The Role of Railways in Export-Led Growth: the Case of Uruguay, 1870-1913

THE ROLE OF RAILWAYS IN EXPORT-LED GROWTH: THE CASE OF URUGUAY, 1870-1913 Alfonso Herranz-Loncán University of Barcelona ABSTRACT The social saving literature has highlighted the indispensable role that railways played before 1914 in several Latin American export-oriented economies, such as Mexico, Brazil or Argentina. This paper analyses the case of Uruguay, a country that, by 1914, had built one of the densest railway networks in Latin America. The paper shows that, in contrast to what happened in other economies of the region, the resource saving effects of the Uruguayan railways during the first globalisation were tiny, due to the small share that railway output accounted for within GDP. Three complementary reasons are suggested to explain that result: the geographical structure of the country, its sectoral specialisation and the small scale of the Uruguayan economy. Due to these three characteristics, Uruguay was unable to benefit from railways in the way that other export-oriented Latin American economies did during the first period of globalisation. This conclusion draws attention to the geographic-specific character of railway technology. JEL code: N76 Keywords: Railways, Uruguay, Export-led Growth 1 THE ROLE OF RAILWAYS IN EXPORT-LED GROWTH: THE CASE OF URUGUAY, 1870-1913 1 1. Introduction The railways were an essential component of the transport revolution that made the first globalisation possible and had a huge growth impact in several Latin American export-oriented economies. In countries such as Argentina, Brazil or Mexico, the railways created and strengthened the links between previously fragmented local markets, and also between them and the world markets, having a much more developmental character in those countries than in the core economies, which already had relatively efficient and competitive market structures at the beginning of the railway era (Coatsworth, 1981; Summerhill, 2000 and 2003; Kuntz Ficker, 1999; Dobado and Marrero, 2005). Actually, in Summerhill’s words, “(…) it now seems unlikely that any other technological or institutional innovation was more important in the transition to economic growth in Latin America before 1930” (Summerhill, 2006: 297). Uruguay, like other Latin American economies that participated actively in the first globalisation era, also undertook an intense process of railway construction during the last few decades of the nineteenth century, and its railway network was one of the densest in the continent by 1913. However, assessments of the role that railways played on the transformation of the Uruguayan economy during the first globalisation boom have been rather pessimistic. Both contemporaries and subsequent historians have insisted that the Uruguayan railways were badly constructed and managed, did not respond to the country’s needs, and had no impact on either the diversification of production or the increase in the available stock of natural resources due, among other reasons, to the business strategy of the railway firms (see, e.g. García Acevedo, 1892, p. 47; Vázquez, 1931; Nahum and Barrán, 1971, p. 535-613; Millot and Bertino, 1996, p. 345; Winn, 2010, p. 251). 1 I thank Jorge Álvarez, Magadalena Bertino, Luis Bértola, Reto Bertoni, Enrique Bianchi, María Camou, Werther Halarewicz, Raul Jacob, Javier Rodríguez-Weber, Carolina Román, Henry Willebald and the participants at seminars at the University of the Republic (Uruguay) and the University of Barcelona for their very useful comments and help with data sources. This paper has benefited from the financial support of projects ECO2009-13331-C02-02/ECON and PR2009-0505 (Spanish Ministry of Science and Innovation). 2 In this context, this paper aims at providing a global estimation of the direct impact of Uruguayan railways on economic growth before 1914 and providing some possible explanations for the low level of that impact and the apparent exceptionality of the Uruguayan economy in the Latin American context. To that purpose, the next section provides a short survey of the characteristics of the Uruguayan railway system during the first globalisation period; Section 3 presents an estimation of the social savings of the Uruguayan railway system by 1912-13; Section 4 analyses some of the potential explanatory factors of the social saving estimation outcomes; and Section 5 concludes. 