Professional Documents
Culture Documents
Tesis Oxford ANM
Tesis Oxford ANM
Aurelio Nuo
Trinity, 2008-05-19
St Antonys College
Table of Contents
Introduction 3
I.
Conclusion.47
Bibliography. 50
Introduction
After the armed period of the Mexican Revolution (1910-20), there emerged in
the 1920s and 30s, a regime that proved more durable than Don Porfirios and
an economy that, over time, eclipsed both its Porfirian predecessor and its Latin
American rivals.1 In that sense, as Alan Knight argues, the Mexican Revolution
displayed a distinctly Tocquevillean character: from the rubble of revolution
was built a state both stronger and more stable than its old regime
counterpart.2 Nevertheless, this stronger and more stable state did not create a
solid fiscal system. The revolutionary governments of the 1920s collected, as
percentage of GDP, almost the same revenue as the late Porfirian regime did.
Moreover, in comparative perspective, Mexicos low levels of taxation were
maintained during the entire twentieth century.
Why did a stronger and more stable state not create an extensive fiscal
system? Furthermore, how was it possible to create a stronger state without a
solid fiscal system? What was the nature of the fiscal system forged after the
armed Revolution? What were the political consequences of this new fiscal
arrangement?
Knight, Alan, The Peculiarities of Mexican History: Mexico Compared to Latin America, 1821-1992,
in Journal of Latin American Studies, Vol. 24, 1992, p. 104.
2
Ibid, p. 104.
3
Until the end of the 1920s the threat of an US invasion was present. Yet, my contention is that the
military superiority of the US was so evident that ironically it was no longer a real military threat.
The strength of the new regime came from the formation of a broad coalition
between the government and different sectors of the Mexican society. My
contention is that one of the elements that helped the government to forge this
coalition was offering low tax rates and fiscal waivers in exchange for political
support. This process of coalition formation shaped a fiscal system full of
waivers, privileges, and tolerated evasion that also reinforced a pattern of
clientelistic politics.
The present work confines itself to the 1920s, a period where the Mexican state
experienced a rapid and radical process of reconstruction that shaped the
nature of the new regime. This essay is divided into four parts. In the first part I
develop my hypotheses and central arguments. In the second part I describe
the main features of the Porfirian fiscal system that was inherited by the
revolutionary governments of the 1920s. In the third part, I analyse the
possibilities of and the limitations on taxation faced by the government of lvaro
Obregn (1920-24), including the oil boom, the lack of both international and
Furthermore, in terms of territory, the US, during the Mexican-American war (1846-48), had already
taken what it wanted from Mexico, thus by the 1920s a potential US invasion, such as the occupation of
Veracruz in 1914, did not put at risk the future of the country. A hypothetical invasion would only be a
temporary occupation of some ports and oil fields. Furthermore, after Mexico defeated France in 1867,
the risk of a European invasion disappeared and the other Mexican neighbors, Belize, Guatemala and
Cuba, were not a military threat. In a nutshell, since 1867 Mexico no longer had a security dilemma. For
the concept of security dilemma see, Herz, John, Political Realism and Political Idealism: A Study in
Theories and Realities, (Chicago: Chicago University Press, 1951).
national loans, the Obregns failed attempts to create direct taxes and finally
the imposition of the income tax after the delahuertista uprising (1923-24).
Finally, in the fourth part, I analyse how the offer of low taxation and fiscal
waivers helped to consummate, during the Plutarco Elas Calles presidency
(1924-28), the political coalitions that gave the new regime its strength and
stability.
40
35
% of GDP
30
Mexico
UK
US
Brazil
Argentina
25
20
15
10
0
1910
1920
1930
1940
1950
1960
1970
1980
1990
2000
Year
Sources: For Mexico, Brazil and Argentina, Oxford Latin America Economic History Database:
http://oxlad.qeh.ox.ac.uk. For UK from 1910 to 1970, Aboites, Excepciones y privilegios, p. 397 (Cuadro A2), from
1970 to 2000, OECD, Revenue Statistics. For US from 1910 to 1950, US Department of the Treasury, Fact sheets:
Taxes. History of the US Tax System: www.treasury.gov/education/fact-sheets/taxes/ustax.shtml, from 1950 to
1970, Aboites, Excepciones y privilegios, p. 397 (Cuadro A2), and from 1970 to 2000, OECD, Revenue Statistics.
