Category Archives: industry

How Aberdeen SD Became “Hub City”

From Clara’s Journal and the Story of Two Pandemics, by Vickie Oddino (Dobson St., 2021), pp. 97-98:

When the Milwaukee [RR] was surveying its line through Brown County in 1880, conventional wisdom held that the line would be routed through Columbia, which was the county seat. Columbia’s town fathers, feeling that they were in a strong negotiating position, refused to provide the Milwaukee with land for a right of way and a depot free of charge. C. H. Prior, then chief surveyor of the Milwaukee, resurveyed the main line to bypass Columbia and then platted a rival town (on a tract of land owned by his wife) some 12 miles from Columbia. This site became the City of Aberdeen, which was designated as a railroad division point, became the junction for several Milwaukee lines, and eventually became the third largest city in the state. Columbia stagnated and lost the county seat to Aberdeen several years later.

One of Aberdeen’s claims to fame is that L. Frank Baum, the author of The Wizard of Oz, lived there from 1888-1891 with his wife and two sons (the couple would have two more sons while in South Dakota). While there, he opened a gift shop, Baum’s Bazaar, and when it closed after two years, he purchased the weekly newspaper the Dakota Pioneer and changed its name to Saturday Pioneer. Believe it or not, this paper was one of Aberdeen’s seven weekly papers and two dailies at the time.

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U.S. vs. Japanese Fighter Planes, 1942

From Japan Runs Wild, 1942–1943, by Peter Harmsen (War in the Far East, Book 2; Casemate, 2020), Kindle pp. 100-101:

American aviator Jim Morehead flew P-40s over Java and Darwin and was taken aback by the ability of the Japanese enemy, completely at odds with what he had been led to expect: “Before the war officers assured us that American pilots were flying some of the best planes in the world. Everyone underestimated the Japanese and the Zero was a real shock,” he told an interviewer later. “I remain bitter that our government, backed by the most advanced economy in the world, would send their men to war in aircraft that were inferior to that of the enemy.” Australians who had arrived from Europe tried “Battle of Britain” tactics against Japanese pilots and often paid with their lives when discovering the great maneuverability of the enemy’s aircraft. “We told them the basics,” an American pilot said later. “Don’t think that because you could turn inside a German fighter that you could do the same with a Zero.”

This changed with the battle of Midway. Although it was a myth that the elite of Japanese Naval aviation was wiped out in the fateful encounter in June, enough pilots were killed to make it impossible for Japan to ever again recover its greatness in the skies. At the same time, US pilots proved to be quick learners and began showing awe-inspiring ability. A case in point were the “Cactus” pilots on Guadalcanal dubbed after the island’s codename. “It is necessary to remember that the Japanese Zero at this stage of the war was regarded with some of the awe in which the atomic bomb came to be held later,” according to an early account. “The Cactus fighters made a great contribution to the war by exploding the theory that the Zero was invincible.”

US technology also showed its enormous potential. The twin-engine P-38 was not just a piece of state-of-the-art engineering but also entailed a peculiar psychological boost. Since it had two propellers, the pilot could afford to have one engine shot out or otherwise malfunction, and still be able to make it home over hundreds of miles of ocean. This was reassuring for pilots who otherwise would face the prospect of making a forced landing, in which case Japanese patrol boats might not even be the biggest horror. “You look down from the cockpit and you can see schools of sharks swimming around,” said George C. Kenney, commander of MacArthur’s air forces. “They never look healthy to a man flying over them.” All in all, it added up to one thing: towards the end of 1942, the Allies were close to achieving air superiority in key theaters of war in the Pacific. On December 3, a Japanese soldier on Papua wrote jealously in his diary: “They fly above our position as if they own the sky.” Even before the first anniversary of the Pearl Harbor attack, when Japanese planes had roamed at will over the vast expanses of Asia and the Pacific, the Allies were winning the war in the air.

