Musacchio

Enterprise and Society Advance Access published November 20, 2007

Bankers, Industrialists, and their Cliques: Elite Networks in Mexico and Brazil during Early Industrialization
ALDO MUSACCHIO IAN READ

The historiographies of Mexico and Brazil have implicitly stated that business networks were crucial for the initial industrialization of these two countries. Recently, differing visions onthe importance of business networks have arisen. In the case of Mexico, the literature argues that entrepreneurs relied heavily on an informal institutional structure to obtain necessary resources and information. In contrast, the recent historiography of Brazil suggests that after 1890 the network of corporate relations became less important for entrepreneurs trying to obtain capital andconcessions, once the institutions promoted financial markets and easy entry for new businesses. Did entrepreneurs in Brazil and Mexico organize their

© The Author 2007. Published by Oxford University Press on behalf of the Business History Conference. All rights reserved. For permissions, please e-mail: journals.permissions@oxfordjournals.org. doi:10.1093/es/khm079 ALDO MUSACCHIO is an assistantprofessor at the Business Government and the International Economy (BGIE) Unit, Harvard Business School. Contact information: Morgan Hall 279, Harvard Business School, Boston, MA 02163. E-mail: amusacchio@hbs.edu. IAN READ is a lecturer in the History Department, University of California at Berkeley. Contact information: Department of History, 3229 Dwinelle Hall, Berkeley, CA 94720-2550. E-mail:iread@berkeley.edu.
The authors are indebted to a number of people and groups who gave their time and criticisms: Zephyr Frank, Steve Haber, Mark Granovetter’s Economic Sociology Workshop, the Social Science History Workshop at Stanford, the First Meeting of ´ ´ the Asociacion Mexicana de Historia Economica in Mexico City, John Padgett and the University of Chicago’s Workshop on Organizations and StateBuilding, and the panel of discussants at the American Historical Association’s 2002 conference in San Francisco. We also thank the editorial comments and suggestions of Gail Triner and Naomi Lamoreaux. All errors are the responsibility of the authors.

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networks differently to deal with the different institutional settings? We examine whether in Mexico businessmenrelied more on networks of interlocking boards of directors and other informal arrangements to do business than in Brazil. Our hypothesis is confirmed by three related results: (1) the total number of connections (i.e., the density of the network) was higher in Mexico than Brazil; (2) in Mexico, there was one dense core network, while in Brazil we find fairly dispersed clusters of corporate boardinterlocks; and most importantly, (3) politicians played a more important role in the Mexican network of corporate directors than their counterparts in Brazil. Interestingly, even though Brazil and Mexico relied on very different institutional structures, both countries had similar rates of growth between 1890 and 1913. However, the dense and exclusive Mexican network might have ended up increasingthe social and political tensions that led to the Mexican Revolution (1910–1920).

Social scientists usually agree that institutions are an essential requisite for economic growth. Generally, institutional theorists argue that when formal or codified institutions regularize patterns of behavior that define and protect property rights and minimize transaction costs, economies tend to grow faster.Yet, we observe many cases of countries with weak or arbitrarily enforced institutions that grow at a breakneck pace. The implication is that in those countries there must have been substitutes for formal institutions that preceded and promoted growth. Specifically, Mexico and Brazil give us a glimpse of two economies that differed in their institutional settings and achieved similar levels of...