4
Percentages for Mexico, Brazil and Argentina were calculated using the Oxford Latin America
Economic History Database: http://oxlad.qeh.ox.ac.uk. For UK percentages see Aboites, Excepciones y
privilegios. Modernizacin Tributaria y Centralizacin en Mxico, 1922-1972, (Mxico: El Colegio de
Mxico, 2003), p. 397 (Cuadro A2). For US percentages see US Department of the Treasury, Fact
sheets: Taxes. History of the US Tax System: www.treasury.gov/education/fact-sheets/taxes/ustax.shtml.
Charles Tilly argues that state construction in Western Europe was the result of
interaction between the clash of expansionist political groups, which led to wars,
extraction of resources in preparation for such wars, and the internal constraints
of tax extraction that were determined by the configuration of class structure.5 In
a nutshell, wars made states and states made wars. 6 From this perspective, the
origins and the evolution of the fiscal structures of the Western European states
were a consequence of war. The relationship between war and taxes was very
clear during the World Wars. For instance, in 1910 the UK only collected around
7% of its GDP, yet after the First World War UK revenues reached 20% of the
GDP. Before the Second World War UK revenues were somewhat less than
20% of its GDP, but after the war revenues were higher than 35%.7 A similar
process was experienced by the US. During the First World War, federal
revenues increased 300% in terms of GDP, and during World War II revenues
increased 150%.8
Clearly the Mexican Revolution did not have the same effect on the fiscal
structure. As Centeno argues, not all wars have a positive influence on
taxation.9 The principal difference between the Mexican Revolution and the
European wars, especially the World Wars, was that the former was fought
among internal factions, none of which was constituted by political structures
with the organizational abilities that characterize European nation-states, and
5
See, Tilly, Charles, Coercion, Capital, and European States, AD 990-1992, (Oxford: Blackwell
Publishers, 8th edition, 1998), pp. 1-37.
6
Ibid, pp. 67-95.
7
See, Aboites, Excepciones y privilegios, p. 397 (Cuadro A2).
8
See, US Department of the Treasury, Fact sheets: Taxes. History of the US Tax System:
www.treasury.gov/education/fact-sheets/taxes/ustax.shtml.
9
See, Centeno, Miguel ngel, Blood and Debt. War and the Nation-State In Latin America,
(Philadelphia: The Pennsylvania State University Press, 2002), p. 104.
they required less material resources than the wars fought by the latter. Winning
the Mexican Revolution required fewer resources than winning World War I.
During the period of state reconstruction in the 1920s the new regime was not a
centralized state searching for revenue to fight another powerful state. On the
contrary, it was a weak state that had inherited a poor fiscal system trying to
establish its internal authority over uncontrolled generals and local political
bosses. Therefore, on the one hand, the revenue needed by the state to defeat
internal dissidents, who also had only limited access to revenues, was less than
that needed to defeat a powerful foreign enemy. On the other hand, precisely
the fact that the central government was not yet able to monopolize the means
of violence limited its possibilities of extracting revenue. Geographical and
economic conditions, such as the lack of infrastructure and capital, as well as
the extension of the territory, mountainous areas, and few navigable rivers,
complicated the possibilities of raising taxes even more. Therefore, the
combination of the internal challenges of state reconstruction with the lack of a
serious threat of any international war demanded a not-very extensive fiscal
structure.
Yet the central problem was that the new regime had inherited a very weak
fiscal structure, and the material benefits that it could offer to its allies were also
very restricted. Under these circumstances, one of the most valuable resources
that the government was able to offer or, from another perspective, was forced
to offer in exchange for political support was not to tax, or to tax its allies very
little. Indeed, as I attempt to demonstrate in the following pages, one of the key
components that allowed the new regime to build a broad coalition among
peasants, workers, capitalists, and local political bosses, and therefore to
construct a stronger and more stable state than its old regime counterpart, was
the establishment of very low taxes or even the full exemption of tax payments
to the regimes allies.
Another element that helped the new regime to forge a coalition without
spending heavily was the fact that both land reform and organized workers
demands could be achieved without exorbitant expenditure. The new
Constitution of 1917 (especially article 27), combined with the Sonorans10
military victory, opened the door to the distribution of some of the land owned by
Porfirian hacendados. The revolutionary government had seized or could
potentially seize some of the land. Land reform cost money, especially because
it demanded new bureaucratic organizations, but it was cheaper than other
social benefits and rights such as health and education might be, especially
after a revolution where land had been seized by force. Also, in the case of
10
The clique of revolutionary Generals who overthrew President Carranza in 1920 under the Plan de
Agua Prieta were commanded by three Generals from the state of Sonora in North West Mexico: lvaro
Obregn, Adolfo de la Huerta and Plutarco Elas Calles. The presidential periods of Obregn and Calles
(1920-28) is therefore also known as the Sonoran regime.
organized workers the Constitution (especially article 123) and military triumph
gave the government the ability to force entrepreneurs to meet workers
demands, thus transferring a significant proportion of the cost of social reform to
capitalists. Military victory in itself brought a significant change in power
relations.
