Mining and the State in Brazilian Development

Gail D Triner

• Publisher: Routledge
• Year: 2015
• ISBN:
  9781317323587
• Edition: 1
• Topic: Economics
• Subtopic: Economic History
• Index: Economics

'Mining and the State' examines the fundamental economic institutional structure of Brazil through the prism of its mineral endowment.

PART I: THE SUBSOIL IN BRAZILIAN HISTORY

1 HISTORICAL SETTING

Efforts to extract wealth from the subsoil began with the earliest colonization of Brazil by Portugal, but they achieved success only in the middle of the twentieth century, with the massive exploitation of iron ore. As entrepreneurs experimented with a range of approaches, they faced shifting definitions of ‘success’. Finally emerging as a mineral producer required significant transformation in Brazilian economic governance. Leveraging extremely rich iron ore deposits into wider economic benefit had unexpected and fundamentally important impact on the Brazilian economy. Mineral extraction is a relatively neglected area of historiography, despite its centrality in production and in the institutions of political economy. Scholarship by Gavin Wright demonstrates the very tight connection between industrialization and mineral endowment in the US.¹ This book, using different methods, a longer time frame and a focus on political economic institutions, examines this connection as it unfolded in Brazil. The book places iron ore mining at the centre of the story, because iron ore is the mineral that brought success.² This chapter offers the relevant historical background. In focusing on the general features of Brazilian political and economic structures that have been relevant to the institutional developments necessary for iron ore mining and metallurgy, the chapter gives short shrift to the broader range of individuals, conflict, contention, nuance and non-linearity of Brazilian history.

Political and Economic Structure

The Colony

Initial Portuguese exploration of Brazil, after first finding themselves in the ‘New World’ in 1500, did not seem to promise much that would motivate settlement and exploitation. The large settled populations and precious minerals that Spanish expeditions found were not present in the region where the Portuguese landed. Although explorers remained hopeful of gold or silver discoveries, it was timber, the dyes from Brazilwood and then the commoditization of sugar based on plantation and slave agriculture that slowly motivated European settlement. Settlers found abundant iron ore in the region that is currently Sao Paulo in 1554; but this mundane mineral was not their goal. The discovery of rich gold veins and precious stones by settlers pushing inland, almost 200 years later, at the end of the seventeenth century, is variously mythologized as the consequence of heroic actions by brave and noble settlers or analysed as the accidental results of bandeirantes on expeditions to clear land and to hunt for indigenous slaves.³

The Portuguese organized their colonies in Brazil to reflect their interests and their background. The result was that a very broad base of Indians, Africans (introduced by the largest and longest-lasting importation of slaves in the Americas) and their descendents supported a much smaller, well-defined, highly nuanced and stratified social hierarchy of Europeans and their descendents. While seemingly a rigid hierarchy, movement among its strata was quite fluid. Property and the exploitation of natural resources defined the hierarchy. These principles set the course of future social, political and economic organization.

Laws and practices evolved to protect the interests of existing property owners. The imperial state had two goals in this regard: to benefit as much as possible from the extraction of natural resources and to protect the interests of its constituency: European-descended property owners. Sometimes these goals conflicted; but usually the interested parties could find resolutions that reconciled or circumvented conflicts. The hope of finding precious minerals motivated the earliest property laws and the discovery of gold instigated a significant extension of administrative regulatory authority (Chapter 2). Given available technology, the first gold discoveries were substantially depleted within fifty years.

Imperial interests turned to local conditions within the Brazilian colonies during the thirteen-year interregnum, 1808–21, when the Portuguese imperial court sat in exile in Rio de Janeiro. The unique circumstance of an imperial government abandoning its capital during siege and transplanting itself to its most important colony introduced fundamental changes in many aspects of Brazilian life.⁴ For the purposes of this book, the most important change was the developmentalist perspective that need and proximity induced in imperial leaders. Imperial participation within the colonial economy took new forms in order to construct the infrastructural underpinnings required for further extraction of resources at the turn of the nineteenth century. The need for physical infrastructure to support local industry, whether for domestic or export-market production, had received sparse attention in the policies of the previous three centuries, which had focused narrowly on extraction and mercantilism.

Iron ore mining and forging (which producers and policy makers considered jointly) was an integral component of the changed perspective. Persistent shortages in machinery and tools, contributing to production bottlenecks for export goods, were prominent among local problems. The Crown sponsored efforts to expand iron ore mining and forging without inhibiting the pursuit of more lucrative endeavours by private producers of sugar and precious minerals (Chapter 3). As with many of the policy innovations of the period, support for iron mining and forging ended with the return of the Portuguese Crown to Lisbon, and the subsequent march towards independence.

Incomplete Independence: Brazilian Empire

Brazilian independence came in 1822, sharing many of the dynamics that motivated political independence in the former colonies of other European powers. Two features, however, distinguished the process in Brazil: the relative lack of violence surrounding the independence movement and the construction of a Brazilian ‘empire’ to govern instead of the Portuguese Crown. Members of the Portuguese royal family ruled the Brazilian political entity until 1889.