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L.A.’s Railroad Boom, 1887

From From the River to the Sea: The Untold Story of the Railroad War That Made the West, by John Sedgwick (Avid Reader / Simon & Schuster, 2021), Kindle pp. 261-267:

Always before, the Santa Fe’s arrival in a new town set off metaphorical fireworks. But at Pueblo, Raton, and the many other towns along the Santa Fe line, the display had amounted only to a bang and a shower of sparks. L.A. was the ultimate, and the Santa Fe’s arrival there produced a grand finale of thunderous booms and sizzling meteors and bursting flower blossoms and dazzling curlicues and startling zigzags that lit up the sky not just for the spectators gazing up from below but for the whole country watching from afar. The trains unleashed a torrent of newcomers like nothing America had ever seen, or ever would see again. Four jam-packed Santa Fe trains a day pulled into its spanking new L.A. station, and, not to be outdone, the Southern Pacific sent in no fewer. Between them, the two lines brought in 300,000 people just over the first six months, ten times the city’s resident population. The new arrivals filled hotels and boardinghouses as fast as they could be put up, some of the guests reportedly sleeping in bathtubs. And plenty of these newcomers built houses and stayed. Two thousand real estate agents saw to that. By 1890, the L.A. population had shot up to over 150,000, more than five times what it had been five years before, with most of the growth coming since the Santa Fe’s arrival in 1887. It made for the biggest surge in population of any city in the history of the United States.

Of all the places in the West, Los Angeles was least likely to disappoint. That was its appeal. It was not paradise, but by eastern standards, it came damn close. It had a superb climate—not too hot, not too cold, but just right practically all year round.

The grand vision took few years to fully settle in. Initially, the frenzy for Los Angeles real estate, sparked by the miracle of California for a dollar [thanks to cutthroat competition between the two railway companies], was oddly formless but was such an electrifying phenomenon that it acquired a new word to describe the frantic buying: “boom!” (usually with the exclamation mark included). There had been real estate bubbles before, but they had always popped. L.A. real estate, and the land around it, really was worth buying at ever-higher prices—and, indeed, they’ve almost never come down since. The boom had its publicists in town—every real estate salesman and developer doubled as one—but the unusual thing was that it had infinitely more boosters all over the country. It seemed an entire industry had sprouted up to promote the wonders of L.A. in printed matter of every type—brochures, posters, features, editorials, newspaper items, all adorned with copious illustrations of the good life and detailed maps showing potential real estate buyers what was where. Of all the endorsements, though, by far the most effective were the letters back home from people who actually had moved to L.A. They were so delighted with their new lives in the warm air, they wanted their friends and family to join them. In just the first six months of 1887, a staggering $100 million worth of Los Angeles property was sold. A typical lot on Seventh Street in downtown L.A. zoomed from $11,000 in 1886 to $80,000 a year later, post Santa Fe. The venerable pueblo turned itself into a true city almost overnight, as plans almost immediately came forth for a new city hall, a new courthouse, more schools, proper sewers, and, finally, paved streets.

Between January of 1887 and July of 1889, sixty brand new towns came into existence in Los Angeles County, twenty-five of them along the Santa Fe tracks to San Bernardino. They appeared “like scenes conjured up by Aladdin’s lamp,” went one contemporary account. They popped up everywhere—“Out of the desert, in the river wash, or a mud flat, upon a barren slope or hillside.” It seemed the Santa Fe created a land boom wherever it went, creating handsome, thriving places like Lincoln Park, Monrovia, Glendora, Altadena, Duarte, and Pomona, whose Congregational Church sprouted a college that then spawned Claremont and four more. In his excitement, [William Barstow] Strong sent tracks nearly everywhere in greater L.A. He ran a line out to the Pacific coast to build up Santa Monica, turning the site of the early American colony into a hotspot, and another southwest to Redondo to inspire a spectacular hotel on the beach. He sent yet another southeast to Santa Ana and then farther down the coast to San Diego to give that city a second train, along the way building up Anaheim, previously just a vineyard tended by a few hundred German immigrants, the Quaker-founded Whittier, and the new city of Orange. He even sent a train out just to do a crazy loop around newly burgeoning Riverside.

The BNSF Railway’s Southern Transcon route from Chicago to L.A. was later roughly paralleled by U.S. Route 66, the “Mother Road” that carried so many people west during later decades.