Low tax rates and tax waivers did not fully exempt the government from
rewarding some of its allies with material benefits. For instance, bringing the
army under governments control and buying generals loyalty with cash was
expensive. The Confederacin Regional Obrera Mexicana (CROM), the
principal workers organization allied with the government, also demanded
patronage, and a number of big landlords, some of them revolutionary generals,
benefited from irrigation systems paid for by the government. Therefore,
because revenues were limited, the coalition was also limited. Furthermore,
precisely because one of the glues of the governments coalition was low
taxation, the government had very limited options when it came to raising more
money in order to expand the governments benefits to more people and
enlarge its coalition.
It was for these reasons that there emerged a pattern of selective rather than
universal enforcement of property, social, legal and political rights and other
economic benefits delivered by the government, thus reinforcing a process of
political and economic articulation through clientelism. Moreover, precisely
because the government did not have enough revenues to sustain itself without
its clientelistic alliances, dissenters among the excluded groups threatened the
10
From the perspective of the New Institutional Economics (NIE)11, Haber, Razo
and Maurer12 explain that economic growth during both the armed Mexican
Revolution and the unstable period of state reconstruction of the 1920s was
possible because of the formation of coalitions such as those described in this
essay. They argue that the government selectively enforced the property rights
of asset holders who joined the governments coalition. Therefore, those asset
holders were secure in the knowledge that their properties and investment
would not be affected by the government. They were therefore able to invest,
and some degree of economic growth was achieved.
Haber, Razo and Maurer call these forms of coalitions Vertical Political
Integration (VPI). Governments are interested in creating VPI coalitions
because they get revenues in exchange for enforcing the property rights of the
asset holders who are members of the government coalition. While I agree with
the analysis of how VPI coalitions worked in Mexico during the 1920s, the
analysis of Haber, Razo and Maurer actually supports my hypothesis that low
taxation was conceded in exchange for support, since they argue that one of
the mechanisms of selective protection of property rights was preferential tax
treatment. But from my perspective, these authors, for the case of Mexico in the
11
The NIE is a development of neo-classical economics to include the role of transaction costs in
exchange and so to take account of institutions as critical constrains on economic performance, see,
Harris, John, Janet Hunter and Colin M. Lewis, The New Institutional Economics and Third World
Development, (London: Routledge, 1995), p. 3.
12
See, Haber, Stephen, Armando Razo and Noel Maurer, The Politics of Property Rights. Political
Instability, Credible Commitments, and Economic Growth in Mexico, 1876-1929, (Cambridge:
Cambridge University Press, 2003).
11
12
The Porfirian fiscal structure was based on indirect taxes. The three most
important sources of revenue were custom taxes, stamp tax, an indirect tax on
internal trade and transactions, and taxes on public services and exploitation.
The only direct tax during the Porfiriato was the property tax collected by
municipalities. However, the big landowners did not pay this tax fully, especially
during the late Porfiriato, and they normally reported lower values for their
properties and lobbied to get fiscal reductions and waivers.13
13
For the case of hacendados in Morelos see Womack, John, Zapata and the Mexican Revolution, (New
York: Vintage Books, 1970), p. 42. For the case of Chihuahua see, Katz, Friederich, The Life and Times
of Pancho Villa, (Stanford: Stanford University Press, 1998), pp. 50 and 129-130.
13
60
50
40
Customs
Stamp Tax
Public Services and Eploitation
30
20
10
0
1876
1880
1885
1890
1895
1900
1905
1910
Year
Two factors explain the growth of internal taxes. First, the growth of the
economy, and in particular the expansion of domestic trade related to the rapid
growth of railway construction,14 stimulated an increase in internal taxes.
Second, in 1893 the Minister of Finance, Jos Ives Limantour, implemented a
14
See, Crdenas, Enrique, Cuando se origin el atraso econmico de Mxico. La economa mexicana en
el largo siglo XIX, 1780-1920, (Madrid: Editorial Biblioteca Nueva, 2003), pp, 142-51, and 157. See also,
Knight, The Mexican Revolution, vol I, (Lincoln: University of Nebraska Press, 1990), pp. 80-1.
14
fiscal reform raising the tariffs of the stamp tax on textiles, alcoholic beverages,
and property transactions.15
During the late Porfiriato, between 1900 and 1910, on average the federal
government raised 5.35% of the Mexican GDP, a relatively low figure compared
with Brazil and Argentina, two countries with a similar degree of development.
