Taxation and the stagnation of cotton exports in Brazil, 1800 – 1860

by Thales Zamberlan Pereira (Getúlio Vargas Foundation, São Paulo School of Economics)

Port of Pernambuco. Emil Bauch, 1852. Brasiliana Iconográfica.

Brazil supplied 40 per cent of cotton imports in Liverpool during the last decade of the eighteenth century (Krichtal 2013). By the first half of the nineteenth century, however, cotton exports stagnated, and Brazil became the only major international cotton producer that decreased its exports to European countries. The reason for decline in production, despite increasing international demand during the 19th century, is not generally agreed on. Scholars have attributed the decline to high transport costs, competition from sugar and coffee plantations for slaves, Dutch disease from the increase in coffee exports, among others (Leff 1972; Stein 1979; Canabrava 2011). There is disagreement in part because previous research largely relies on data after 1850, which was after the decline of cotton plantations in Brazil.

In a new paper, I argue that cotton profitability was restricted by the fiscal policy implemented by the Portuguese (and, later, Brazilian) government after 1808. To make this argue I first show new patterns on the timing of the decline of Brazilian cotton. Specifically, using new data of cotton productivity for the 1800-1860 period, this research shows that Brazil’s stagnation began in the first decades of the nineteenth century.

The decline therefore cannot be explained by a number of factors. It took place before the United States managed to increase its productivity in cotton production and became the world export leader (Olmstead and Rhode 2008). Cotton regions in Brazil did not have a labour supply problem nor suffered from a Dutch disease phenomenon during the early nineteenth century (Pereira 2018). The new evidence also suggests that external factors, such as declining international prices or maritime transport costs, were not responsible for the stagnation of cotton exports in Brazil. As any other commodity at the time, falls in international prices would have to be offset by increases in productivity. In fact, Figure 1 shows that Brazilian cotton prices were competitive in Liverpool. From the staples presented in the Figure, the standard cotton from the provinces of Pernambuco and Maranhão had higher quality than from New Orleans and Georgia (and, hence, achieved higher prices), but “Maranhão saw-ginned”, which achieved similar prices, used the same seeds as the ones in US plantations.

Figure 1: Cotton prices in Liverpool 1825 – 1850
Source: Liverpool Mercury and The Times newspapers

So, what caused the stagnation of cotton exports in Brazil? I argue that the fiscal policy implemented by the Portuguese government after 1808 restricted cotton profitability. High export taxes, whose funds were transferred to Rio de Janeiro, explain the ‘profitability paradox’ that British consuls in Brazil reported at the time. They remarked that even in periods with high prices and foreign demand, Brazilian planters had limited profitability. Favourable market conditions after the Napoleonic wars allowed production in Brazil to continue growing at least until the early 1830s.

Figure 2 shows that when international prices started to decline after 1835, cotton was no longer a profitable crop in many Brazilian regions. This was especially pronounced for regions where plantations were far from the coast, which had to pay higher transport costs in addition to the export tax. To support that the tax burden decreased profitability, I calculate an “optimal tax rate”, which maximized government revenues, and the “effective tax rate”, which was the amount that exporters paid. Figure 2 illustrates that, while the tax rate by law was low, the effective tax rate for cotton producers was significantly greater than the optimal tax rate after 1835.

Figure 2 – Rate of cotton export tariffs, 1809-1850.

Facing lower prices, cotton producers in Brazil could have shifted production to varieties of cotton produced in the United States, which had higher productivity and were in increasing demand in British markets. As presented in Figure 1, some regions in Brazil tried to follow this route (with saw-ginned cotton in Maranhão), but this type of production was not profitable with an export tax that reached 20 percent. Brazil, therefore, was stuck in the market for long-staple cotton, for which demand remained relatively stable during the nineteenth century. Regions that could not produce long-staple cotton practically abandoned production.

Not only do the results provide insight to the cotton decline, but the paper contributes to a better understanding of the roots of regional inequality in Brazil and the political economy of taxation. Cotton production before 1850 was concentrated in the northeast region, which continues to lag in economic conditions to this day. As I argue in the paper, the export taxes implemented after 1808 largely targeted commodities from the northeast. Production of commodities from southeast regions, such as coffee, paid lower tax rates. Parliamentary debates at the time show cotton producers in the Northeast did demand tax reform. Their demands, however, were not met quickly enough to prevent Brazilian cotton plantations from being priced-out from the international market.

