rostow points forcefully that Spain experienced a take-off and that this first experience belonged to the mid-nineteenth century. Let's look at the new data to find out if there is any ground for the Rostow views. The essentials of the take-off were encapsulated in three big changes: the emergence of a leading sector, the acceleration of the rate of growth of industrial output and the doubling of the investment ratio, from 5 to 10 per cent of the GDP. The first element was the main focus of Tortella's (1973) and Nadal's (1975) seminal books on Spanish industrialization. Tortella studied railroads, banking and industry, while Nadal mining, cotton and iron -all the potential leading sectors in mid-nineteenth century Spain. I will begin now with the investment ratio, a more elusive concept that requires a good deal of previous data. I attempted (Carreras, 1985) to estimate the gross domestic capital formation (GDCF) for Spain since 1850 until 1958. Later on Leandro Prados de la Escosura produced better estimates (1995, 2003 and 2017), reaching current years. In figure 2 the GDCF has been divided by an estimate of gross domestic expenditure22. The outcome (linked with current series) is the investment ratio.

21 Luis A. Rojo in S.Pániker (1969), p.159. 22 I follow Prados de la Escosura (2017).

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Figure 2. Investment ratio (GDCF/GCD), 1850-2017.

Source: L.Prados de la Escosura (2017). Graph coming from Carreras & Tafunell (2018).

The figure displays an impressive jump in the late 1850’s and early 1860's (1855 to 1868), related mainly to railway construction. It is the best candidate for the take-off gallery. Nevertheless, it is not a permanent increase in the investment ratio. Although the peak value for 1860 is just over ten per cent, this level is only permanently surpassed since as late as 1921. It is very implausible to think of a period just like 1855-1920 as a good proxy for a take-off: the period was indeed one of smooth and continuous growth, but certainly not a take-off. Nevertheless, figure 2 displays some interesting features, namely the regularly increasing trend (in a log basis) of the investment ratio, and some episodes, previously captured as relevant ones: 1855-1866, 1919-1931 and 1953-1959 (this last one, chronologically advanced relative to previous periodization). A comparison with the Hoffmann index might be useful -none the less because the metal producing industries account for a significant portion of the GDCF. Indeed, both approaches tend to support each other. The investment approach has been revealing but inconclusive. The new industrial output index , 1831, 1835 and 1842-1981 (Carreras, 1984) allowed for a closer look at the Rostow hypothesis. It has been improved by Prados de la Escosura (1995, 2003 and 2017) but it has never started earlier than 1850. Antonio Parejo (2007) and Joan Ramon Rosés (2004) provided major improvements at regional level, starting in 1830 for both Andalusia and Catalonia.

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Gráfico 1.4. Cuota inversora (FBCF/PIB), en %. 1850-2017

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Figure 3. Index of Spanish Industrial Output, 1842-1981 (1929=100)

The main period of industrial growth corresponds to the years 1950-1975, but before these, there was an entire century of continued growth, since 1831 to 1930. The first years of this century yielded a high rate of growth. For 1842-1861 my estimates are of 5.4 per cent per year, clearly higher than the attained in next periods. The problem is to know or to guess what did it happen before 1842. The limited information available for 1831 and 1835 confirms the presence of high growth: 3.3 per cent since 1831 to 1842. But all the qualitative evidence points to a dramatic fall of industrial output since the end of the eighteenth century to the beginning of the second quarter of the nineteenth23. With these data, can we postulate an Spanish take off? From 1831 to 1861 my estimates display the industrial output multiplying four times (4.6 per cent per annum). If the figures are good, this seems a take-off. The doubts arise when comparing to previous performance. Nobody will name "take off" a recovery from a war or a revolution -but, indeed this was the Spanish experience: many wars, two invasions, the loss of an enormous empire and a civil

23 Angel García Sanz (1985); Leandro Prados (1988).

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war in the 1830's. When peaceful conditions came back, growth was impressive, but part of it was no more than a recovery. Let's assume a zero growth since 1790 to 1830, a moderate assumption. The impressive growth rates of the forties and fifties can be reassessed as a modest 2.0 per cent per annum in the longer period 1790-186024. Take off or not, the discussion has highlighted some features of Spanish industrialization: a fall or stagnation is likely to have occurred in the last decades of the "Ancien Régime". The liberal governments witnessed high rates of growth for three or four decades, due partially to a recovery effect and partially to real, but not so rapid, growth. Nevertheless, the high rates of growth meant the investment in modern equipment and machinery that enabled a growing competitiveness for the Spanish industry. The history of modern industry begins during those years. The 1870-1930 years are of mediocre growth rates, but relatively to Europe, the last two decades had a much better performance than the first four. This slow growth can be accounted for internal factors (demand and/or supply side) or for external factors (for instance, the tight connection with slow growing economies such as France and Britain). Nevertheless, growth was always present since 1830 to 1930. The following twenty years were the big exception in Spanish industrialization: Spain lost pace with all the Western European countries, including those more affected by World War II. Here lie the main problems of contemporary backwardness and not in the previous experience of growth. Once again, the impressive accomplishments of the subsequent quarter of century are partly derived from a delayed recovery effect. There is ground in Spain for a rostovian case, but I am afraid that, just as elsewhere, the ground is increasingly reduced. 5. A missing Gerschenkron. Alexander Gerschenkron didn't pay attention to Spanish industrialization. I ignore the reasons, but the lack of good research on contemporary Spanish economy available in English can explain the absence25 . The considerations I made before on the take-off issue are also pertinent to the Gerschenkronian "big spurt". Only the 1840-1861 period could fit in the "big spurt" category, but with many qualifications. His typology was more subtle and less conducive to quantitative "violence". So, when he asserted that the more backward the economy, the more rapid would be the rate of growth of industrial production, Spain provides not one but two excellent cases. The strong backwardness achieved towards 1830 and 1950 produced, indeed, higher rates of industrial output growth in the next two or three decades and with a clear desaccelerating trend. The higher reliance on capital goods industries, on capital intensity and on large dimensions of new plants are more difficult to ascertain for Spain, if they existed at all. No research has been

24 There is abundant literature on this issue. See Prados de la Escosura (2003), Rosés (2004), Parejo (2007), Alvarez-Nogal and Prados de la Escosura (2013) and Carreras and Tafunell (2018). 25 The Jaume Vicens' book on The Economic History of Spain, was translated into English as late as 1969.

