Book Reviews

09 março, 2006

16) História econômica de São Paulo

------------ EH.NET BOOK REVIEW -------------- Published by EH.NET (March 2006)

Anne G. Hanley, _Native Capital: Financial Institutions and Economic Development in São Paulo, Brazil, 1850-1920_. Stanford, CA: Stanford University Press, 2005. xviii + 286 pp. $55 (cloth), ISBN:

Reviewed for EH.NET by Gail D. Triner, Department of History, Rutgers University.

_Native Capital: Financial Institutions and Economic Development in
São Paulo, Brazil_ offers an incisive history of the origins of
modern financial institutions in a region that became, by the middle
of the twentieth century, one of the largest urban and industrial
centers of the "third world." Anne G. Hanley, Associate Professor of
History at Northern Illinois University, has constructed an
excellent, detailed history of the organizations and legal structures
that fueled an extraordinary period of financial innovation in São
Paulo. In doing so, she finds dynamic entrepreneurialism bringing
Brazilians together to pool their resources in constructive ways to
fund explosive growth of financial markets at the end of the
nineteenth and beginning of the twentieth centuries.

During the late nineteenth century, while the Brazilian state was
organized as an "empire," slow developments in the forms of joint
stock companies, debenture issues, and banking were limited by the
scale of financial requirements and by regulation at the national
level. However, the expansion of coffee production, which ultimately
fueled regional growth, the shift from slave to free (Brazilian and
immigrant) labor and increasing demand for industrial capacity,
provided incentive for entrepreneurs in São Paulo to seek new forms
of financial organization.

In January 1890, almost simultaneously, and closely associated, with
the introduction of republican government in November 1889, financial
reforms opened the way for massive expansion in the forms and scale
of corporate finance. Eased legal and capital requirements for
limited liability corporations resulted in large numbers of new
companies and banks opening their doors. Capital markets for equities
and debentures and banks emerged from the reforms. As Hanley adroitly
demonstrates, these reforms allowed existing economic elites to
expand their activities at the same time that wider groups could
participate in the boom, by investing their smaller pools of savings.

The securities exchange for equities and debentures (the Bolsa de
Valores) suffered a rapid crash in 1891, but re-emerged strongly
after a national debt re-scheduling in 1898 and additional reforms in
1905. Then, its "vigor disappeared after 1913" (p. 111) in the light
of disruptions that World War I created in Brazil's trading and
financial networks. Hanley emphasizes the surviving companies and
banks, rather than the many bankruptcies, acquisitions and
liquidations. Without explicit quantification, it is difficult to
determine the most common outcome for the companies newly formed
during the 1890s. It is possible that opportunity for financial
dynamism (with many regulatory loopholes) supported both real growth
and widespread failures simultaneously.

In analyzing banking, Hanley makes a useful distinction between
commercial and universal banks. The sample of universal banks is
small (n=3), reflecting their inability to gain a foothold in the
prevailing business environment. The few universal banks pursued
long-term finance through mortgage and construction lending; they
tried to raise long-term funding with mortgage-backed notes. The
discussion of their failure raises more questions than it answers.
Low profitability may have been the proximate cause of their demise.
But, the theoretical discussion, leading to expectations of
beneficial success, and findings of problems with asset valuation,
suggest deeply seated business or regulatory problems that deserve
attention. Commercial banks fared better: more of them served the São
Paulo economy and they survived longer than universal banks. Although
deprived of easy branch banking and long-term facilities, the
liquidity and secure collateral that characterized commercial banks'
conservative portfolios served them well.