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Central Pacific Railroad’s “Big Four”

From From the River to the Sea: The Untold Story of the Railroad War That Made the West, by John Sedgwick (Avid Reader / Simon & Schuster, 2021), Kindle pp. 203-205:

WHILE JUST ABOUT EVERY OTHER railroad in America was customarily topped by just one man, be it Strong, Palmer, or Jay Gould, the Southern Pacific had four, the “Big Four” as they were known, when they weren’t more dryly referred to as “The Associates.”

The Big Four had all once been Sacramento shopkeepers who’d come west in the gold rush, only to realize that the real money was not likely to come from panning for gold, but in selling dry goods to the fools who didn’t know any better. “I never had any idea or notion of scrambling in the dirt,” said the best-known of them, Collis P. Huntington. When the gold showed signs of petering out, the Big Four turned to the next big thing: the Central Pacific Railroad, which, unlike the gold, could be all theirs, every bit of it.

With the Federal government on the hook for so much of the construction money, the Big Four needed to scrounge up just $300,000 among them to buy a controlling interest in the railroad and win a broad swath of federal land on either side of the tracks. That land amounted to one-eighth of the state—the most valuable one-eighth, since it was the portion served by the railroad. Once they snapped up the subsidiary lines to control the state’s traffic, they effectively took charge of the state itself. Even in its earliest incarnation as the Central Pacific, the company was called the “third party” that actually ran the state, topping whichever of the two political parties foolishly imagined it was in power. It was said that before an elected California official went to Washington, the Central Pacific placed a collar around his neck bearing the words “Central Pacific” “so if he is lost or strayed he may be recaptured and returned to his lawful owners.” When the state created a three-man railroad commission to investigate the monopoly prices imposed by the Big Four, two of them were on the Central Pacific payroll. Rates, needless to say, remained untouched.

On the all-important greed scale, Mark Hopkins ranked lowest of the Big Four. He was a gaunt, lisping vegetarian of abstemious habits and a bookkeeper’s caution. He was also the first to go, dying in his sleep in his private railroad car in 1878. Then came Charles Crocker—or Charley, the only Associate personable enough to get a nickname—a former newsboy who turned lazy with wealth. “His feet are more often on the desk than under it,” the San Francisco Examiner once wrote. Shortly after, Crocker cashed out and went off on a two-year sojourn to the honey spots of Europe before buying back in. He was best known for putting up a $2.3 million house on a solid block of San Francisco’s Nob Hill, where he installed a forty-foot “spite fence” facing his neighbor, a Chinese undertaker who’d refused to sell him his parcel. (The undertaker retaliated by placing a coffin atop his roof and flying over it a flag of a skull and crossbones.) Next came the handsome, confidently full-bearded Leland Stanford. He had a touch of public-spiritedness, trying for the governorship before becoming a US senator, as well as enlisting the early photographer Eadweard Muybridge to take the now-famous shots of galloping racehorses that led to moving pictures. He also created Stanford University to memorialize a son who died young. He had a gargantuan Nob Hill mansion of his own, albeit a more tasteful one, with Italianate architecture and a stone entrance hall inlaid with signs of the zodiac in black marble.

Collis P. Huntington was without question the greed champion. The Great Persuader to some, the great conniver to others, he stood a robust six feet, with metal-gray eyes, and dressed in funereal black, as if preparing to bury his many enemies. The only speck of cheer on him was a gold pinky ring. If there was ever a trace of human sympathy on his face, his heavy beard concealed it. Born to a broken-down farmer in Poverty Hollow, Connecticut, Huntington went West via Panama to get in on the gold rush. But there were no carriages waiting to carry the ship’s passengers across the isthmus, and, stranded in the boiling heat for two months, passengers fell to famine and disease until Huntington hacked thirty-nine miles through the jungle to find food to sell to starving customers for a three-fold markup. The money bankrolled his first store. Collis P. Huntington.

With Huntington leading the way, the Big Four used their railroad monopoly to preserve their influence, forcing communities to pay exorbitant fees for tracks, and then charging outrageous prices to use them. And death to any invader. The first to try was Tom Scott, the domineering head of the Pennsylvania Railroad, then the country’s largest train company. Two years before the Pacific Railroad was complete, Scott wanted to join the Pennsylvania to the Central Pacific at Denver to create the nation’s second transcontinental. Huntington got his friends in Congress to kill his bid.