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developed to test these features of Gerschenkron typology for Spain. There is only, for Catalonia, the hypothesis that exactly the reverse is true, and that Catalan -textile based- industrialization followed a path very similar to French one26. The later development of the Bilbao region as a steel and metal working district, with big firms and large banks, tends to support the Gerschenkronian argument for Spanish nineteenth century industrialization27. The ranking of major forms by capital market value and by asset value provides slight support to the Gerschenkron hypothesis on the size of new plants28. The heavy weight assigned to "institutional factors" in Gerschenkron approach has, perhaps, stimulated further more research than any other else. These "factors" would materialize in the investment banks and in the state and would play as substitutes for missing private industrial entrepreneurship -the sole star in the First Industrial Revolution- in backward countries. Banking seemed to Gerschenkron more important in less backward economies, while the state took its place when backwardness increased. Spanish development in the second third of nineteenth century could be interpreted as a hybrid of English and German cases, as far as the textile industry was updated by a host of private industrial entrepreneurs, while the railroad network was created thanks to French investment banks who pulled in the Spanish state and many entrepreneurs. This was one of the critical points in Gabriel Tortella's seminal research on "Banking, Railroads and Industry in Spain" and it led to a set of studies, mainly on banking and railroads29. His contribution to Rondo Cameron two-volume enquiry on the role of banking in industrialization was the first attempt to place Spanish industrial experience in the 1829-1874 period on a global framework30. During the first big spurt (1840 to 1860) the state had an active involvement in clearing the way for further growth. In Gerschenkron terms: it set the pre-requisites for growth. The dramatic institutional changes that have been named Liberal Revolution were such an involvement -many scholars have described them in great detail31. The slow path of Spanish industrialization during the next two generations does not allow to isolate a single factor as determinant. We cannot deny the role of the state in adopting protectionist policies aimed to enhance industrial growth and in implementing direct industrial development policies, nor the role of the banking system in promoting the industrial growth from 1900 to 1930, neither the role of Spanish and foreign businessmen in the growth of the seventies, eighties and until just before the First World War; but none of them considered alone seems decisive in

26 Jordi Maluquer de Motes (1987). But J.R.Rosés (2004?) supports the contrary view 27 Joseph Harrison (1983). 28 Carreras and Tafunell (1993) 29 G.Tortella, ed. (1974), and M.Artola, dir. (1978). 30 G.Tortella (1972, 1973, 1977). 31 Francisco Tomás y Valiente (1971), Miguel Artola (1973), Josep Fontana (1977), Gabriel Tortella (1980), Francisco Comín & Pablo Martín Aceña (1984), Angel García Sanz (1985), Pedro Tedde (1994 a & b). Carreras & Tafunell, 2003, 2010, 2018

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explaining Spanish industrialization -their combination would qualify32. The dramatic growth of the nineteen fifties, sixties and early seventies is better explained by a forgotten factor in Gerschenkron typology: foreign demand (but I should remind that he was worried with nineteenth century Europe and not with twentieth century). The "export-led growth" model, typical of the Scandinavian and of the overseas European new-settled countries, can be applied (with some qualifications: it is an export of goods, tourism services and manpower) to Mediterranean countries after the Second World War. European industrial economies have pulled their agrarian or dual neighbours into industrialization mainly thanks to their imports of goods and services, their demand for labour and their exports of capital33. 6. The search for Modern Economic Growth. Kuznets. Once a new set of data was available, the Kuznetsian agenda came back into Spanish economic history. The assessment of Modern Economic Growth (MEG) was attempted through the CEN and Alcaide's data, but with poor results: it was necessary to gather more evidence for nineteenth century. Leandro Prados (1982 a) produced the first attempts playing around with the old Mulhall data. In a later short but influential article (Prados, 1984 b) he proposed a first description for the comparative assessment of Spanish MEG. My expenditure approach (Carreras, 1985) to the measure of MEG gave new impetus to the efforts to achieve the estimate of plausible long term historical accounts series for Spain. Prados (1988) produced them for some bechmarks (1800, 1830, 1860, 1890, 1910 and 1930) and from the output side. In his successive attempts to sketch the outline of Spanish MEG he has been using all the bits and pieces produced by previous historiography on industry and on Spanish twentieth century agriculture. He has been much more innovative (and risky) in estimating the performance of nineteenth century agriculture34, and in providing a brand new estimate for service output. As I have cursory mentioned, the switch from shortcuts to industrialization measurement such as mines to full-fledged historical national accounting was featured by Leandro Prados de la Escosura in a series of very influential contributions: 1993, 1995, 2003 and 2017. Nevertheless, Spanish long term GDP estimates were still too weak to be accepted in the Maddison's league35. The difference from 1976, when Alcaide was publishing his data and Bairoch was guess

32 For the state, see J.L.García Delgado (1984 & 1987) and Francisco Comín (1988). For the public firms, Pablo Martín Aceña & Francisco Comín, eds. (1990). For the banking, Santiago Roldán & J.L.García Delgado (1973), José Luis García Delgado (1984) and Pablo Martín Aceña (1987). For the foreign capital, Albert Broder (1981) and Charles Harvey (1987). Carreras & Tafunell, 2003. 2010, 2018 33 The argument was put forward by J.L.García Delgado (1975 b). 34 See his debate with James Simpson in Revista de Historia Económica: Prados (1989) and Simpson (1989 a & b). 35 Angus Maddison (1990) paid careful attention to Spanish data and used it in his survey on European