To contact the author: thales.pereira@fgv.br

References:

Canabrava, Alice P. 2011. O Desenvolvimento Da Cultura Do Algodão Na Província de São Paulo, 1861-1875. São Paulo: EDUSP.

Krichtal, Alexey. 2013. “Liverpool and the Raw Cotton Trade: A Study of the Port and Its Merchant Community, 1770-1815.” Victoria University of Wellington.

Leff, Nathaniel H. 1972. “Economic Development and Regional Inequality: Origins of the Brazilian Case.” The Quarterly Journal of Economics 86 (2): 243–62. https://doi.org/10.2307/1880562.

Olmstead, Alan L., and Paul W. Rhode. 2008. “Biological Innovation and Productivity Growth in the Antebellum Cotton Economy.” The Journal of Economic History 68 (04): 1123–1171. https://doi.org/10.1017/S0022050708000831.

Pereira, Thales A. Zamberlan. 2018. “Poor Man’s Crop? Slavery in Cotton Regions in Brazil (1800-1850).” Estudos Econômicos (São Paulo) 48 (4).

Stein, Stanley J. 1979. Origens e evolução da indústria têxtil no Brasil: 1850-1950. Rio de Janeiro: Editora Campus.

Transatlantic Slavery and Abolition: a Pan-European Affair

By Felix Brahm (German Historical Institute London) and Eve Rosenhaft (University of Liverpool)

Slavery Hinterland. Transatlantic Slavery and Continental Europe, 1680–1850 is published by Boydell Press for the Economic History Society’s series ‘People, Markets, Goods: Economies and Societies in History’. SAVE 25% when you order direct from the publisher -offer ends on the 28th June 2018. See below for details.

 

coverThe history of transatlantic slavery is one of the most active and fruitful fields of international historical research, and an important lesson of the latest work on maritime countries like Britain and France is that there the profits of slavery and indeed abolition ‘trickled down’ to very wide sections of the population and to places well away from the principal slave-trading ports. Recently historians have started to look beyond the familiar Atlantic axis and to apply the same paradigm to the European hinterlands of the triangular trade. That is, they have sought its traces and impacts in territories that were not directly involved (or were relatively minor participants) in the traffic in Africans: the German-speaking countries, Scandinavia, Italy and Central Europe. And they are finding that the slave trade, the plantation economies that it fed, the consequences of its abolition, and not least the questions of moral and political principle that it threw up, were very much a part of the texture of society right across Europe.

In material terms, it is clear that the manufacture of trade goods – the wares with which Europeans paid African traders for the enslaved men, women and children whom they then shipped to the Americas – was an important element of many regional economies. Firearms, iron bars and ironware travelled from Denmark and the Baltic to Western Europe’s slaving ports. Glass beads were exported from Bohemia (the Czech lands), and the higher quality Venetian products attracted Liverpool merchants to set up branch offices in Italy to secure their supply. The Swiss family firm Burckhardt/Bourcard began by supplying cotton cloth for the slave trade and importing slave-produced luxury goods and moved into equipping its own slaving ships. Textile plants in the Wupper Valley in Western Germany and the hand looms of Eastern Prussia provided linens of varying quality for use on the slave plantations, though because they were shipped through English and Dutch ports their German origins have often been obscured. And the trading networks established in the context of the slave economy supported German exporting projects even after the trade was abolished, as German firms continued to trade into territories – Brazil and the Caribbean – where slavery persisted until the late 19th century.

Germans in particular were keen observers of the Atlantic slave economy, and they had their own perspective on international debates about the trade and its abolition. At the beginnings of the trade, the rulers of Brandenburg Prussia had some hopes of buying into it, establishing a slave fort on the Gold Coast between 1682 and 1720. One of the key documents of this episode is the diary of a ship’s barber, Johann Peter Oettinger, who sailed on slaving expeditions. He chose to make no comment about the brutalities that he witnessed and recorded. Characteristically, though, when the diaries were published for German readers 200 years later, they were given a moralising spin; by the 1880s, Germany was at the forefront of the Scramble for Africa, justifying colonisation in the name of suppressing the internal slave trade. Before that, and once the German states were no longer involved in the slave trade, German-speaking scientists and administrators placed themselves in the service of those states that were: Ernst Schimmelmann, whose family had one foot in Hamburg and one in Copenhagen, was a plantation owner and manager of the Swedish state slaving company, but also responsible for the abolition of the Danish slave trade in 1792. And initiatives for the post-abolition exploitation of tropical territories relied on the work of German scientists in service to the Danish state like the botanist Julius von Rohr.