2. The Uruguayan railway system (1869-1914) Railway construction in Uruguay started relatively late, compared with other leading Latin American economies such as Cuba (whose first railway line was opened in 1837) or Argentina, Brazil, Colombia, Chile, Mexico and Peru (where construction started in the 1850s). Due mostly to the enduring economic devastation provoked in the country by the Guerra Grande ,2 there were no serious initiatives for railway construction until the mid 1860s, and the first railway stretch, of just 20 km, was only opened in 1869. However, despite that delay, by the eve of World War One Uruguay had built a railway system of 2,577 km, which was among the densest in the continent, both in per capita terms and relative to the country’s surface area. Compared with European networks, the per capita mileage of the Uruguayan railway system was more than twice the European average, although it ranked much lower in relation to the country’s area, due to the large difference in population density between Uruguay and Europe. Table 1. Railway network mileage in 1912. Mileage/population Mileage/surface area (Railway km per (Railway km per 10,000 pop.) 1,000 km 2) Argentina 42.65 Puerto Rico 38.88 Uruguay 21.78 Cuba 33.37 Chile 21.20 Salvador 15.44 Costa Rica 16.51 Uruguay 13.52 Cuba 16.13 Costa Rica 11.95 Mexico 14.22 Argentina 11.39 2 The Uruguayan Civil War, also known as “Guerra Grande” (Great War), was a series of armed conflicts that took place between the two factions that disputed power in 19th century Uruguay (the “Colorado” and the National Parties) from 1839 to 1851. 3 Brazil 9.53 Mexico 10.37 Peru 7.46 Chile 9.87 Guatemala 7.08 Guatemala 7.43 Bolivia 6.03 Dominican Republic 4.90 Paraguay 5.83 Haiti 3.62 Nicaragua 5.67 Brazil 2.76 Ecuador 3.81 Nicaragua 2.49 Venezuela 3.31 Paraguay 2.32 Dominican Republic 3.14 Peru 2.31 El Salvador 3.13 Ecuador 2.06 Puerto Rico 3.05 Honduras 1.53 Honduras 2.96 Colombia 1.03 Colombia 2.09 Panama 1.01 Panama 1.78 Bolivia 0.99 Haiti 0.58 Venezuela 0.94 Latin America Latin America 12.94 (weighted average) (weighted average) 5.01 US 26.65 US 25.69 Europe (weighted Europe (weighted 10.07 61.53 average) a average) a Sources: Own elaboration from Mitchell (2003a) and (2003b), Maddison (2001), and Banks’ CNTS Archive. Note: (a) In 1910; Russia excluded. As in other countries, the construction of Uruguayan railways was highly concentrated in a few years; 44 percent of the mileage in operation in 1913 was opened between 1885 and 1891. The structure of the railway network was extremely centralised, mainly consisting of a series of lines that connected the extreme points of the country with Montevideo (see Map 1). 3 Unlike other neighbouring countries, which had a significant share of State railways, the whole network was privately owned by a few British companies. By 1913, 61 percent of the network mileage was operated by the Central Uruguay Railway Company, and 20 percent was in the hands of the Midland Uruguay Railway. The remaining 19 percent of the mileage was distributed among five very small companies, which operated networks ranging from 20 to 181 km. 3 According to Millot and Bertino (1996), p. 352, this structure reproduced the pre-existing trade flows. An exception to centralisation was the “North Western of Uruguay Railway Company”, which connected Salto and Santa Rosa and was initially aimed at carrying Brazilian and Uruguayan products to the port of Salto, over the Uruguay River, to be shipped from there to their destination by water. However, this line was also finally connected with Montevideo through the Midland Uruguay Railway. 4 Map 1. The Uruguayan railway network by 1914 Note: The thick solid lines indicate the railways constructed before 1904, and the broken lines show the railways constructed between 1904 and 1914. Source: Barrán and Nahum (1978), p. 129. The construction of the railway system accompanied the development of the modern Uruguayan economy. When the first railway line was opened, Uruguay was a small society with a population of ca. 400,000, of which almost one third lived in Montevideo, and which had no significant transport infrastructure (see Baracchini, 1978: 130-45). The country was deeply transformed in the next few decades and, by the eve of World War One, the Uruguayan population had trebled, and exports and GDP were 4 and 5 times as large as in 1870, respectively. Figure 1 shows that the construction of the railway network ran parallel to that economic transformation, being 5 the main infrastructure investment and one of the main destinations of foreign capital during the period. 4 Figure 1. Railway mileage, GDP and exports in Uruguay (1870-1913) (1913=100) 120 100 80 60 40 20 0 1870 1875 1880 1885 1890 1895 1900 1905 1910 Railway mileage GDP Exports Sources : railway mileage, own elaboration from the country’s statistical yearbooks; GDP from Bértola (1998), and exports from Bértola (2000), pp. 84-85. Railway transport represented a growing share of Uruguayan GDP throughout the period under analysis, reaching a level of 2 to 2.5 percent of the country’s total output in the decade before World War One (see Figure 2). However, the ratio between railway revenues and GDP was much higher in Argentina, Brazil or Mexico by the same dates (between 3.5 and 6 approximately; see Herranz-Loncán, 2011), which may be taken as a first indication that the railways did not perform the same function in Uruguay as in those countries during the export-led growth episode of 1870-1913.

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