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estimating his dubious figures for nineteenth century Spain, is that, by now, we know much more but we still lack the critical GDP series. A paradoxical outcome is that it becomes increasingly difficult to consider Spain in MEG international tables although a clear consensus has emerged among Spanish economic historians on some basic stylized facts, namely: a) There is MEG at least since 1830; b) the growth achieved until 1910 was impressive when compared with Third World countries but too slow if assessed by Northern and Western Europe standards; c) Spain performed quite well from 1910 to 1935; and d) the following fifteen years (1935-1950) were an economic disaster. In order to place Spanish experience in international, comparative, perspective, Leandro Prados has looked for more flexible typologies to allow him to better use the richness of historical data that Spain currently has. 7. Chenery back in the Spanish nineteenth century. Chenery patterns received very little attention among economic historians, but a great deal among economists. The chronological scope of his enquire fitted perfectly well in Spanish recently developed stock of statistical data and, indeed, Spanish entered in Chenery's tables. Nevertheless, we have had to wait to the Crafts articles36 on the patterns of European development in the nineteenth century to awake the interest of Spanish economic historians. Leandro Prados and César Molinas reacted quickly to this stimulus, and produced a paper on "Was Spain Different?" -an attempt to highlight Spain using the Chenery-Crafts patterns. Molinas and Prados used the "European norm" derived from Crafts for 1850-1910 Europe, and enlarged the chronological coverage for Spain from 1800 to 1930. They tested three hypothesis: 1) Spain converges on the European norm; 2) Spain converges on the Italian case (the most likely among the Europeans to be similar to Spain), and 3) Spain converges on the -actual- Third World norm (derived from Chenery-Syrquin data). All in short, they refused the three hypothesis and asserted that "Spain followed her own, different way to modernization". Almost twenty years later, and with much better data, Prados made a new attempt to put Spanish -and European- experience under Chenery and Syrquin light (Prados 2005 and 2007). His interest was not reduced to Chenery typology but encompassed backwardness at large, in a very explicit Gerschenkronian approach. In his own words: “Patterns of development, which associate structural change with variations in GDP per head and population, are constructed for modern Europe (1850–1990) along the lines of Chenery and Syrquin's pathbreaking work. Thus, it is possible to discern whether a common set of development processes is observable for the whole continent and whether countries that had a late start exhibited, as suggested by Gerschenkron, a differential behaviour in terms of accumulation, resource allocation, and demographic

growth. Nevertheless, his subsequent book up to 2003 excluded the Spanish case -not because of lack of willingness of the author but because of inconsistency of the Spanish results when assessed in comparative perspective. 36 N.F.R.Crafts (1983 & 1984) and his book (1985).

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transition. The results tend to confirm the different nature of latecomers’ development.” Gerschenkron is not rejected. An alternative approach followed by Prados (2007, RHE) to put Spain in a European grand perspective was following Broadberry (1998) shift-share analysis. He concluded that the crucial growth periods were 1850-1883, 191x -1931, and 1953 onwards, and the bad were 1883-191x and 1932-1953. 8. Convergence and Catching Up: Is Spain In or Not? William Baumol proposed a new "grand" theory in his 1986 article on convergence. Starting with Angus Maddison's 1982 data base, he stated the all-pervasive and stylized fact of convergence in GDP per capita during the last 110 years. A group of sixteen OECD countries (Spain was absent) were indeed converging along this period37. A brilliant reply by Bradford De Long (1988) underlined the fact that the convergence was defined "ex post". An "ex ante" sample of countries likely to develop by 1870 would have included Spain, Portugal, East Germany, Ireland, Chile, Argentina and New Zealand. The convergence hypothesis vanished out when tested from this viewpoint. Bradford De Long suggested some interesting explanations for the contrasting performance of the converging and non-converging countries -including the old Max Weber's thesis on protestantism and the rise of capitalism. Whatsoever, Spain failed to converge for many decades after 1870. The case for Spanish convergence is only clearly established since 1950 (Prados, 1984 b; Carreras, 1988). The convergence debate triggered many contributions, in the world and in Spain. Prados, Dabán and Sanz (1993) developed a thorough research on convergence in Western Europe since mid-nineteenth century. The title had a strong “typologies” appeal: De te fabula narrratur.... Back to Marx and to his reverse, Rostow! Convergence is the modern typology of economic growth. Prados et al. conclude supporting the relevance of a Gerschenkronian approach -the degree lof backwardness modifies the development path followed by each country.

Francisco Comín (1995) also dealt with convergence in a 1995 influential article. Just as Prados and

as what I am suggesting, his conclusion was that there have been periods of convergnece and

periods of divergence in the Spanish economic past. Their causes are more or less clear. The Spanish

historiographical debate focuses on the periods of doubt. A typical instance is the quiet

abandonment of the gold standard in 1883. Did it matter? Did it caused divergence? The debate is

37 The "mechanical" convergence hypothesis -on the Rostow tradition- was enhanced by the "catching up" approach coined by Moses Abramovitz (1986) and quite linked to the Gerschenkron legacy: catching up asks for a set of "social capabilities" -loosely defined.

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still open38.

A number of Spanish scholars have played around the convergence hypothesis. The article by Prados (2007) is along this line. In Xavier Tafunell and mine 2003 book we organized the whole performance of Spanish nineteenth and twentieth century (1850-2000) on a European convergence perspective. We built a European Union at 15 (pre Eastern enlargement) per capita GDP series as the European pattern, and we compared Spain with it.

Source: Carreras and Tafunell (2003)

It came crystal clear that by 2000 Spain’s per capita GDP was very similar to the one of the 1870s and early 1880s. A clear divergence trend existed from 1883 to 1960, with some better periods (as 1913-1930) in between. These are results that have found an increasing consensus among Spanish scholars. In a recent book (Carreras and Tafunell, 2018) we have taken as much advantage as possible of the availability of the long 1280-1850 Spanish GDP series (Alvarez Nogal and Prados de la Escosura, 2013) and of new versions for Spain and for Europe (Prados, and Bolt and Van Zanden). We have produced a new “convergence”, starting in 1787 and finishing in 2017. The outcome is more extreme than what we found in 2003: current levels are similar -but not superior- to those of the

38 A quick summary in Carreras and Tafunell (2003). An detailed discussion in Alba Roldan (2018).

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years immediately after the Napoleonic war. Indeed, during late eitghteenth and early nineteenth century, the convergence ratio is around 90 per cent. The divergence starts sometime around 1820 and lasts until 1960. After 1960, and for almost half a century, there is quick convergence, especially 1960-1973, 1986-1991, and 1996-2007. There is no more convergence afterwards. Figure 5. Spain’s GDP per capita on European Union (EU-15), 1787-2017.

Source: Carreras and Tafunell, 2018.