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Rail Tourism on the Santa Fe Railway

From From the River to the Sea: The Untold Story of the Railroad War That Made the West, by John Sedgwick (Avid Reader / Simon & Schuster, 2021), Kindle pp. 192-193:

While both [William Barstow] Strong [of Sante Fe RR] and the General [Palmer of Rio Grande RR] sought a certain elevation in the travel experience, only Palmer associated it with exclusivity. Strong was not trying to appeal to a privileged few, but to a receptive many. His impulse was democratic, a matter of numbers. Strong always trusted volume.

The Santa Fe was not the first railroad to carry tourists, but it was the first to cater to them. The Harvey Houses were the first to develop the postcard for their guests to show off the local scenery to friends back home. Harvey soon added full tourist books that gave the West a romantic gloss for eastern consumption, and organized tours of the nearby countryside playing up the local color.

To enhance a sense of place, he displayed the indigenous architectural styles of the Southwest in his hotels, rather than adopt European standards as Palmer had done. In the city of Santa Fe, for instance, Harvey built La Fonda in the Spanish pueblo tradition, solidifying the adobe character of the city. And he made Native American culture a selling point. At some of his hotels, Harvey organized “Indian Tours” of the nearby Indian lands, where he arranged for natives to be on display, and created in-hotel retail shops to sell the jewelry, artwork, and other artisanal creations of the local tribes. He used an Indian thunderbird emblem for the Harvey House logo, and slapped it on every plate, bowl, and piece of cutlery in his eateries. He also brought in anthropologists to record the traditional ways of these vanishing tribes and encouraged artists and photographers to capture their spirit before it was lost. The movement ultimately brought artists such as Georgia O’Keefe to Taos.

As Strong pushed ever deeper into the West, he gained for his railroad the Harvey House aura of service—reliability and good taste. Advertising “Fred Harvey Meals All the Way,” the Santa Fe made clear it was not just another railroad. And Strong was now poised to take the Santa Fe brand all the way to the sea.

The Far Outliers indulged in a rather luxurious rail-tour vacation around the Canadian Rockies earlier this month, including four days aboard Rocky Mountaineer trains. The first-of-the-season train from Vancouver to Jasper (via busy Whistler and quirky Quesnel) had fewer cars and about 200 passengers; while the train back from Banff to Vancouver (via sprawling Kamloops), had many more cars and about 800 passengers. Pent-up travel demand is swelling passenger counts this season (May to October). We saw lots of fantastic scenery and learned a lot of fascinating history, but the two highlights of our trip were a private nature walk (dodging elk) through the hills above Jasper with multitalented Marie-Pierre Flip0-Bergeron of All Things Wild, and a private sunrise photography tour around Banff with sharp-eyed adventurer Nick Hardinge of Rocky Mountain Photo Adventures. The best of my photographic attempts on the trip can be found on my Flickr site.

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Wild West Law Enforcement, c. 1880

From From the River to the Sea: The Untold Story of the Railroad War That Made the West, by John Sedgwick (Avid Reader / Simon & Schuster, 2021), Kindle pp. 160-161:

At the end of 1878, Colorado had been a state for only two years. Most of its western neighbors were still territories and would remain so for decades more. While the Colorado governor held the power to call out the state militia, it was a largely untrained force of irregular volunteers. There was no police force worth the name, just city marshals with a few deputies, who concerned themselves with individual crimes like murder, fraud, and theft. Horse theft was still on the books as a hanging offense, and, in mining camps, a five-dollar theft was enough to earn a noose from Judge Lynch. There was no state police, let alone any FBI, to deal with the larger-scale crimes of more powerful interests. In 1864, an innovative Denver city marshal named Dave Cook had the idea of creating a regional police force, the Rocky Mountain Detective Association, to counter broader-scale criminality, relying on cable communication to coordinate crime fighting across the West from Wyoming to Texas. At its height, it consisted of over a hundred cowboy detectives, most of them city marshals, and accounted for several thousand arrests over the thirty-five years of its existence.