Brazil, on average, collected 12.7% of its GDP and likewise Argentina raised
7.3% of its GDP.
14
12
GDP %
10
Mexico
Brazil
Argentina
0
1901 1902 1903 1904 1905 1906 1907 1908 1909 1910 1911 1912 1913 1914 1915 1916 1917 1918 1919
Year
15
15
From the second half of the 1900s Mexican revenues declined as a percentage
of GDP. By 1910, when the Mexican Revolution started, federal revenues were
only 3.7%. This level was maintained until 1919. The Revolution might have had
some influence on this decrease. Nevertheless, is important to notice that both
Brazilian and Argentine revenues also declined during this period. Between
1910 and 1920 the former collected, on average, 10% of its GDP, and the latter
5.5% of its GDP. Therefore, it is not unrealistic to think that some other factors
might also have influenced the decline in revenues.
16
Payment of the external debt had been suspended since 1914 and international
loans had therefore been also cancelled. President Venustiano Carranza (191720) ordered the confiscation of the assets of the Mexican banks, forcing them to
finance his government, yet when Obregn took power the capital seized by
Carranza had gone.17 Consequently, the national banks had no capital to
borrow, and after the inflationary experiences and destruction of the banking
system during the Revolution, the government knew that a strategy of printing
money without the proper support of gold reserves would only worsen the
economy. Furthermore, the government did not even have enough instruments
16
See, Medina Pea, Luis, Hacia el Nuevo Estado. Mxico, 1920-1994, (Mxico: Fondo de Cultura
Econmica, 2000), pp. 85-87.
17
See, Zebada, Emilio, Banqueros y revolucionarios: la soberana financiera de Mxico, 1914-1929
(Mxico: Fondo de Cultura Econmica and ColMex, 1994), p. 166.
17
Under these circumstances, the only possible source of revenue was the
Mexican economy itself. Yet Obregn was very lucky because the production
and exporting of oil boomed in 1919. Between 1919 and 1920 oil production
achieved an unprecedented increase: the value of crude oil grew 97%. The
growth of oil production and exports had a very positive impact on federal
revenues, and from 1919 to 1920, federal revenues increased by 31.5% as a
percentage of GDP. However, government revenues were still very limited, and
tax revenues raised by the Mexican government in 1920 were 5% of its GDP.
By contrast, in the same year the UK government, for instance, collected more
than 20% of GDP and the Brazilian central government extracted more than
9%. Mexican fiscal capacity was more similar to Argentinas, which was 5.4% of
GDP. Nevertheless, the Argentine government had not been obliged to face a
mobilised country after ten years of Revolution.
18
According to Enrique Crdenas the Mexican government did not develop effective instrument of
monetary policy until the great depression of 1929. See, Crdenas, Enrique, La hacienda pblica y la
poltica econmica, 1929-1958, (Mxico: Fondo de Cultura Econmica y ColMex, 2005), pp. 62-9.
19
See, Noel, Maurer, The Power and the Money. The Mexican Financial System, 1876-1932, (Stanford:
Stanford University Press, 2002), pp. 161-70.
18
10
GDP %
Mexico
Brazil
Argentina
0
1917
1918
1919
1920
1921
1922
1923
1924
1925
1926
1927
1928
1929
1930
Year
When Obregn took power his government did not have US, British, or French
recognition. The foreign debt was around 1,000 million pesos, more than 300
million pesos in overdue interest, and the federal government had a surplus in
revenue from oil revenues - amounting to 3 million pesos for the year.20 The
Mexican army of some 100,000 men absorbed almost 50 per cent of the budget
and, although temporarily supporting Obregn, was not wholly loyal to the
president, as was demonstrated three years later when, following Adolfo de la
Huertas uprising, more than half the army rebelled.
20
See, Womack, John, The Mexican Revolution, in Bethell, Leslie (ed), Mexico since Independence,
(Cambridge: Cambridge University Press, 1991), p. 200.
19
The government also had to deal with a national confederation of labour at odds
with the railway union; a still largely landless peasantry demanding land;
national confederations of merchants and manufacturers; powerful local political
bosses scattered all over the country; and large foreign companies wanting to
remain above Mexican law by running their enterprises as enclaves of their own
nations within Mexican territory.21
Although oil revenues were helpful the challenges were huge. On the one hand,
the government had to bring the military under its control, distribute land among
mobilised peasants, and attend to the demands of organized workers,
especially to those of its new ally, the Confederacin Regional Obrera Mexicana
(CROM). On the other hand, the government needed more fresh cash to meet
these obligations. The Sonorans needed urgently therefore to re-establish both
international and national credit, but a sine qua non for recovering credit was
both the governments ability to pay external debts and the restitution of the
national banks assets.