9. Taft Morris & Adelman surprise. Taft Morris and Adelman (1988) book on patterns of development was advanced in a number of articles. For the purposes of my enquire on industrialization typologies, I will rely on their 1980 article in REH (Adelman & Taft Morris, 1980). There, they chose twenty-three countries -Spain included for the first time and since its conception in a historical typology of industrialization!-, four benchmarks (1850, 1870, 1890 and 1913) and classified them in a few classes thanks to a battery of thirty-five "soft" variables. Their exercise in principal component analysis led them to work out five classes. In the first there are the early starters -Great Britain, France, Belgium, Switzerland and the United States-. The second is the class of the late comers that succeeded, toward 1913, to enter in the path of industrialization in higher or lesser degree and with some state assistance:

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Gráfico 1.3. PIB per cápita de España con relación al de la Unión Europea (UE-15), 1787-2017

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Germany, Italy, Russia and Japan39. In the third we find the countries that industrialized as the outcome of an export-led growth: the Scandinavian countries and the overseas European new-settled countries like Canada, Australia, New Zealand, Argentina and Brazil. The fourth group corresponds to those countries with a very high population pressure and where no structural change is worth of notice: China, India, Egypt and Burma. The fifth is the class of the... unclassifiable! There we find Spain. The rhetorical question raised by Molinas and Prados -was Spain different?- was answered by Adelman and Taft Morris with a capital YES. The identity of the Spain classmates is truly interesting: the Netherlands and Turkey. If the authors were to consider Portugal they, probably, would find her in the same class. All of them are decaying empires or recent ex-empires. Nations with an old and successful political history that led to early self-assertion, enormous territorial expansion and, actually, the building of colonial empires. But nations unable to keep their empires during the industrialization -at least to keep them for the economic sake of the metropolis- and menaced by the British expansion. 10. Institutions (Acemoglu, Johnson and Robinson; North, Wallis and Weingast) Adelman and Taft-Morris have had a follow-up with the institutional approach promoted by Acemoglu and Robinson, 2012 (and previously by Acemoglu, Johnson and Robinson, 2001 and 2002 -AJR). They stress the importance of institutions in setting the conditions for economic growth. Not far from what Gerschenkron considered “pre-requisites”. They distinguish between “inclusive” and “extractive” institutions. The former are good for growth, the latter, bad. They also distinguish between “economic institutions” and ·political institutions”, and they support the view that they go hand in hand: inclusive political institutions end up creating inclusive economic institutions. AJR hypothesis have made a huge impact, and a lot of research is in the making. I am not able to mention any major piece of research placing contemporary Spain in AJR framework. But AJR famous articles and book present early modern Spain as just the model of extractive institutions. Indeed, early modern Imperial Spain is the quintessential extractive model. This has triggered a new research focus on Imperial Spain providing all kinds of evidence about the progressiveness and inclusivity of Spanish governance ad institutions in colonial America. Álvarez-Nogal and Prados de la Escosura (2013) “Rise and Fall of Spain” are invaluable to provide a real long-term approach to Spanish economic experience. It is clear from their data that, on the long term -1280 to 1800- income per capita has been roughly constant, with its ups and downs. Everything changes through Napoleonic wars. The fall in population because of war destruction, epidemics, and famines, decimated Spanish population and weakened a lot Ancien Régime feudal institutions. American colonies were lost. What came out of the War was a dynamic economy,

39 Let's remind here that, according to Jordi Nadal (1973), "the case of Spain is less that of a latecomer than that of an attempt, largely thwarted, to join the ranks of the first comers" (p.617).

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with reduced ambitions, but more land available per capita. There was a modest jump ahead, that could be preserved thanks to modest industrialization. Growth rates were lower than Western Europeans, but they were positive. Spain could escape the Great Divergence, although not the Little Divergence. Acemoglu and Robinson focus a lot on institutions. They have obtained a resounding success. But we forget too much the very interesting typology designed by North, Wallis and Weingast (2009): Violence and Social Orders: A Conceptual Framework for Interpreting Recorded Human History. They remind us how difficult it is to switch from a limited access social order –what they named

“natural state” (the equivalent to “extractive institutions” according to Acemoglu and Robinson)-

to an open access social order (the equivalent to “inclusive institutions”), and how easy it could

be to fall back from the natural state to chaos. They underscore the very few countries that

have been able to make this transition after Second World War; according to them, only a handful

of European peripheral countries -Spain included-and a handful of Eastern Asian countries. Both

groups were blessed by the second post-war arrangements or were indirectly benefited by them.

Not a single one LA&C country was in the same lucky position, and they have paid a very high

price for not being in the right place in the right moment40.

II. Lessons from Spain?

In my view, Spain enters fairly well in traditional typologies of industrialization, and some critical periods could be defined to fulfill the main requirements to be classified in Clark, Hoffmann, Rostow, Gerschenkron or Kuznets patterns. The subsequent chronology seems less debatable and it can be easily deducted the critical relevance of the 1936-1950 period to explain recent Spanish relative backwardness. II.a. The size of the market. What was most unique in Spanish experience during those years of the First industrial revolution? Undoubtedly, the loss of the American mainland empire. The loss was a "de facto" process with some reversals that began towards 1793 and ended in 1824 when the new American nations became fully independent. In economic terms the process meant the disappearance of protected markets for Spanish goods and services (not all the colonial markets were equally protected, but some important portions were indeed enough well protected to allow for a very significant consumption of Spanish goods and services). The Spanish sectors that were taking a more clear

40 I rely heavily on Carreras (2010 and 2012).

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advantage of the colonial dependence were some industries and services as well as the more trade-oriented Spanish agriculture. In regional terms, a tiny fraction of Spain, mainly along the seaside, was capturing huge profits from this relationship. The economic loss of the American empire has been measured by Leandro Prados as a 3 or 4 per cent of Spanish GDP around 1790 (Prados, 1982 b & 1988): a small fraction according to him. But this fraction, compared with the more capitalistic sectors engaged in the American business, or compared with the GNP of the part of Spain that took advantage of the colonies, can represent a far bigger proportion, perhaps 6 to 8 times the Prados estimate -i.e., from 18 to 32 per cent of 1790 GNP-. More to the point: the Spanish loss was a gain for her main competitor -Britain. The distance between the two powers increased suddenly because of the Spanish loss of the Empire (and of the fleet). The Napoleonic Wars were, as everybody knows, extremely productive in assuring British hegemony in world politics and in world markets. The loss of the protected colonial market wasn't the end of Spanish problems. The troublesome events of those early nineteenth century years (revolutions, foreign invasions, civil wars) led to a complete opening of Spanish frontiers to foreign (mainly English and French) goods, mainly textiles. The opening begun even earlier than in 1808 and the smuggling flow lasted for more than three decades, until the end of the Carlist War, in 1840 (Prados, 1984 a). During those years, smuggling amounted around a half of the legal Spanish import trade. These internal and previously protected markets were also lost for Spanish producers. The poor performance of the Spanish economy during the first third of the nineteenth century was obviously related with the passage from an imperial system to a "free-to-smuggle" nation. With the end of the Carlist War, the external frontiers came back to their previous normal, well policed situation. The new, and highly protective, 1841 tariff jointly with the creation of the Civil Guard ("Guardia Civil") in 1844, were critical measures in retaking full control of the internal market. Its recuperation and "reprotection" explains part of the rapid growth of the forties and fifties. Throughout the 1840-1880 period, Spain reduced many times her tariffs -the most important episodes being the 1849 and 1869 tariffs, but there was also a flow of minor changes and treaties. Actually, in the eighties, Spain needed more markets as its internal consumption was slowing down because of the Great Depression (the "agrarian crisis" in Spanish literature). She found them easily in the Antilian colonies. The imposing of high tariffs against third countries was not independent of the Cuban war and the subsequent loss of late Spanish American and Asian colonies (Nadal, 1975). Once again the protected markets were at the center of the stage in Spanish industrial developments. A display of a very simple measure -the rate of growth of protected markets- could be a good index of Spanish industrial success and failure. It would be worth measuring it as the growth of the population within protected markets but, of course, the ideal measure to estimate the growth rate of the protected markets would be their GDP. Is this measure of any interest for other experiences? My answer is positive. Let's think about the United States, Great Britain and