Scholarly attention to the German case is also bringing the Atlantic plantation economies into dialogue with the practices of unfree labour that existed in Central Europe at the same time. Analysis of the conditions of linen production on eastern Prussia’s aristocratic estates indicates that their low production costs helped to keep down the costs of production on slave plantations. And when Germans confronted the moral and legal challenges to slavery that were crystallising into a political movement in Britain and France by the 1790s, they could not escape the implications of abolitionist arguments for the future of their own ‘peculiar institutions’ of serfdom and personal service. This was true of Theresa Huber, the author and journalist who stands for two generations of Germans who engaged in transnational abolitionist networks, and who was equally sharp in her critique of serfdom. And it was true of Prussian administrators who, when challenged by enslaved Africans on German soil to enforce the notion that ‘there are no slaves in Prussia’, could not help asking themselves what that might mean for the process towards reform of feudal institutions.

These issues have only begun to receive greater attention – more studies are needed to gain a clearer understanding of the various links through which continental Europe was connected to the Transatlantic slave business and its abolition.

 

SAVE 25% when you order direct from the publisher using the offer code BB500 in the box at the checkout. Discount applies to print and eBook editions. Alternatively call Boydell’s distributor, Wiley, on 01243 843 291, and quote the same code. Offer ends on the 28th June 2018. Any queries please email marketing@boydell.co.uk

 

To contact the authors:
Felix Brahm (brahm@ghil.ac.uk);
Eve Rosenhaft (Dan85@liverpool.ac.uk)

Legacies of inequality: the case of Brazil

by Evan Wigton-Jones (University of California, Riverside)

kidder4
The Rio Team. In Kidder, D.P., Brazil and the Brazilians : portrayed in historical and descriptive sketches, Philadelphia 1857. Available at https://archive.org/details/brazilbrazilians00kidd

 

 Recent years have witnessed a renewed interest in issues of economic inequality. This research offers a contribution to this discussion by analysing the effects of inequality within Brazil.

Firstly, it shows that the climate is a key determinant of long-run inequality in Brazilian context. It uses data from a national census conducted in 1920 to show that warmer regions with high rainfall were characterised by plantation economies, with a wealthy agricultural elite and a large underclass of poor labourers. In contrast, cooler and drier areas were conducive to smaller family farms, and hence resulted in a more equitable society.

The study then uses information from the 2000 census to show that this local inequality has persisted for generations: areas that were historically unequal in 1920 are generally unequal today as well.

Finally, the research shows that greater long-term inequality inhibits regional development. It also shows evidence that inequality affects local governance, as municipal spending on health, education and welfare is significantly lower in more economically unequal areas.

To show the climate’s influence on local inequality, the study created an index that quantifies the relative suitability of land for plantation agricultural production. The metric is based on the temperature and precipitation requirements of different crops that are uniquely plantation or smallholder in their method of production. For example, sugarcane has historically been produced on large plantations, while wheat was often cultivated on small farms.

The research then shows that localities with a favourable climate for plantation agriculture contained a more unequal distribution of land. To measure the concentration of land ownership, it calculates a Gini index – a standard measure of inequality that ranges from 0 (perfect equality) to 100 (one individual holds all land).

As Brazil’s economy was predominantly agrarian in 1920, this distribution of land is a good proxy for that of income and wealth. The research combines this with data on municipal spending in the 1920s to show that local governments with higher land inequality spent less on education, health, public goods and public electricity. For example, a one unit increase in the Gini index is associated with a .76 percentage point decline in such spending.

The effects of this inequality have ramifications for contemporary socio-economic welfare in Brazil. Not only has local inequality persisted throughout the twentieth century, but it has also hindered present-day municipal development. Here it measures local development using the municipal-level human development index (HDI) – a metric that accounts for education, public health and income – for the year 2000.