Obregn could not wait for further resources to start the process of controlling
the army, distributing land and attending to workers demands. He had to do all
of these at the same time, otherwise his government risked being overthrown by
an alliance of dissidents, generals, peasants, workers, entrepreneurs or
landowners. It was for this reason that he started to attend to everything at
once.
21
20
Fortunately for Obregn, as was argued previously, both land reform and the
most basic workers demands could be met without spending too much money.
Consequently, Obregn commenced his agrarian reform immediately. In
December 1920, less than a month after he took office, he signed the Ley de
Ejidos. This law was the first attempt to regulate some of the principles laid
down in Article 27 of the Constitution. As Simpson argues, this law was
confused, vague and incomplete, but it demonstrated Obregns desire to
accelerate agrarian reform and forge a political coalition with the agraristas. 22
A year before, Obregn had forged a durable alliance with the CROM. In a
secret pact, the CROM promised to mobilise support for Obregn in the 1920
presidential election, in exchange for privileged political resources and support
for the CROM against the capitalists. In the same year, the CROM founded the
Mexican Labour Party (PLM), which was a key ally of both Obregn and Calles
in their fights against governors within Congress.23
See, Simpson, Eyler, The Ejido. Mexicos Way Out, (Chapel Hill: The University of North Carolina
Press, 1937), p. 81.
23
See, Middlebrook, Kevin, The Paradox of Revolution. Labor, the State and Authoritarianism in
Mexico, (Baltimore: The Johns Hopkings University Press, 1995), p. 75.
21
24
See, Wilkie, James, The Mexican Revolution: Federal Expenditure and Social Change since 1910,
(Berkley: University of California Press, 1967), p, 102 (Table 5-2).
25
See, Aboites, Excepcione y privilegios, pp. 66-67; and Collado, Mara del Carmen, Empresarios y
polticos, (Mxico: INEHRM, 1996), p. 182.
26
See, Haber and et al, The Politics of Property Rights, pp. 140-41; and Collado, Empresarios y politicos,
pp. 202 and 204.
22
Protective import tariffs are not designed to generate tax revenue, because the
effect of those tariffs is to drive imports down to zero or at least to very low
levels.27 At the beginning of the Obregn presidency the coalition between the
government and the industrialists was at an incipient stage, so Obregn did not
yet feel under any obligation to satisfy the industrialists demands. As a result,
import tariffs increased by only 10%.28 Indeed, the government was able to
increase its revenues from imports by a small margin. But while as the alliance
between the government and the industrialists was taking shape, import tariffs
increased, and government revenues from imports decreased.29
Extracting more revenue from oil was very tempting. Fiscal extraction from the
oil industry is relatively easy. Production and exports can easily be monitored by
governments, and it is difficult to hide profits. Furthermore, the physical
collection of taxes is also straightforward, as oil production and its producers
are geographically concentrated rather than dispersed. Moreover, the oil
industry has fixed assets, and high levels of investment are required before
profits start to be received. In short, the oil industry cannot emigrate in order to
avoid highly taxation. Negotiations over the extraction of resources are confined
to a small group of protagonists, meaning that when oil production is high,
27
23
taxing it is very good business. Obregn did not hesitate to augment oil
revenue.
Nonetheless, at that moment, the situation was more complicated than that
because the government had little power over the oil companies. Oil production
was dominated by a few foreign companies, the majority of which were from the
US and were backed by the US government. They therefore had the ability to
act collectively and with the support of a very powerful government.
Furthermore, US diplomatic recognition of Obregns government was
conditional on respect for the oil producers assets, and the government did not
yet have the ability to run the oil industry by itself. Any attempt to take over the
industry would have caused a temporary but significant disruption in output of
oil and therefore in tax collection.30 In a context where some powerful generals
were waiting for an opportunity to seize power, the government could not afford
the luxury of disrupting oil production.
30
24
US were all part of the same complex problem: how to extract more revenue
without affecting the oil companies privileges.
Within this context oil producers fiercely resisted any attempt at taxation. Yet
Obregn had an important tool with which to put pressure on oil companies.
Article 27 of the 1917 Constitution granted the nation (in practice the federal
government) ownership of all the subsoil of the Mexican territory, including all
the minerals that formed part of that subsoil. Foreign oil companies opposed
this legislation, sought the protection of the US government in order to retain
their property, and blocked the enforcement of article 27 quite effectively. Yet
the threat of its enforcement gave leverage to government power over the oil
companies, enabling the former to extract a greater share of revenue from the
latter.
