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Voices of Hostile Capital: 'Order' and Investment during the Second Spanish Republic

Voices of Hostile Capital: 'Order' and Investment during the Second Spanish Republic

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Published by Steve Snow
Steve Snow, "Voices of Hostile Capital: 'Order' and Investment during the Second Spanish Republic"

South European Society and Politics, Vol. 4 No. 1 Summer 1999.


The Spanish Second Republic (1931-1936) was a tumultuous period of democracy, reform and reaction. During the reformist biennium (1931-33), moderate leftist Governments instituted policies to ameliorate the often-desperate circumstances workers
and peasants faced. Greatly complicating these efforts, however, investors and landowners liquidated productive assets and all but ceased domestic investment. Bank accounts were emptied, billions of pesetas drained from the country, the stock market dropped
precipitously, and many landowners sold their holdings at bargain rates. The effects were calamitous: capital flight and the sharp decline in investment were major causes of the Spanish economic crisis of the 1930s (Comín and Martín 1984: 254; Palafox 1991: 205).
Why the panic? The most obvious, yet ultimately unconvincing, explanation is that owners of capital predictably reacted against radical policies. A close examination of the Spanish financial press and employers' publications reveals that labor militance––most
often referred to as 'disorder,' 'anarchy' and 'indiscipline'––was a major cause of investor unease and hostility. The modal complaint was that the Government was allowing the workers to run wild, not that social reforms wrecked profits. To win back business
confidence, investors and employers demanded a restoration of 'order', by which they meant the suppression of labour. Politicians obliged with a vengeance beginning in late 1934, contributing to the radicalization of the workers and their political allies, and in turn pushing Spain towards civil war. Explaining investors' attitudes, therefore, is crucial to
understanding the fate of the entire Second Republic.
Steve Snow, "Voices of Hostile Capital: 'Order' and Investment during the Second Spanish Republic"

South European Society and Politics, Vol. 4 No. 1 Summer 1999.


The Spanish Second Republic (1931-1936) was a tumultuous period of democracy, reform and reaction. During the reformist biennium (1931-33), moderate leftist Governments instituted policies to ameliorate the often-desperate circumstances workers
and peasants faced. Greatly complicating these efforts, however, investors and landowners liquidated productive assets and all but ceased domestic investment. Bank accounts were emptied, billions of pesetas drained from the country, the stock market dropped
precipitously, and many landowners sold their holdings at bargain rates. The effects were calamitous: capital flight and the sharp decline in investment were major causes of the Spanish economic crisis of the 1930s (Comín and Martín 1984: 254; Palafox 1991: 205).
Why the panic? The most obvious, yet ultimately unconvincing, explanation is that owners of capital predictably reacted against radical policies. A close examination of the Spanish financial press and employers' publications reveals that labor militance––most
often referred to as 'disorder,' 'anarchy' and 'indiscipline'––was a major cause of investor unease and hostility. The modal complaint was that the Government was allowing the workers to run wild, not that social reforms wrecked profits. To win back business
confidence, investors and employers demanded a restoration of 'order', by which they meant the suppression of labour. Politicians obliged with a vengeance beginning in late 1934, contributing to the radicalization of the workers and their political allies, and in turn pushing Spain towards civil war. Explaining investors' attitudes, therefore, is crucial to
understanding the fate of the entire Second Republic.

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Published by: Steve Snow on Nov 20, 2008
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Voices of Hostile Capital: 'Order' and Investment during the Second Spanish Republic
1
 South European Society and Politics,
Vol. 4 No. 1 Summer 1999.Steve SnowWagner College Note: This is a pre-publication version of the final published article.The Spanish Second Republic (1931-1936) was a tumultuous period of democracy,reform and reaction. During the reformist biennium (1931-33), moderate leftistGovernments instituted policies to ameliorate the often-desperate circumstances workersand peasants faced. Greatly complicating these efforts, however, investors and landownersliquidated productive assets and all but ceased domestic investment. Bank accounts wereemptied, billions of pesetas drained from the country, the stock market dropped precipitously, and many landowners sold their holdings at bargain rates. The effects werecalamitous: capital flight and the sharp decline in investment were major causes of theSpanish economic crisis of the 1930s (Comín and Martín 1984: 254; Palafox 1991: 205).Why the panic? The most obvious, yet ultimately unconvincing, explanation is thatowners of capital predictably reacted against radical policies. A close examination of theSpanish financial press and employers' publications reveals that labor militance––mostoften referred to as 'disorder,' 'anarchy' and 'indiscipline'––was a major cause of investor 
1
 
