The Political Economy of Rubber in the Brazilian Amazon, C.1870
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London School of Economics and Political Science Department of Economic History PhD Thesis Institutions, Geography and Market Power: the Political Economy of Rubber in the Brazilian Amazon, c.1870- 1910 Felipe Tamega Fernandes July 2009 UMI Number: U615694 All rights reserved INFORMATION TO ALL USERS The quality of this reproduction is dependent upon the quality of the copy submitted. In the unlikely event that the author did not send a complete manuscript and there are missing pages, these will be noted. Also, if material had to be removed, a note will indicate the deletion. Dissertation Publishing UMI U615694 Published by ProQuest LLC 2014. Copyright in the Dissertation held by the Author. Microform Edition © ProQuest LLC. All rights reserved. This work is protected against unauthorized copying under Title 17, United States Code. ProQuest LLC 789 East Eisenhower Parkway P.O. Box 1346 Ann Arbor, Ml 48106-1346 wests f W \l\\O S \ Declaration I certify that the thesis I have presented for examination for the PhD degree of the London School of Economics and Political Science is solely my own work other than where I have clearly indicated that it is the work of others (in which case the extent of any work carried out jointly by me and any other person is clearly identified in it). The copyright of this thesis rests with the author. Quotation from it is permitted, provided that full acknowledgement is made. This thesis may not be reproduced without the prior written consent of the author. I warrant that this authorization does not, to the best of my belief, infringe the rights of any third party. 1 ABSTRACT The thesis applies a political economy approach to the study of how institutions and geography explain the development of a commodity chain. Focusing on the Brazilian Amazon from 1870 to 1910, the analysis develops a new theoretical framework constructed by combining standard trade models with institutions and economic geography. There are two levels of analysis: interactions among, and within, different nodes of the commodity chain. A quantitative-driven analysis from macroeconomic data supports inferences from microeconomic behaviour. The thesis provides new information on rubber prices and exports, trader ledgers, estate accounts, newspapers, travellers accounts, and official documents. The research develops a demand- and supply-side analysis of the history of rubber, from tappers to manufacturers. It features the main rubber manufacturing countries, Britain and the USA, and shows how competition prevailed along the chain, translating into a struggle for rubber supply. Rubber was not a homogeneous product. Due to a combination of quantity and quality, the Brazilian Amazon possessed significant market power, market power that shaped the rubber chain. In this light, the thesis investigates how the Brazilian rubber supply chain was organised and how agents profited from its monopolistic position. It also shows that taxation increased the regional welfare and allowed the government to support two related activities: telegraphs and shipping. The thesis proves that violence and coercion were not necessary features of rubber production, as argued by much of the literature. Through a game-theoretic approach, the thesis demonstrates conditions under which production could have occurred without exploitation. In a context of high price-inelasticity of demand and rising prices, production was driven by market forces. Inelasticity of demand was indeed one of the main features of the rubber boom. It shaped production, bargaining power between different nodes of the chain and competition within them, defining the distribution of profits along the rubber chain. 2 TABLE OF CONTENTS Pa9es LIST OF FIGURES.................................................................................................... 04 ACKNOWLEDGEMENTS......................................................................................... 07 NOTES....................................................................................................................... 08 INTRODUCTION........................................................................................................ 09 1. Commodities and Trade ..................................................................................... 34 1.1 - Introduction ............................................................................................. 34 1.2 - Standard Trade Theory, Immiserising Growth and Geography 35 1.3 - Global Commodity Chain Approach ..................................................... 44 1.4 - Global Commodity Chains: a Critique .................................................. 49 1.5 - Thesis Approach: Bringing Institutions and Geography to the Fore... 54 1.6 - Inside Look at Institutions and Geography ........................................... 64 1 .7 - Final Remarks ............................................................................. 68 2. Demand for Crude Rubber: from early history to 1910 .................................... 71 2.1 - Introduction............................................................................................. 71 2.2 - Early Rubber History until 1850s .......................................................... 72 2.3 - British Rubber Manufacturing Industry, 1860s-1910 .......................... 81 2.4 - US Rubber Manufacturing Industry, 1860s-1910 ................................ 86 2.5 - Impulses of Demand ............................................................................. 93 2.6 - Elasticities of Demand .......................................................................... 101 2.7 - Final remarks ......................................................................................... 109 3. World Rubber Supply: the US and British Struggle for Rubber.... .................. 111 3.1 - Introduction ............................................................................................. 111 3.2 - Re-Exporters (mainly Europe) .............................................................. 113 3.3 - The Role of Colonies: Oceania, Asia and A frica ................................ 114 3.4 - Americas (excluding Brazil) .................................................................. 122 3.5 - The Brazilian Rubber Supply ................................................................ 131 3.6 - Case Study: Edmund Schluter & Co. versus J.H. Andresen & Co 140 3.7 - Final Remarks ........................................................................................ 149 4. Brazilian Production Chain: a Re-lnterepretation ............................................. 153 4.1 - Introduction ............................................................................................. 153 4.2 - Estate Owners & Tappers: a Game Theoretic Approach .................... 154 4.3 - How does Institutions Change the Likely Outcomes of the Game?.... 164 4.4 - Moving Along the Rubber Production Chain ........................................ 172 4.5 - Re-Interpreting the Literature ................................................................ 180 4.6 - Final Remarks ........................................................................................ 187 5. The Political Economy of Taxation and its Impacts on Amazonian Welfare... 189 5.1 - Introduction ............................................................................................. 189 5.2 - Estimating Market Power ...................................................................... 190 5.3 - The Economics of Taxation: Impact on Elasticities ............................. 200 5.4 - Welfare Analysis .................................................................................... 205 5.5 - The Political Economy of Taxation ....................................................... 211 5.6 - Final Remarks ........................................................................................ 218 6. Communications and Shipping: The Integration of the Brazilian Amazon 222 6.1 - Introduction ............................................................................................. 222 6.2 - Communication: Mail and Telegraphs .................................................. 223 6.3 - Ocean Navigation .................................................................................. 235 6.4 - River and Coastal Navigation ............................................................... 245 6.5 - Communication and Shipping: Measuring Integration ......................... 254 6.6 - Final Remarks ........................................................................................ 269 CONCLUSION............................................................................................................ 272 SOURCES AND BIBLIOGRAPHY........................................................................... 284 APPENDIX A: Econometric Results ....................................................................... 319 APPENDIX B: Macroeconomic Data ...................................................................... 329 APPENDIX C: Rubber Trade Data .......................................................................... 336 APPENDIX D: Productivity in Rubber Manufacturing ........................................... 362 3 LIST OF FIGURES Pages 1.1 - Main Occurrence of Hevea Brasiliensis Trees in the Brazilian Amazon 13 1 .1 - Rubber Chain ..................................................................................................... 58 2.1 - Early Rubber Manufacturing Concerns,