31
32
25
Despite all the difficulties and the clear limitations on the governments power
over the oil companies, extraction of oil revenues was the favourite and most
efficient revenue-producing strategy between 1920 and 1924. The significant
increase of oil production after 1919 was used to increase on both federal tax
revenues and the percentage of oil revenues in the federal income. In fact, the
fiscal strategy of the government was shaped by the availability of oil revenues.
250
30
200
150
20
15
100
Millions of Barrels
% Total Revenue
25
10
50
5
0
1917 1918 1919 1920 1921 1922 1923 1924 1925 1926 1927 1928 1929 1930
Year
Sources: Oxford Latin American Economic History Database; Meyer, Jean, Revolution and
Reconstruction in the 1920s, in Bethell, Leslie, Mexico since Independence, (Cambridge:
Cambridge University Press, 1998), p. 224 (Table 3); and Haber, Stephen, Armando Razo and
Noel Maurer, The Politics of Property Rights. Political Instability, Credible Commitments, and
Economic Growth in Mexico, 1876-1929, (Cambridge: Cambridge University Press, 2003), p,
199 (Table 6.1).
26
Oil revenues allowed the Mexican government to restore assets to the national
banks in 1921 and to reach an agreement with Mexicos international creditors
in 1922. The payment of the Mexican debt was directly tied to oil revenues: in
fact part of the debt was directly paid by oil companies, and such payments
were discounted from their taxes.33
33
27
Direct tax extraction, at least in the long run, can force governments to
negotiate with large numbers of people, rather than relatively few groups of
exporters or entrepreneurs as is the case with international trade tariffs or
specific taxes of mineral or other industrial production. These negotiations can
sometimes drive governments to concede rights and official representation to
the people they are extracting resources from.36 It is not accidental that, if they
have alternatives, governments normally prefer to avoid direct taxes. Moreover,
when capital is abundant, as Tilly argues, taxation is relatively easier and less
violent than when capital is scarce.
37
34
28
implied that even stronger state mobilization and coercion were needed, and
could have caused unnecessary local rebellions.38
It was these complications, combined with the availability of oil revenues and
the political context, which shaped the pattern of direct taxation during the
1920s. As noted before, Obregn tried to open up all possible alternatives in
order to expand Mexican revenues. Yet, very soon, political reality and his
pragmatism delimited the options.
Obregns first attempt to establish a direct tax was the imposition of the
Centenario tax, in 1921. This tax was a kind of income tax, because it levied
profits and personal income. Yet, from the start, the government explained that
the Centenario tax was only a provisional measure, and would be levied just
once. Although the aim was to invest in port infrastructure and buy merchant
ships, this tax was strongly opposed. Industrialists and merchant organizations
criticized it fiercely, and their first reaction was to announce that they would not
pay the tax.39 According to Zebada, because of the protest against the
Centenario tax, this tax was derogated almost immediately after the budget for
1921 was presented to Congress.40 In any case, at that moment oil revenues
were 23% of the federal budget. From 1920 to 1921 oil revenues grew by 17%,
and expectations of growth in oil revenues were very high. Under these
circumstances it made sense not to defend the Centenario tax.
38
One of the multiple reasons for rebellion during the Revolution in central north Mexico was the state
penetration and taxation of relatively autonomous towns in the region of Sierra Madre. See, Knight, The
Mexican Revolution vol I, pp. 121 and 155.
39
See, Collado, Empresarios y polticos, pp. 164-66.
40
See, Zebada, Banqueros y revolucionarios, p. 160.
29
The second attempt to impose a direct tax also failed. On 11 October 1922 a
presidential decree, based on the extraordinary faculties that Congress gave to
the president on fiscal affairs in 191741, established a federal tax on property.
The most active opposition came from the National Agrarian Chambers and
governors,
though
industrialists
and
merchants
also
expressed
their
disagreement. 42 The opposition, particularly the governors, argued that that the
tax was illegal because, according to their interpretation of the Constitution,
property taxes were only under state jurisdiction.43 The federal government
argued that the tariff was very low (1% of properties value), and that the real
purpose of the tax was to create a reliable cadastral census.
On 30 May 1923 the decree regulations were published and protests intensified.
The government agreed to convoke a national cadastral convention to discuss
and negotiate the issue, and at that moment the federal government did not feel
under huge pressure to collect more revenue. After all, in 1922 oil revenues
were 31% of federal income, having growing by 35%. That year federal
revenues reached 6% of Mexicos GDP. It represented a growth of 20% in only
two years. And although oil production started to decline in 1923, this trend was
not at all clear during the first semester of 1923. The convention was scheduled
by the beginning of December.