The causes and effects of the crises of 1891 and 1913/14, debt
rescheduling of 1898, bank reforms and failures of 1900; the role
(and feasible alternatives) of national monetary policy, and the
relationship of São Paulo's with the national economy receive cursory
attention in _Native Capital_. But, given the importance of São Paulo
for the economy and politics of Brazil, detailed questions relating
the macroeconomic setting, the dynamics of national policy decisions
and the trajectory of paulista business development arise. As
examples, the specific "macroeconomic instability" that contributed
to the failure of universal banks, as distinct from commercial banks
(p. 148), the relationships between debt re-financing in 1898, bank
failures of 1900-01, banking reform of 1905 (Chapter 6), and the
formation of business enterprises could benefit from more
exploration. Perhaps most importantly, reconciling the beneficial
linkages of vastly expanded coffee production that Hanley refers to
throughout the book, with seriously depressed world coffee prices
from the mid-1890s through much of the first decade of the twentieth
century and public sector support for coffee (with price supports and
monetary reforms in 1905) may go a long way towards identifying the
ways in which paulista entrepreneurs could apply their innovative

_Native Capital_ carefully describes the development of financial
institutions and markets within São Paulo at the turn of the
twentieth century, and it convincingly demonstrates a period of
intense dynamism. However, the introduction's claim that "the
financial institutions so neglected in the Brazilian literature were
precisely what made São Paulo's development so successful" (p. 19)
has broader implications on two interrelated counts that deserve
attention. First, the implicit counterfactual -- the possibility of
other sources for successful development -- is not the subject of
empirical or analytical exploration. This concern taps into a very
long-standing debate in financial theory and history about the causal
relationship between finance and economic development; that it
remains unresolved here only demonstrates its continued difficulty.

Second, and of more immediate concern for Hanley's research, the
relationship between these findings of financial and economic
dynamism during this period and long-term development in São Paulo
come into question. The period of financial dynamism was short-lived.
After the early spectacular growth of the Bolsa, and especially after
1913, the story became very different. By the 1990s, when São Paulo
boasted one of the largest, most modern industrial sectors in the
developing world, its Bolsa listed only three-and-a-half times the
number of companies that it had in 1917 (p. 189). While some aspects
of early industrial structure saw their impetus in São Paulo during
the decades surrounding the turn of the twentieth century, the volume
of industrial growth can be traced to the post-World War II years.
Therefore, if Brazilian financial markets remained moribund through
much of the twentieth century after World War I (as seems to have
been the case), can the financial dynamism of the earlier period
really explain the success of São Paulo's long-term development? What
prevented sustained institutional dynamism? Attention to these
questions provides an interesting challenge for future research.

Finally, the title of this book deserves more attention than it
receives. Brazilian capital and money markets relied on Brazilian
capital for their formation. This finding taps into one of the
fundamental debates underlying Latin American economic history, the
question of "dependency." While Hanley alludes to the debate, an
explicit discussion of the implications she draws for the finding of
"native" capital would help both Latin Americanists with vested
interests in varying sides of the debate and non-Latin-Americanists.
From an empirical perspective, a useful subsequent question is
whether, or how, the access that Brazilians had to international
capital during the years of domestic financial innovation affected
the dynamism of the São Paulo market.

_Native Capital_ is very well-written. The prose is clear, and free
of unexplained financial or theoretical jargon. The quantitative
methods of the book rely on accounting principles that allow Hanley
to explicate clearly the underlying businesses of financial
institutions. The text situates the São Paulo case in the larger
context of comparative financial history. The discursive footnotes
are informative. Hanley is fully convincing on her theme of the
extraordinary surge of entrepreneurialism in São Paulo during the
late nineteenth and early twentieth centuries. _Native Capital_
provides an important case study for very important questions in
Brazilian and financial history. That the book raises provocative
questions is a measure of its success.

Gail D. Triner, Associate Professor of History at Rutgers University,
is author of _Banking and Economic Development: Brazil, 1889-1930_
(New York: Palgrave Press 2000) and a variety of articles on
Brazilian economic and financial history, most recently, with Kirsten
Wandschneider, "The Baring Crisis and the Brazilian Encilhamento,
1889-1891: An Early Example of Contagion among Emerging Capital
Markets?" _Financial History Review_, Vol. 12, no.2, October 2005.

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