But even that effort was somewhat ad hoc, designed to solve only the crimes for which there was reward money. While the Wild West was often thought to be populated by murderers and desperadoes, such criminality was mostly confined to seedy hotbeds like Deadwood, Tucson, and Dodge City that were filled with drunken cowboys out for a good time. Elsewhere, life was fairly sedate; people needed to be good neighbors to survive.

In the territories, and in fledgling states like Colorado, government was not designed to serve voters so much as the powerful moneyed interests who controlled the fortunes of the elected officials. The railroad men were at the top of this list, but cattlemen, developers, miners, and wholesalers had plenty of say. When those interests were threatened from below by, say, a miners’ strike, the governor might dispatch the militia to preserve order. But discord was much harder to contain when two powerful interests clashed, for each could usually call on friends in government to take their side, making the conflict nearly impossible to resolve.

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Shoo-fly Switchback

From From the River to the Sea: The Untold Story of the Railroad War That Made the West, by John Sedgwick (Avid Reader / Simon & Schuster, 2021), Kindle p. 111:

A shoo-fly is a type of switchback, but with a pronounced zigzag that allows a train to ascend a steep mountainside. Sketched out, the route looks like a child’s drawing of the edge of a Christmas tree; each curved-up branch is a shoo-fly. To ascend, a train fires up its engines to run as high as it can on the bottom “branch.” When the going gets too steep, the engineer throws the train into reverse to run back up onto another set of tracks that are set at a higher elevation than the previous one. After rolling back as far as it can, the train then charges up the mountain once more, this time on another set of tracks that are placed still higher, and so on and on, forward and back and forward again, until the train catapults itself over the top.

There was nothing like it anywhere in North America, but Robinson had heard of its use in Europe. Morley hoped the Santa Fe could get by with two such shoo-fly branches, but when he ran the numbers on the train’s weight, the locomotive’s thrust, and the track inclines, he realized that one locomotive could not provide enough power. He tried to add a third shoo-fly, but there wasn’t room, so he added another locomotive. When that wasn’t enough, he threw in a third. It worked.

Zigzag railways can be found in many mountainous countries. The first one the Far Outliers encountered was in 2011 on the Hōhi Main Line across central Kyushu between Oita and Kumamoto. Earlier this month on a trip around the Canadian Rockies, we experienced another method of avoiding steep grades on railway lines: the spiral tunnels through the Big Hill at Kicking Horse Pass in British Columbia.

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Early Chinese Opium Trade, 1700s

From Imperial Twilight: The Opium War and the End of China’s Last Golden Age, by Stephen R. Platt (Knopf, 2018), Kindle pp. 193-194:

Robert Bennet Forbes, John’s rosy-cheeked older brother, was a middleman in the drug trade. The Lintin he had just fitted out in Massachusetts was destined for use as a “receiving ship”—based off the southwest corner of Lintin Island, far from the reach of the authorities in Canton, he operated it as a floating warehouse for drug shipments. Foreign vessels coming in from India and elsewhere with cargoes of opium would stop first at Lintin, offload their chests of the drug onto Forbes’s ship or another in the harbor, then proceed up to the Whampoa anchorage outside Canton with their holds empty of contraband and clean for inspection. In certain “money-changing shops” in the foreign compound, their captains or supercargoes could meet with the English-speaking agents of Chinese opium wholesalers (some, but not all, of whom were Hong merchants—since the trade was illegal, the Hong merchants’ monopoly on foreign trade did not apply to opium as it did to tea). After agreeing on a price, the foreign merchants took payment for their opium, while the Chinese dealers sent their own men out to Lintin to retrieve the shipment from the holding vessel.