41
Between 1917 and 1946 Mexican presidents used those faculties to enact 92% of the fiscal disposition.
See, Weldon, Jeffrey, El crecimiento de los poderes metaconstitucionales de Crdenas y vila Camacho.
Su desempeo legislativo 1934-1946, Dilogo y Debate de Cultura Poltica, 1 (abril-junio), 1997, pp.
24-25.
42
See Collado, Empresarios y polticos, p. 116.
43
The governors argued that following the logic of articles 117 and 118 of the Constitution that forbade
states to impose indirect taxes, the federation should be forbidden to impose direct taxes. The same
argument was used against income tax. See, Aboites, Excepciones y privilegios, p. 115.
30
It was very bad timing. On 7 December 1923 Adolfo de la Huerta rebelled, with
the support of more than half of the army. The government needed the support
of governors, landlords, agraristas, industrialists and merchants. Therefore,
Obregn derogated the federal property tax.
31
These measures required more revenue, so although income tax was the most
opposed and fiercely combated tax during the 1920s, this time the government
did not capitulate. There was now no alternative: the income tax could no longer
be postponed. Yet the delahuertista rebellion also brought a positive outcome
for the government, as the latter was strengthened by its military victory. The
combination of the urgent need for revenue with military triumph gave the
government the necessary confidence to impose an extremely unpopular tax on
both companies profits and personal income.
The most fierce and well-organized resistance came from merchants and to a
lesser extent from industrialists. National and local chambers of merchants and
industrialists joined forces to present a united front against the income tax.
Nevertheless, merchants asked for its abolition, whereas industrialists, probably
following their experience of forging a coalition with the CROM and government
to raise import tariffs, only asked for reductions and waivers.
The opposition petitioned Obregn for the abrogation of the tax or at least
reductions and waivers. Later, newspapers were flooded with articles and
declarations by merchants and industrial leaders against the tax. The editorial
stances of the newspapers were also against the income tax. National and local
congresses of merchants and industrialists chambers were held, and their
documents and statements opposing the tax were published. Studies
undertaken by specialists were paid for and published by merchants and
industrialists chambers. Finally, after it was clear that the government was firm
in its position, opposition intensified. The national and regional chambers of
32
merchants openly called on the population to deny the payment, legal petitions
were made against the tax in court, some merchants threatened to close their
businesses, (some in fact did so), and even calls for rebellion were heard,
echoing the American Revolution cry of no taxation without representation.44
Nothing worked. The government did not capitulate.
44
For a more complete narrative of the imposition of the income tax, see Collado, Empresarios y
polticos, pp. 174-199; and Aboites, Excepciones y privilegios, pp. 131-153.
45
Mitchell, BR, International Historical Statistics. The Americas, 1750-1988, (Basingstoke: Macmillan
Publishers, 1993).
46
Aguilar, Gustavo, Los presupuestos mexicanos, desde los tiempos de la Colonia hasta nuestros das,
(Mxico: SHCP, 1940).
47
See, Aboites, Excepciones y privilegios, p. 37 (Cuador 2).
33
exploitation.48 It is not surprising, then, to find that although all the authors and
data consulted for this essay present almost the same figures for total federal
revenues, they show different results when total taxes are divided by
categories. Even more, in the few cases that they share categories, such as
foreign trade revenues, their figures are dissimilar. That is why, in order to show
a general tendency on the evolution of taxation in the 1920s, I present two types
of figures. First, drawing from Coso Villegas data49, I display a graph on the
evolution of external and internal taxes.50 Second, using Iturriaga de la Fuentes
figures, I work a table comparing the composition of federal revenues in 1924,
the last year of Obregns presidency, and 1929, the end of the period studied
in this essay.
48
See, Iturriaga de la Fuente, Jos, La revolucin hacendaria. La hacienda pblica con el presidente
Calles, (Mxico: SEP, 1976), p. 77.
49
Coso Villegas, Daniel, La cuestin arancelara en Mxico, vol. III, (Mxico: Centro Mexicano de
Estudios Econmicos, 1932?), pp. 65 (Cuadro 5) and 70-71 (Cuadro 6).
50
Coso Villegas includes in the category of external taxes, imports, exports and consular rights taxes. In
the case of internal taxes, he only clarifies that he added to the whole category of internal taxes public
services and exploitation taxes.
34
70
% Total Revenues
60
50
External Taxes
Internal Taxes
40
30
20
10
0
1920
1921
1922
1923
1924
1925
1926
1927
1928
1929
Year
Source: Coso Villegas, Daniel, La cuestin arancelara en Mxico, vol. III, (Mxico: Centro
Mexicano de Estudios Econmicos, 1932?), pp. 65 (Cuadro 5) and 70-71 (Cuadro 6).