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Russia: all of them obtained important protected markets throughout the nineteenth century. The United States expanded westward and by acquisition or by conquest they forged a vast nation plenty of land to be exploited. The US tariff remained highly protective until quite late -indeed after the Second World War. The Russian expansion followed the same lines, but with much lesser success. Great Britain built up an empire since the eighteenth century -a story that wasn't independent from her astonishing industrial and economic growth. All these lands and empires were protected markets, and the rate of industrial -and overall- growth seems fairly related with the increase of total demand. Germany and Austria-Hungary acquired new markets through custom unions. Their internal free-trade areas were in sharp contrast with the high tariffs erected against foreign trade. Italian free-trade oriented unification was another confirmation of the importance of the rate of growth of protected markets. The political unity achieved in 1861 was accompanied by a radical free-trade policy that lasted from 1861 to 1878. These were years of stagnation for Italy, perhaps as a consequence of the big amount of trade that was diverted to foreign countries: the previously protected markets of some Italian kingdoms were abolished suddenly and were to be served by foreigners -not by other Italians. Only with the 1878 and 1887 tariffs, Italian industrial development began to accelerate. My point is that all these experiences relate industrial growth with the growth of protected markets. I don't want to minimize the importance of the access to free markets, extremely important as their size grew during the nineteenth century. I am simply trying to pay some attention to the fact that only those countries that succeeded -usually with non economic means as military, politic or diplomatic- to enlarge their protected markets were able to capture the critical economies of scale assumed to exist in the "infant industries" argument. The size of the market was important for industrial growth. It wasn't indifferent to be, by mid-nineteenth century, a thirty million people country or to be a fifteen million. Those at the thirty million level managed to built real scale economies out of their size. The smaller countries didn't -unless they moved into world markets. The critical threshold for scale economies was likely to increase along the time. It was perhaps smaller around 1800 (20 million?). It was surely bigger by 1900 (60 million?). Spain was not far from the proper size -or even within it- by 1790. The loss of her protected markets implied a inability to compete as an industrial producer. The only chances came when she reprotected her internal market, but by then, Spain had become too small a market to built up an industrialization strategy based on tariff protection. No doubt that improving the efficiency of the firms and increasing the degree of specialization is much more difficult when producers are faced with shrinking markets. What do these nineteenth-century lessons mean for twentieth-century better understanding? In a few words, once the colonial market was definitely lost, Spain could only survive -economically speaking- opening herself to the international economy. Protectionist policies were ineffective when minimum efficient market size was well above the Spanish domestic market size. The Spanish stubbornness to deny evidence increasingly brought Spain to the autarchic solution. From 1891

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to 1914 Spain, dangerously closed herself to world markets -the “nationalist way”41. From 1914 to 1936 it was the international economy that closed herself -not Spain. In one way or the other, the journey to Autarchy was long and, once there, the experience was intense. We shouldn’t be surprised that Spanish economists became full supporters of trade liberalizing policies. The bad experience of the first half of the twentieth century explains their distaste of any policy with autarchic flavour. But we should not fall in anachronism. Distance between ideal trade policies and real trade policies

has varied a lot during these last two centuries and a half. Historical evolution could be displayed

with the following simplified example (I simplify by only using population, although it would be much

better to assess GDP. I assume a quite close variation in GDP per capita around the average, although

a better test would be on GDP terms):

Table 1. Minimum population size for a market protected economic growth (in million inhabitants)

Year Minimum efficient (compatible with economic growth) size of a protected economy

Spanish real size (including colonies)

2/1

Panel A

1800 15 20 1,33

1850 30 15 0,5

1890 50 20 0,4

1930 100 25 0,25

1960 200 30 0,15

1990 400 40 0,10

2015 800 45 0,06

Panel B EEC/European Union

1960 200 170 0,85

1990 400 330 0,83

2015 800 510 0,64

All figures are crude estimates or proxies.

The minimum size that allows for a market protected economic growth has increased quickly. By

1800 very few Western countries were above this minimum: Spanish Empire, British Empire and

French Empire. Around 1850, only the last two, plus the United States and Germany could

overcome the 30-millions threshold. Austria-Hungary, Italy and Japan moved along the threshold

line during the half century before First World War. Spain, on the contrary, fell behind. Technical

change was very intense during the first third of the twentieth century. Only the United States, the

41 La vía nacionalista del capitalismo español.

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UK and the Soviet Union remained above the threshold. France and Italy fell behind. Germany and

Japan made their best not to lose speed. They started an imperialist expansion with the rationale of

expanding their markets. Towards 1960 -after decolonization- only the US had the proper market

size. Soviet Union seemed to be the only possible challenger. The European Economic Community

was created to overcome the challenge of a quickly growing threshold for countries that had just

lost their colonial markets. Towards 1990 the Soviet Union had to accept that they had completely

lost the race. The US and the European Union have been forced to speed up and to enlarge their

tariff unions. On the other side, gigantic emerging marketshave realized their own possibilities.

Spain had her opportunity towards 1800, but she lost it. She increasingly diverged from the

minimum size. By 1850 she might have been at a 50 per cent. Generation after generation she went

down and by 1990 she was on a 10 per cent. The mistake of adopting protectionist policies in our

days would be enormous. But it was not in the same proportion over one century and a half ago.

Similarly, we cannot compare the risks of adopting protectionist policies for Spain than for Europe.