The developmental policies of the immediately preceding years did not continue while the Brazilian state presented itself as an independent empire. The conflation of fiscal and trade policies by the imperial government rendered both ineffective.⁵ Inability to establish sources of revenues other than exports inhibited fiscal policy. As a result, public resources did not exist to support aggressive intervention in the economy. Perhaps the most important governmental intervention in the economy supported commodity producers by subsidizing railroad mainlines and offering concessions to build connecting trunk-lines.⁶ Despite prudent practices,⁷ money and finance developed slowly and in manners that did not give incentive to large-scale, de-personalized capital accumulation.⁸ Traditional land-extensive plantation agriculture rested on a broad base of slave labour and free-labour subsistence-producers who could not support dynamic local commerce. For all of these reasons, domestic economic development lagged behind efforts in the export sectors.

Agricultural exports dominated the prevailing political and economic constituency. Gold and precious-stone mining continued within the mineral-rich region of Minas Gerais, as well as in pockets of the provinces of Bahia and Goias; but participants in this sector were not heavily invested in the political process (Chapters 2 and 3). Iron ore mining and forging lost its position on the political economic agenda during the nineteenth century.⁹ Even so, isolated activity did occur; the national government funded and opened the Escola de Minas (Mining School) with foreign geologists in 1876. The school became the domestic training ground for engineers and geologists.¹⁰

From the middle of the nineteenth century, policy makers and property owners began to recognize that the existing economic structure did not offer a viable future. The effective abolition of the trans-Atlantic slave trade in 1850 was both a cause and an effect of social change; it marks a convenient point of departure for considering deep economic change. Property owners understood that, given demographic realities of Brazilian slavery, the abolition of the trans-Atlantic trade would result in the eventual end of the slave system.¹¹ Therefore, some began to turn their attention to preserving their ability to survive the loss of one of their important categories of property – slaves – by instituting reforms that would modernize the Brazilian economy. A Commercial Code to encourage more open business structures, efforts to attract European migrants for labour, and the creation of systematic methods for claiming land ownership with the Land Code were some of the responses that took shape.¹² Applying modern organizational methods and scientific practices to large-scale commercial agriculture, both for export commodities and increasingly for domestic sustenance, gained attention as a way to modernize the country-side. Would-be entrepreneurs worked to introduce a base of industrial manufacturing into the economic system. Reacting to a widespread belief that slaves were unsuitable labour for manufacturing, industrial ambitions also served as a motivation to end slavery.¹³ None of these projects progressed quickly, smoothly, or as planned; but with time, they gathered momentum.

Republican Brazil

The abolition of slavery and overthrow of the Empire to introduce republican government, in 1888 and 1889, respectively, signalled continuing political-economic and social transition. Governing Brazil must have become more difficult during the First Republic (1889–1930) than it had been during the Empire. New and traditional interest groups competed in the marketplaces of ideas and political representation. The military emerged as an active force in domestic politics and government. Recently freed slaves and other poor rural folk began moving to cities in large numbers, and they simultaneously constituted a pool of consumers for industrially manufactured goods, a source of labour and uncivilized hordes. Foreign immigrants and freed slaves also flocked to newly opened areas of plantation agriculture. These demographic movements opened opportunities for industrial entrepreneurs and would-be entrepreneurs. Under the guise of republicanism, much governance passed from the national level to the newly designated states. Questions about economic structure moved to the centre of most political agendas. Much historiography has focused on the political and economic transitions of the period.¹⁴

Some social historians contend that conciliation between different groups, rather than resolution of conflict, created many of the contradictions and inconsistencies in Brazilian life. In accordance with this interpretation and notwithstanding new interest groups and rearranged social organization, rigid social order remained an organizing principal. Social, economic and political hierarchies were mutually reinforcing. Reconciling new material and economic needs with traditional ones required skill, and often they created new sources of conflict. Economic policy debates that juxtaposed export agriculture against support for industrialization began to gain ground in this environment.

Tensions between the interests of commercial agricultural producers and emerging industrialists have received attention. Nevertheless, historians have shown that these sectors tended to advance in tandem, and these were the commercial sectors that accumulated strong political power.¹⁵ The rapid expansion of both sectors required physical infrastructure beyond the existing capacity in Brazil at the end of the nineteenth century. As a result, in areas of dynamic growth the demand for transportation, finance, ports, electrical networks, and basic machine- and tool-manufacture remained ahead of their supply. Iron mining and forging (and by the twentieth century, steel manufacturing) re-emerged as potential solutions to some of the bottlenecks of supplying machinery and tools necessary for industrial manufacturing and for expanded commercial agriculture. At the same time, a new Constitution in 1891 mandated the first change in subsoil property rights since Portuguese colonization, which evolved into a concern with the natural resource and institutional requirements to bring about iron and steel development (Chapter 4).

Post-Republican Brazil

A coup, in the face of election disputes, ended the First Republic in October 1930, and initiated the governmental regime...