5 - Industry

Summary

What impact did Mexico's long period of instability have on its manufacturing industries? What strategies did manufacturers and political factions employ to mitigate the impact of adverse institutional change on their businesses? How successful were those strategies?

Our analysis indicates that political instability had only a short-run impact on investment and economic performance. Firm- and industry-level data indicate that the size, ownership structure, and productivity growth of the manufacturing sector was little affected by political turbulence, except for the period 1914–17. In the medium term, however, Mexico's manufacturers were able to mitigate the effects of instability by recreating the vertical political integration (VPI) coalitions that had sustained investment under Díaz. The one major difference was the third party that enforced the coalition. During the Porfiriato, the third-party enforcers of VPI were politically crucial individuals. After 1918 the third-party enforcer was the labor movement, acting as an institutionalized entity embedded into the country's governance structure.

In our argument we discuss first the development of large-scale industry in Mexico during the two decades prior to 1910 and then the direct impact of violence and the indirect impact of institutional change on Mexican manufacturers during and after the revolution. We then employ firm- and industry-level data and econometric techniques to assess the effects of these institutional changes before advancing an argument to explain why extreme political instability and dramatic institutional change had little impact on the performance of industry over the medium term.