Bumpy Road

Written by Brazzil Magazine    Monday, 01 April 2002 
By Brazzil Magazine Until the 1880's, the tax revenues of the central government were approximately 4.5 times larger than those of the provincial governments. The central government's share in total public-sector expenditure was even larger, for the central government had much greater access to foreign and domestic borrowing. Likewise, the tax revenues collected by local governments in nineteenth-century Brazil were a small fraction of total public-sector revenues. One possibility is that the vision of implementing a rational public-investment policy was distorted by the lens of Brazilian politics. The large landowners had considerable influence in Brazilian politics during the nineteenth century, and they are generally not considered to have been a very "progressive" or "development -oriented" group. In fact, what was needed in this context was not an interest in development but an interest in wealth maximization. Brazil's landowners displayed ample evidence of such an interest. Thus, responding to the prospect of favorable returns, Brazilian planters allocated sufficient resources—even to products with a long gestation period, for example, cocoa in Bahia and coffee in São Paulo—to make possible sharp increases in output. Further, far from explaining the failure of Brazil's governments to provide large infrastructure investments, an interpretation that emphasizes the role of the large landowners in Brazilian politics only sharpens the question. For, following Joseph Schumpeter's insight concerning the convergence of monopoly and socialism, one would expect large landowners to be especially energetic in pressing for public investment. This is because landowners with extensive holdings and market power can internalize and appropriate most of the social benefits of infrastructure investment. Therefore Brazil's internal political conditions should have led to large government investment in economic infrastructure. ...Between 1830 and 1885, some 70 percent of the government's revenues came from taxes on imports and exports. As this number indicates, generalized taxes on agricultural land were not an important source of government revenue in nineteenth-century Brazil. In this respect, Brazil contrasted notably with countries otherwise as diverse as India and Japan in the nineteenth century. Not only would the administrative costs (including a cadastral survey) of generalized land taxation have been high, but the revenue prospects of such an effort were meager. An important difference with India and Japan was Brazil's abundance of land and the ensuing low ratios of labor to land in the domestic agricultural sector. With little pressure of population on land, Ricardian rent, the basis for land taxation, was small. These conditions, which made for high transactions costs and a low economic surplus in the domestic agricultural sector, meant that the net fiscal yield of generalized land taxation would have been small....In the latter case, production was mainly in the form of small-scale family farming under the overlordship of a large local landowner. With labor scarce relative to land, cultivation was land-extensive. This text was excerpted from How Latin America Fell Behind—Essays on the Economic Histories of Brazil and Mexico, 1800-1914, Edited by Stephen Haber & re-edited by JKennedy Bennett, Stanford University Press, 1997, 316 pp (economics in economics weighting: LOWEST)