Robert Bennet Forbes’s job was a simple one. His cargo was not his own; he merely held it on consignment for other traders who had assumed the risk (storms, pirates, market fluctuations) of getting it to south China in the first place. Chinese smugglers took all of the responsibility for moving the drug inland and up the coast—and, eventually, for retailing it within China. They also took responsibility for bribing government officials to ensure that no inspections would be made at Lintin, or at least to make sure that such inspections would be announced well in advance. There were in fact Chinese warships stationed on the opposite side of Lintin Island from Forbes’s ship, off the island’s northeastern shore, but they were under a different county’s jurisdiction than the smuggling anchorage and generally only sailed around the island in order to collect bribes from the smugglers before returning to the northeast again. As captain of the Lintin receiving ship, Robert Bennet Forbes thus bore almost no risk at all. All he had to do was stay put and keep the opium safe, earning a commission for each chest he held. The hardest part of the job, for a young New Englander who loved to sail, was having to stay in one place all the time. For suffering that, he brought in an income that in today’s currency was worth more than $800,000 per year.

The basic fact was that the opium poppy grew very well in British India, which otherwise was a spectacularly unprofitable colonial venture (and which, without the rich profits from the Canton tea trade to offset its losses and debts, would likely have bankrupted the East India Company). European traders learned early on that there was a steady if small market for opium in China even though it was illegal there. As early as 1719 we can find the Chinese demand for the drug making an appearance in The Farther Adventures of Robinson Crusoe, Daniel Defoe’s lesser-known sequel to his novel Robinson Crusoe, where Crusoe, who was rescued from his castaway fate in the previous book, made a run from Siam to China to sell opium, “a Commodity which bears a great Price among the Chinese, and which at that Time, was very much wanted there.” Though Crusoe originally intended to sail north in China to sell it, he was advised to “put in at Macao, where we could not have fail’d of a Market for our Opium.”

There are more formal records of British traders carrying Indian opium to China by 1733, when the East India Company notified the captains of two of its ships of “the late severe laws enacted by the Emperour of China for the prohibition of Ophium,” admonishing them that “you are neither to carry, nor suffer any of it to be carry’d in your Ship to China, as you will answer the contrary to the Hon’ble Company at your peril.” Going forward, the “Honourable Company” refrained from carrying any opium on its own ships, judging that the potential loss of its aboveboard tea trade was not worth the smaller reward to be gained from drug trafficking. That did not end the matter, however, but simply made an opening for independent operators who were more willing to take on the dangers of the illegal trade.

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Brazil’s Economic Miracle

From The Penguin History Of Latin America, by Edwin Williamson (Penguin, 2003), Kindle pp. 428-429, 435:

The reasons for the failure of the guerrillas are complex. With their predominantly middle-class, university-educated cadres they were unable to break out of their political isolation – the clandestine Communist Party disapproved of the guerrillas’ strategy and blocked their access to working-class organizations. The terrorist attacks on military targets precluded the emergence of any sympathetic groups within the armed forces who might have staged a coup d’état, this being the usual short cut to power for progressive movements in Latin America. But, decisively, the guerrilla campaign coincided with the long-awaited upturn in the economy. From 1968, while the guerrillas were robbing banks and bombing barracks, life was getting better for the middle classes and the skilled workers in the cities, which is where, in a rapidly urbanizing country, the political fate of the nation would be decided. In short, what finally put paid to the prospects of the urban guerrillas was the arrival of the Brazilian ‘economic miracle’.

As far as the generals were concerned, the ‘miracle’ obviated the need for an explicit political ideology to run the state. The tremendous popular enthusiasm generated by the idea of an economic miracle was manipulated by the junta to rationalize their continued suspension of full democratic rights. The economic upswing was ‘miraculous’ in that it seemed to be a sudden take-off into self-sustaining industrial growth, the hallmark of a modern economy. Brazil was at last on its way to world-power status from the doldrums in which it had found itself for the best part of the 1960s.

The Brazilian rate of economic growth was indeed amazingly good: in 1968–74 the economy grew at an average yearly rate of between 10 per cent and 11 per cent. Even after the sudden rise in the world price of oil in 1973, which seriously damaged all the industrial economies, the Brazilian rate of growth averaged between 4 per cent and 7 per cent a year. By the mid-1970s the volume of exports had quadrupled since 1967. Far more significant was the fact that manufactured goods had replaced coffee as the major component of exports: the stubborn Latin American problem of monoculture – the dependence on the export of a single primary commodity – had been solved.