It is nonsense for Spain, it is thinkable, although very risky, for Europe. Indeed, the simple table

that I have presented highlights how the creation of the EEC and, after, of the EU, was designed to

solve the problem of too small domestic markets. Actually we still are where Adam Smith placed us:

“the division of labour [i.e., productivity] is limited by the extent of the market”. A fundamental

lesson.

For those countries like the Adelman & Taft Morris “unclassifiable” (The Netherlands, Spain and

Turkey), the loss of their territories and markets meant a clear loos in the industrialization race. They

are difficult to classify as they share features of advanced economies and features of backward

economies.

II.b. Economic liberalizing policies

Spain suffered painfully the extreme closing of her economy. Autarchy was a disaster. The first

generation of universiy trained economists did experience autarchic policies in their daily life42. Ever

since 1949, with Marshall Plan deploying its charm in neighbouring France, all the efforts of

professional economists were oriented towards market liberalization 43 . Theu succeeded in

smoothing autarchic policies and transforming them into import substitution industrialization (ISI)

policies. It was too late. The ISI attempt only lasted ten years. By 1959 it revealed itself as a compete

failure. The only choice was to liberalize for good. This was done in 1959, under IMF, World Bank

and OECD supervision and assistance, and it was a complete success. It was not a tariff liberalization,

but the dismantling of the system of foreign trade under state control. Even high tariffs seemed

42 The first Economics and Business School started in 1944 in Madrid. 43 Carreras & Tafunell, 2010.

27

wonderful for importers. Spain started growing quickly, catching up with all her neighbours. A

preferential agreement with the EEC, first (1973); the entrance into the EEC, after (1986); the

completion of internal market a bit later (1993), all of these assisted Spain to keep converging to the

more advanced Western economies. By 1998, when the Monetary Union started, it could be said

that Spain was economically successful because of fifty years of smooth but non-stopping trade and

tariff liberalizing policies. Indeed, this was what latter became the Chinese way. Just the contrary of

the bing-bang of the collapse of the Soviet Union. It is worth stressing that Spanish liberalization

path was continuous but cautious. Fifty years are a cautious time frame. Just the contrary that

a “big bang”. This is the way how China decided to proceed when economic growth became

national priority.

What could have happened if the International Trade Organization would have been created in 1948

in La Habana, just as planned at Bretton Woods?44 World competition would have been much

tougher. European economies would have been obliged to adapt to the high competitivity of

emerging economies. The second globalization wave would have started much earlier. It is likely

that the path of growing international trade would have reduced world-wide inequality, increasing

incomes per capita in what came to be known “Third World” and after “Emerging Economies”.

The entrance into the European Monetary Union seemed to be one more step in the same safe

direction. More trade should imply more productivity and more welfare. Nobody wanted to pay

attention to the worrying signals coming from the historical experience of countries that had gone

through a monetary union. For almost a decade -1998 to 2007- the Spanish economy seemed to

have fully converged with Western European economies. It even seemed that she was able to

overcome them. But monetary and financial liberalization was of another nature and much more

difficult to monitor and control. The outcome was a very tough and long crisis, that Spain has not

completely overcome (unemployment is still larger than before the crisis, and wages are smaller).

The proper lessons have to come from the gold standard experience or from its remedies, as the

gold exchange standard. These pre WWII experiences were completely forgotten and lost.

II. c. Location

To be fair, during the second half of the twentieth century location has been the most powerful

explanatory factor of the good or bad performance of a country. Countries with poor policies and

poor institutional quality, have found their way int industrialization and economic growth if they

have been in the proper place. This is clearly the case for Southern European countries, very much

favored by closeness to rich Western Europe. The pull of he Western counties demand of goods and

services, as well as the proximity for long term investments have been a major lever for Italy, Spain,

44 I explored this assumption in Carreras 2010 and 2012.

28

Portugal or Greece. Once the Soviet Union dissolved, it happened the same -but with decades of

delay- with Eastern European countries. Countries farther away, be it in pure distance or in

geopolitical and cultural distance, have had less opportunities.

As I have stressed in my comments on Acemoglu and Robinson and on North, Wallis and Weingast,

it has also mattered a lot -perhaps even more- the effect of these expectations on institutional

improvement. Countries without economic growth expectations have institutionally declined.

Countries with good expectations, have improved their institutions.

Let’s consider for a while the contrasting set of incentives of, say, Spain and Cuba.45 Spain

decided to be neutral during the First World War, and enjoyed very much being so.46 The

twenties were a very good expansion period. The Great Depression did not hurt in a significant

way the Spanish economy. The foreign trade depression worsened the trade expectations, but

Spain did not suffer from financial contagion. The only major economic problem in early

nineteen thirties Spain was political uncertainty. Domestic problems were much more influential

in explaining Spain’s poor economic performance during those years. The Civil War was a real

disaster in economic terms. So much so that Spain could not enjoy the new neutrality

opportunities of the Second World War. Franco’s Spain was heavily indebted with Hitler’s

Germany and with Mussolini’s Italy. As long as the World War lasted, Spanish exports were

completely oriented towards Germany to repay war debts. Once the war was over, a long

period of economic stagnation started, that was interrupted by the changes in world geopolitics.

Did Spain suffer from European exclusion? Against what was used to be written and said, not

really.47 The Cold War and the Korean War made Spain much more attractive to the United

States and to Western military defence.48 The increasing economic openness of Spain starting

in 1959 allowed for fifteen years of Spanish full exploitation of Western European growth

opportunities. When the oil crisis came in 1973, Franco’s regime was at its very end. Indeed,

Franco died in 1975. For a few years –1977 to 1982- it was unclear if Western European

countries were to quickly accept Spanish new democratic regime. But even in the worse

moments, the general feeling among Spaniards was that European doors were opened in

principle, and it was only matter of doing our own homework to have them fully opened. In

some sense, it was exactly so. The “carrot” motivated Spanish citizens and Spanish political

leaders to behave properly as all of them realized how much they could benefit from becoming

members of the EEC and how much they could loose by not joining it.49 As a Foreign Minister

45 And also of Franco and Castro! 46 For the paragraph “in totto”, Carreras and Tafunell (2003). 47 Guirao (1998). 48 Guirao (1998); Calvo-González (2006 and 2007). 49 The argument was made both by scholars and by contemporary observers. An approach taking into full account the importance of expectations in the consolidation of Spanish transition to democracy can

29

of these days (Francisco Fernández Ordóñez) put it bluntly responding to left-wingers criticisms

to Spanish application to EEC membership: “it is true there are many problems in becoming part

of the EEC, but it is much colder outside”. Latin America had to remain outside, and it was

much colder, indeed.