It shows that historically unequal areas score much lower on the HDI: a one unit increase in 1920 land inequality is associated with a reduction of .38 points in this index (which, like the Gini index, is measured on a scale from 0 to 100, with a higher score indicating greater development).

Furthermore, the legacies of historical inequality are still manifest in contemporary local governance: a one unit increase in historical inequality is associated with a .49 percentage point decrease in municipal-level welfare spending for the year 2000.

These findings suggest several important conclusions:

  • First, the environment may play an important role in determining inequality and long-term development, even within countries.
  • Second, economic disparities can persist for generations.
  • Lastly, inequality can have a corrosive effect on welfare and governance, even at a local level.

It should be noted, however, that this study has focused on inequality within Brazil. The extent to which these findings can be generalised to other settings requires further study.

The long-term negative impact of slavery on economic development in Brazil

by Andrea Papadia (London School of Economics)

image-brazil-handler-tuite.png
Jean Baptiste Debret (1826). From “The Atlantic Slave Trade and Slave Life in the Americas: A Visual Record”, https://makinghistorymatter.ca/2014/04/02/journal-of-an-african-slave-in-brazil/

 

Slavery has been at the centre of many heated debates in the social sciences, yet there are few systematic studies relating slavery to economic outcomes in receiving countries. Moreover, most existing work on Brazil – which was the largest slave importer during the African slave trade and the last country to abolish the practice – has failed to identify any clear legacies of this institution.

This research overcomes this impasse by highlighting a distinctly negative impact of slavery on economic development in Brazil. More precisely, it illustrates that in the municipalities of the states of Rio de Janeiro and São Paulo, where slave labour was more prevalent in the nineteenth century, fiscal development was lower in the early twentieth century, long after slavery was abolished.

The identification of this negative effect is tied to separating the true effect of slavery on fiscal development from the fact that the huge expansion of coffee production that Brazil underwent from the 1830s attracted large numbers of slaves to booming regions. In fact, the research shows that:

  • A naïve analysis of the data would suggest that for relatively low levels, more slavery in the nineteenth century was associated with higher successive fiscal development.
  • For population shares of slaves above 30-35%, more slavery was clearly associated with lower fiscal development.
  • Taking account of the impact of the coffee boom on both the demand for slave labour and development, slavery was unambiguously associated with worse developmental outcomes later on.
  • Comparing two hypothetical municipalities – equal in all respects except for their reliance on slave labour – one with 30% of slaves among its citizens would have had revenues 70% lower compared with one with 20%.
  • These results persist even when taking account of a wide variety of other factors that could explain difference in fiscal development across municipalities.

Fiscal development is widely considered as an essential building block in the creation of modern states able to foster economic growth by providing public goods and protecting the rule of law. While the historical process of fiscal development on the European continent is relatively well understood, in other parts of the world the study of the evolution of fiscal institutions is still in its early stages.

There are many reasons why a high incidence of slavery would hamper fiscal development and the provision of public goods:

  • First, a higher incidence of slaves in the population will translate into lower political representation for the masses, even in only partially democratic regimes such as nineteenth and early twentieth century Brazil.
  • Second, the provision of key public goods, such as education, will be less salient in areas that rely heavily on slave labour. These areas will also be less keen to attract workers from other areas of the country and abroad, thus making the provision of public services to their citizens less important.
  • Finally, slavery might make resource sharing though taxation more difficult due to increased ethnic, geographical and class cleavages in the population.

The history of Brazil, which was characterised by large-scale use of slave labour from the sixteenth century until the nineteenth century, provides an idea testing ground to investigate how this clearly extractive institution affected the developmental path of countries and their subdivisions.

The research shows that by accounting for confounding effects due to Brazil’s coffee boom, the pernicious effects of slavery on a key factor for economic growth – fiscal development – can be strongly identified.

2016 Olympics reading list: Brazilian politics, history and culture — LSE Business Review

[With the paralympics games just closing, we would like to propose again this interesting reading list from the LSE Business Review, waiting for Tokyo 2020]

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The 2016 Rio Olympics officially opened on Friday and runs from 5 August – 21 August 2016. To mark the occasion, LSE Review of Books recommends seven reads that explore the culture, politics, history and economics of Brazil. We also offer a bookshop guide to Rio and São Paulo and showcase three award-winning podcasts from the…

via 2016 Olympics reading list: Brazilian politics, history and culture — LSE Business Review