Without doubt, a substantial industrial revolution had occurred in Brazil; and it had largely been engineered by technocrats sponsored by the armed forces. But this success was built on the programme of industrialization achieved over many years since the foundation of the Estado Nôvo by Getúlio Vargas in 1937. Underlying the intervening conflicts of parliamentary politics, there had been a remarkable continuity in the course of Brazilian development from the Getúlio Vargas era to the military governments of the 1960s and 1970s. Development continued to be based on a sustained drive for industrial growth largely financed by foreign loans and investment, but directed by the state. The military governments of the 1960s and 1970s kept all basic industries and utilities under state control; they largely retained the nationalist policy of import-substitution industrialization by selective tariffs; and they also preserved the core of the social welfare and labour legislation of the Estado Nôvo.

Brazil’s extraordinary drive to modernize in the twentieth century produced a powerful industrial economy in the space of little over three decades. The costs were enormous: acute dislocations of regional economies, the destruction of virgin lands, an imbalance between the countryside and the cities, and deep cleavages between the working class, industrial capitalists and the middle classes. And yet, industry did not become productive enough to absorb the potential labour force, while the countryside remained under-productive and socially divided. Successive governments tried to force the pace of industrial development, as well as increasing spending on welfare programmes to alleviate the social misery. The results were vicious circles of inflation and budget deficits, which spiralled uncontrollably, robbing governments of authority. In 1964 the armed forces intervened to try to restore order, but by the late 1970s they too had been drawn into the spiral of inflation and debt; their historic pursuit of ordem e progresso had led, paradoxically, to a situation where economic progress had become the enemy of social order.

The Brazilian crisis of the 1980s was as much a crisis of the state as of the economy. In the medium term economic improvement might come through an upturn in the world economy combined with a successful anti-inflation programme and international assistance with debt relief. But a lasting settlement of the crisis would require the emergence of a legitimate democratic state, whose representative institutions could command the confidence of the nation as a whole.

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Latin American Debt Crisis, 1980s

From The Penguin History Of Latin America, by Edwin Williamson (Penguin, 2003), Kindle pp. 364-367:

The mounting problems caused by the economic distortions of import-substituting industrialization [= ISI] and the associated weakening of the state came to a head in the 1980s. The crisis had been deferred in the 1960s by strong world growth, and in the 1970s, when international demand was slack, by foreign loans. But a sudden change in the world financial system effectively cut off the flow of capital to Latin America.

In August of 1982 the Mexican government announced that it was unable to pay the interest on its debt to foreign banks. Mexico was followed shortly by virtually all the Latin American countries, including Cuba. (Suspension of debt payments occurred also in African and Asian countries, but the sheer size of the Latin American debt focused international attention on the continent.) The total outstanding Latin American debt in 1982 was estimated at $315.3 billion, although over $270 billion was owed by just five countries – precisely those which had undergone the fastest ISI growth in the 1960s and 1970s. Brazil was the largest debtor, owing $87.5 billion; Mexico owed $85.5 billion, Argentina $43.6 billion, Venezuela $31 billion and Chile $17 billion.

What had caused the crash? The immediate factor was the steep rise in US interest rates in 1979–82. This was a response to the high rates of inflation and the consequent weakness of the dollar caused by the producers’ cartel, OPEC, sharply raising the price of oil in 1973 and again in 1979. A world recession followed, which had a disastrous effect on the economies of Latin America: commodity prices started to fall on world markets just when higher export earnings were needed to cope with sharply rising interest rates on the foreign debt.

The bonanza of lending and borrowing that Latin American governments and Western banks had indulged in throughout the 1970s had its origins in the very phenomenon that would cause it to come to an abrupt end a decade later: the OPEC cartel’s oil-price rises of 1973 and 1979. High oil prices allowed producer countries, especially the Middle Eastern Arab states, to build up huge surpluses on their balance of payments. Profits from oil exports were too large to be fully absorbed by investment in their domestic economies, and so these OPEC countries deposited vast sums of money in European and North American banks. Western bankers then set about looking for ways of getting a good return on these windfall deposits, and their most willing clients were the developing countries of the Third World, who were hungry as always for development capital.