Think now for a moment of the different opportunities available for Latin American countries

during the same period50. Just as Spain, most of them were not directly involved in the wars –

even if some were formally aligned with the Allies. But they did not obtain any major long term

advantage of their support. They were put aside in the Marshall Plan and their commercial

expectations were completely frustrated. As I was mentioning, Cuba’s case could be a good

illustration.51 Cuba, since the independence war against Spain, became heavily under United

States influence. The economic appeal of the US was, undoubtedly, its huge market. The major

setbacks in Cuba’s economic life were the closings of the US market. First and foremost the

Smoot-Hawley Tariff, passed “in extremis” thanks to the highly successful sugar lobby.52 The

US bad news came in more occasions, especially after the Second World War when Cuba was

dreaming of coming back to a freer trade era, and found herself abandoned and betrayed by the

US Congress. No wonder if the Cuban educated youth of the 1950s was so bitter about the United

States. The comparison with Spain is increasingly tough. The more Spain could rely on Western

European markets to alleviate the toughness of Franco’s dictatorship, the less Cuba was able to

obtain any “carrot” to sweeten Castro’s political hardship. The political equivalent was even

tougher. While Spaniards were very confident of their entitlement to become members of the

EEC once they would establish a democratic regime, the Cubans might be very skeptical of the

United States stance to Cuba in the post-Castro world.

A number of books and articles have been praising and measuring the quicker Western European

growth of the golden years. There is widespread agreement that total factor productivity was

a huge part of economic growth in Western Europe during those years.53 All of them show that

increasing foreign trade was an engine of growth by means of increasing the size of the market

and allowing for increased productivity thanks to specialization. The major research projects

conducted by Crafts, Toniolo and van Ark located the major forces of the extraordinary Western

European productivity growth in the combination of expanding trade opportunities and

be found in Weingast (2004). 50 The following paragraphs come from Carreras (2010 and 2012). 51 But a similar, systematic story, of a comparison of Mexico and Spain diverging paths after 1950 is told by Gomez Galvarriato and Vila (2007). 52 Dye (2005) and Santamaría (2001) for a wider discussion of the Cuban economy in the 1920s and 1930s. 53 Maddison (1987), Crafts and Toniolo (1996).

30

expanding investment opportunities.54 The domestic social agreements that cemented social

cohesion and wage moderation were crucial to boom profits and to have them reinvested. The

international agreements consisting in the network of European institutions and of world-wide

manufacturing trade liberalization allowed for ever-increasing markets.55 What could have

happened without the benefits of trade integration among the major industrial powers of

Western Europe? The stagnating growth performance of the interwar years provides an

obvious answer. Another answer is suggested by the Western European growth performance

compared to the rest of the world. Following Maddison’s estimates summarized in table 1, the

major Western European economies enjoyed, not only an extraordinary high growth rate, but an

extraordinarily high proportion of this growth rate coming from total factor productivity –

between 60 and 70 per cent-. Growth miracles were rooted in the improvement and expansion

of better allocation mechanisms, mainly through expanded trade. The importance of total

factor productivity is even larger when considering that the calculation is made out of total GDP

growth rates. Had we estimated TFP on per capita GDP, its importance would be increased.

TABLE 2. Growth accounting, 1950-1973.

Country

or region

GDP

growth rate

Factor contribution TFP

contribution land labor capital

in percentage points

Latin Am. 5,2 3 35 27 34

OECD 5,4 0 12 26 62

U.S.A. 3,7 0 31 28 41

U.K. 3,0 0 2 33 66

German F.R. 5,9 0 2 27 70

France 3,1 0 7 21 72

Spain 6,5 1 23 20 57

Source: Carreras (2006), elaborating on Maddison (1995). For Spain (1951-1974), Prados de la Escosura & Rosés (2009). OECD: Organization for Economic Cooperation and Development. By then it gathered all the most

54 Crafts and Toniolo, eds. (1996), Crafts and van Ark, eds. (1996). 55 Eichengreen (1996 and 2006).

31

developed market economies, including all the Western Europeans, the United States and Canada, Australia, New Zeland and Japan.

The table also provides data on other major economic regions. The United States –the

economic leader at that time with a huge advance on the follower economies- was not able to

exploit any of the catching up devices so useful for the Western European economies. Its

performance is still good. Latin America is as good performer as the US, but this is highly

disappointing as its average income per capita is much lower. Here we have an

underperformance to be explained.

Even if a number of authors that look at LA&C performance over the twentieth century stress

that the region’s performance was quite normal, the fact is that the region was a clear

underperformer since the Great Depression. Total factor productivity was much more reduced

in LA&C, while the contribution of labour and land, far more significant. Both LA&C and Western

European experiences suggest that the Western European success could be measured as some

1.5 yearly extra growth percentage points. This is what results of comparing OECD and Latin

America TFPs. But if the comparison is focused on the more EEC related Western European

countries, such as France or Germany (Federal Republic), the range goes from 1.5 to 2.5 yearly

percentage points.56

The importance of trade expansion can also be assessed measuring trade openness. Astorga,

Berges and Filtzgerald (2005: 785) provide an aggregate picture for the largest six LA&C

economies all along the twentieth century. Openness recovered from the lowest 20th century

levels attained by the mid-1940s, but contrary to what happened in Western Europe, recovery

was very limited.57 It failed, by much, to come back to second and to first pre-war levels. And

it lasted only ten years. After the mid-1950s LA trade openness start to drop very quickly. It

reached a new minimum (a secular minimum!) during the 1960s. All the decade was a

stagnating period in openness. Just when Western Europe was reaching its maximum levels, LA

was confined to its lowest. The contrast in experiences is dramatic.

The Latin American openness ratio can be compared with Western Europe.58 Both have been

estimated in a similar way, out of current export, import and GDP values. This is what is

displayed in the next graph:

56 Hofman (2000) obtains slightly more optimistic results on the role of TFP, but his various estimating procedures suggest that the range of uncertainty is still very high. 57 Carreras and Tafunell (2004). 58 Carreras and Tafunell (2004).

32

Figure 6. Openness. Latin America vs Western Europe, 1900-2000.

Sources: Graph 6 and Carreras & Tafunell (2004)

Up to the 1950s Latin America and Western Europe had quite similar openness degrees. Much

can be said about their differences, but the overall picture is of fluctuations around a similar level.