Preliminary versions of this article were presented at the Society for Spanish andPortuguese Historical Studies Conference, St. Louis, Missouri April 23-26 1998, and at theMediterranean Studies Association Conference, University of Coimbra, Portugal, May 26-29. For their comments and criticisms, I thank the conference participants, John Keeler, Stanley Payne,George Rappaport, Richard Sherman, Cheryl Wheeler and Kim Worthy. Translations fromSpanish are mine.
 
unease and hostility. The modal complaint was that the Government was allowing theworkers to run wild, not that social reforms wrecked profits. To win back businessconfidence, investors and employers demanded a restoration of 'order', by which theymeant the suppression of labour. Politicians obliged with a vengeance beginning in late1934, contributing to the radicalization of the workers and their political allies, and in turn pushing Spain towards civil war. Explaining investors' attitudes, therefore, is crucial tounderstanding the fate of the entire Second Republic.EXPLAINING INVESTMENT UNDER THE LEFTThe initial Governments of the Second Republic were not unique in their confrontation with investors' economic power. The state's dependence on privateinvestment forms a crucial constraint for all leftist reformers to overcome (Lindblom 1977,Przeworski 1985). Politicians know that citizens tend to vote their pocketbooks and punishthose in office when crises hit. Consequently, they listen closely to investors' concerns, toavoid disinvestment and the resulting economic and political dislocation. Accounting for the behaviour of owners of capital, therefore, helps us to understand policymaking incapitalist democracies more generally. Approaches to this issue vary. FollowingHirschman (1970) and Kalecki (1943), some analysts argue that disinvestment is often aweapon used against political enemies, and not merely a response to economic concerns(see, e.g., Offe 1986: 246-7). This reasonable assertion, however, is unhelpful inexplaining specific events, as it does not spell out when investors' ideological concernstend to dominate pocketbook issues. As a productive generalization, therefore, it is mostappropriate to assume that a desire for profit primarily motivates investors. Among those
 
sharing this assumption, one can distinguish between 'economistic' and 'class-struggle'frameworks. Proponents of both approaches tend to supply little in the way of systematic,supporting evidence for their arguments. To explain Spanish investors' motivations, and tomake a larger point about investment under leftist governments in general, this paper examines the Spanish financial press, employers' newsletters, and government bulletins, aswell as daily and monthly fluctuations in stock prices, number of bills in circulation, andvalue of the peseta, among other measures. These data provide crucial informationregarding the levels of business confidence at different points during the Republic, andthereby illuminate investors' reactions to specific political and social events.The economistic approach assumes investors are rational decision-makers whofocus on purely economic factors. Kolm (1979: 64), for example, argues the politicalcatastrophes that have befallen leftist governments are best understood 'if they are viewedin terms of economic variables.' Those who take this view also tend to focus on investors'responses to radical policies. Their maxim might be: when governments 'threaten the veryinstitution of private profit...rational capitalists will not invest' (Przeworski 1985: 44-45).This insight helps explain the economic dislocation that befell, for example, the Chilean
Unidad Popular 
Government led by Salvador Allende. Yet, it neglects an analysis of thevaried causes of capital strikes, which do not occur only when investors face desperatecircumstances. If Spanish investors responded only to economic factors, given the scale of capital flight from 1931-1933, one would assume that the leftist governments threatenedfree enterprise. This was not the case, however; they adhered to orthodox and deflationarymacro-economic policies. While the micro-economic reforms did lead to wage increasesand thereby increased costs, at the worst this had mixed effects on profits.

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