Latin America was especially susceptible to the blandishments of the Western banks, for in the early 1970s, as we have seen, the most advanced of the industrializing countries in the region had come to the limit of the ‘hard’ phase of import-substitution; the process of state-subsidized inward-looking development could be kept going only by borrowing abroad to cover the yawning deficits between national income and expenditure. There followed a mad spiral of irresponsible, profit-driven lending and unwise borrowing, in which Western bankers as much as Latin American officials appeared to overlook the implications of taking out huge loans on ‘floating’ instead of fixed interest rates. However, after the shock of the second oil-price rise in 1979, conservative administrations in the USA and other industrial countries like Britain decided to bring their domestic inflation under control by restricting the supply of money and credit; this economic policy choked off demand in the West and produced a worldwide recession. International interest rates on foreign debt suddenly started to ‘float’ ever upwards until by the middle of 1982 most Third World countries found it impossible to meet their interest payments.

Indebtedness and high inflation were not, therefore, peculiar to Latin America. In fact, most governments in the industrial countries had been running up debts during the 1970s. The US budget deficit in 1982 was actually larger than that of the worst Latin American debtors, and throughout the 1980s the Reagan administration, for fear of electoral unpopularity, was unwilling to cut it by raising taxes or reducing imports. Yet it was the Latin American debt and not the US deficit which caused international alarm, because a country’s economic health was judged according to its perceived ability to overcome its financial difficulties, a factor expressed in terms of the ratio of interest payments to export earnings. Latin American countries scored badly here, given their relative neglect of the export sector in the pursuit of import-substitution. In 1982 most had ratios in excess of 20 per cent of interest payments to exports; Brazil and Argentina came off worst with ratios of 57.1 per cent and 54.6 per cent respectively, while Mexico, despite being a major oil exporter, had a ratio of 39.9 per cent. In other words, the economies that had grown fastest in the 1970s were the most deeply indebted in the 1980s.

What had gone wrong with ISI development? In essence, it had failed to cure the underlying malaise which had begun to show itself as early as the 1920s – lack of productivity. With the aim of achieving self-sufficiency, economic planners had concentrated on substituting industrial imports by setting up national industries and protecting them behind high tariff walls to the general detriment of agriculture and the export sector. (Brazil was a partial exception since from the mid-1970s it had begun to subsidize industrial exports – an expensive exercise that did not tackle the underlying problem of productive efficiency.) National industry had been overprotected for too long and had failed to become efficient and competitive: the price of its manufactures was often up to three times the world price. Latin American economies therefore ended up with not only an unproductive export sector, dominated still by low-value primary commodities, but also an unproductive industrial sector, which nevertheless consumed expensive imports of technology. The chronic shortfall between exports and imports resulted in high inflation and mounting debts.

To make matters worse, the debt problem had been badly aggravated by the financial instability caused by hyperinflation in the 1970s. As confidence in the economy evaporated in the late 1970s, there occurred massive capital flight. Instead of investing their money at home – where the currency was virtually worthless and industries regularly made losses – rich Latin Americans put it into real estate abroad or deposited it in the very banks that were issuing loans to their own governments and companies. Huge sums were taken out of these countries: the World Bank estimated that between 1979 and 1982, $27 billion left Mexico, nearly a third of its foreign debt in 1982, and $19 billion left Argentina, whose debt in 1982 was $43.6 billion. (Brazil and Colombia were relatively unaffected because of their sustained growth and high domestic interest rates.) US and European bankers colluded fully in this crazy financial cycle, pressing high-yield loans on Latin American governments while turning a blind eye to the lucrative deposits coming in from private Latin American sources (which were more often than not the indirect recipients of those very loans).

When the crash finally came, the wage-earners and the poor felt it most: inflation soared even higher in the 1980s than in the 1970s, real wages fell, and government spending on food subsidies, transport, health and education was slashed. In 1980–84 overall growth in Latin America fell by nearly 9 per cent. Consumption per capita dropped by 17 per cent in Argentina and Chile, by 14 per cent in Peru, by 8 per cent in Mexico and Brazil. Urban unemployment doubled in Argentina, Uruguay and Venezuela between 1979 and 1984, reaching unprecedented proportions everywhere else.

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