The impact of the wars and of the Great Depression is felt in both regions. Postwar recovery is

also common. The differences explode by the end of the fifties. To be precise, it is in 1959

that the two ratios start to diverge consistently. By 1960 the difference amounted to nine

percentage points. By 1970 it jumped to eighteen and by 1973 to twenty three.

The timing of openness differences is highly suggestive of the growth experiences of Portugal and

Spain. It was exactly during these years that the two Iberian countries switched from a close

economic regime to a more open (“cautiously open” in Donges words) one.

The huge European “carrot” was a powerful engine in improving Spanish institutions and

collective behaviour. It has been the same for Portugal, for Eastern European countries, and

now it is the same for the new European enlargements. LA&C countries felt nothing else but a

“stick”: reduced growth opportunities. The reason was as discretionary as “bad luck” or “bad

location”. What could be the institutional effects of such a set of incentives? They could only

be deleterious. No country can cope with pressing economic declining trends. There is no

Openness. Latin America vs Western Europe, 1900-2000 (%)

10

15

20

25

30

35

40

45

50

55

60

1900

1903

1906

1909

1912

1915

1918

1921

1924

1927

1930

1933

1936

1939

1942

1945

1948

1951

1954

1957

1960

1963

1966

1969

1972

1975

1978

1981

1984

1987

1990

1993

1996

1999

Latin America Western Europe

33

room for redistributive policies. The rise of the welfare state that in Western Europe was deeply

rooted in continuing productivity growth arising from market expansion and scale economies was

impossible to establish in LA&C. There was no room for promoting savings. There was no

room for promoting investment. There was no confidence in the future. Expectations were

negative. Real wages decline, and real profits, too. Economic distribution became tighter.

Each monetary unit to be gained became contentious. The gains for some were the losses for

the others. Economic affairs became, at best, a zero sum game; at worst, and more usually, a

negative sum game. The incentives to cooperate disappeared. No wonder if opportunistic

behaviour became widespread and corruption, usual. No wonder if political power was the

major engine of economic redistribution and of monetary gains.

I am positing that this scenario is the consequence of negative growth prospects. Let me be

more nuanced: it is not necessary to have negative growth prospects for such a disaster. It is

enough to have growth prospects well below your neighbours –or the rest of the world if you are

pretty close to the centre of the world. Growth prospects are comparative by its very definition.

In a similar way as we have seen how low growth prospects in the core large European countries

are dissolving the scope for social cooperation to implement economic reforms, the LA&C

countries found themselves in a situation where nobody accepted to renounce to their rights –

and to their expectations. The rich countries like Uruguay, entered into a long decline

punctuated by important steps down in occasion of major shocks (world economic commercial

and/or financial crisis).59

What can we expect from political leaders in such a scenario? Complete opportunism. Even the

best intentioned of the political leaders, the most committed to his/her land and to its promotion

would finish by discovering that the leaders of the Western world were completely uninterested

with the destiny of LA&C. The LA&C countries did not trigger any positive cooperative game.

All US and Western European policy makers were never interested in sacrificing the short term

interests of their agricultural producers in exchange for better economic prospects in LA&C and,

eventually, in their own countries. Only in cases of dramatic challenging of their own economic

and political interests, Western leaders (mainly the US) would react. This happened in a

number of occasions, especially since Castro’s revolution in Cuba. But whenever the LA&C

leaders pressed their Northern counterparts with the usual demands about the development of

Bretton Woods agreements, and about the liberalization of agricultural trade, the answers

obtained were so sharply negative, that ignoring its consequences would be foolish for LA&C

country leaders.

Political leaders as well as social and business leaders became, accordingly, increasingly

opportunistic. Even the whole population of the LA&C countries became opportunistic. What we

59 Oddone (2008).

34

name “populism” is about widespread opportunism –the other side of economic and political

opportunism in the Northern developed countries. Corruption is the other side of the same

coin. When policy design is not sustained by the economic fundamentals, any agent –all the

agents, eventually- might decide to take care of their own private interests and to forget about

cooperation. Cooperation stimuli disappear. Institutions decline and, eventually, collapse. The

complex and disappointing political life of so many LA&C republics can not be understood

properly outside this framework. The increasing tightness of distributional conflicts was built

in the diminished economic expectations.

I should underscore that my argument goes from external expectations and constraints to

domestic institution building. This is the reverse of what is usually told in the current literature.

I also stress the fact that import-substituting policies were mainly reacting to external

opportunities, and not framing them. In this I depart from a trend, rightly criticized by Haber

(2006), of blaming “Prebish” or “CEPAL” (ECLA) because they defended what was no more than

a “pis aller” policy.60

It is easy to be proud, as many Europeans are, of your own institutions when you have enjoyed

the progressive wind of history. LA&C countries had the wind of history blowing clearly against

them. No wonder if institutions’ quality declined. If my hypothesis is correct, the origins of

LA&C backwardness need not be rooted in a distant past, but in the twentieth century, mainly in

its second half. The institutional weaknesses of LA&C are a consequence of the diminishing

expectations politically built by decisions taken by all the advanced Western countries –the OECD

world- to build their own domestic consensus. In the same way that we can speak of segmented

labour markets within a country, we have also had segmented world markets. Those that were

not targeted by the protective rules of the special international trade had to suffer a lot. The

road down to impoverishment is not a good one to build a cooperative society, governed under

the rule of law and with stable and democratic institutions. Such a hypothesis also suggests

that the current LA&C bonanza based on the world booming demand is as fragile as usual since

mid-twentieth century. Only substantial changes in expected access to the world wealthiest

markets could provide the lever to change the mind and, hence, the institutions of Latin America

and the Caribbean. Indeed, we are seeing this mechanism at work in some countries.

60 Bethell and Roxborough (1992: Conclusion) go into this direction when they suggest that Prebish new paradigm was the unifying theme behind the changes in Latin America during the critical 1944-1948 years. Prebish and CEPAL were still to come, and they were nothing more than a reaction. It is true that the new ideas can become the future vested interests, and they became so, indeed.

35

********* Spanish long-term economic performance provides some insights that can be useful for the reassessment of industrialization and modern economic growth. Her inability to be classified in the usual typologies -although being closer to them than was previously thought- suggests three interrelated interpretative clues that may be worth to explore: the rate of growth of protected markets as an explanatory variable of long-term economic performance, the importance of cautious trade liberalization policies and the decisiveness of a proper geopolitical location to enjoy the growth promoting impact of wealthy neighbours. In the three cases, the underlying lesson is as old as Adam Smith: “the division of labour is limited by the size of the market”.

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