Percentage of Total
Revenues, 1924
31.28
28.74
1.21
13
5.84
5.48
5.44
9
100
Percentage of Total
Revenues, 1929
26.98
14.96
6.7
.85
6
19.93
.06
5.15
19.36
100
Source: Iturriaga de la Fuente, Jos, La revolucin hacendaria. La hacienda pblica con el presidente
Calles, (Mxico: SEP, 1976), p. 77.
35
IV.
President Plutarco Elas Calles had to face a rapid decline in oil revenues. In
1924 these were 20% of the federal revenue, but by 1928 they were only 6%.
They had returned to the level they had been before 1918. In 1921 Mexico was
the second world producer of oil, but by 1927 production had fallen 76%. The
main problem was that almost all the wells had been exploited to their maximum
capacity.
51
government taxes, nor article 27, caused the decline in oil production. It was
due to purely ecological reasons.52
The decline in oil revenues, combined with the extraordinary expense caused
by the delahuertista rebellion, forced the government to suspend the payment of
the external debt. Following this, Alberto Pani, the new minister of finance, had
to renegotiate the Delahuerta-Lamont agreement, which was signed on the
assumption that the high level of oil revenues would be constant. In the
meantime, there was no possibility of a significant international loan. The
extraordinary costs of the delahuertista rebellion were financed by national bank
internal loans and taxes paid in advance by oil companies. Again, the only
possible source of revenue was the Mexican economy itself, but oil revenues
were now severely reduced.
51
See, Meyer, Revolution and Reconstruction, in Bethell, Leslie (ed), Mexico since Independence,
(Cambridge: Cambridge University Press, 1991) p. 225.
52
See, Haber and et al, The Politics of Property Rights, pp. 223-35.
36
In 1925 Calles reformed income tax. His new decree established seven different
tariffs that depended on economic activity and level of income.53 Also, in this
year a slow movement towards fiscal centralization commenced. The most
significant action here was the first National Fiscal Convention organized by
Alberto Pani.54 Although the convention was not very successful at achieving a
greater level of centralization55 it was useful in bringing about new direct taxes,
and in December 1925 new inheritance taxes were created.56 Despite the
decline in oil revenues, these measures, combined with an increase in public
services and exploitation rights taxes, allowed the government to keep the level
of taxation at 6% of Mexicos GDP. Furthermore, in 1925 the economy grew by
6%57, so that the amount of revenue in pesos was augmented. These relatively
good fiscal conditions allowed the government to reach a new agreement with
Mexicos creditors, and to resume the payment of the external debt. Also,
enough resources could finally be taken out to create a central bank.
The establishment of the central bank was a key step in strengthening Mexican
finances. The bank was able to finance small government deficits, and it played
a key role in bringing the army under governments control, because it gave
credit to revolutionary generals to finance their new industrial and agricultural
enterprises. Therefore, many generals switched arms for business.
53
37
In April 1927 a new law on mining taxes was imposed.58 After this law no new
significant taxes were imposed in the 1920s. On the contrary, Calles
presidency saw an intensification of the process initiated by Obregn whereby
coalitions were formed with organized workers, peasants, industrialist, big
entrepreneurs, and even some landlords. Therefore, in order to bind those
coalitions, fiscal privileges and waivers were also deepened.
After the delahuertista rebellion the governments alliance with the CROM was
intensified. The CROMs political and military support of the federal government
through its workers militias was key to government victory over the rebels. In
return for the CROMs loyalty, Calles appointed the CROM leader Morones as
minister of industry, commerce, and labour. Morones position permitted the
CROM
to
control
the
designation
of
both
government
and
labour
The CROMs power was also extended to local politics and, through the PLM, to
Congress. Five governorships, including the Federal District, were controlled by
58
38
the CROM. By 1926, 11 out of 58 positions in the Senate and 40 out of 272
seats in the Chamber of Deputies were also held by CROM members.61
Although the CROM and industrialists were, for obvious reasons, at odds in
many issues, they shared an interest in protecting industries from foreign
competition. Therefore, despite all their differences, organized workers and
capitalists pushed the government to raise import tariffs. From the beginning of
Obregns presidency, as we noted before, industrialists lobbied to bring back
the protectionist policies they had enjoyed during the Porfiriato. Yet as we also
noted before, protectionist tariffs reduced the governments revenue. Before the
CROM had been able to gain influence the President was better able to resist
industrialists pressure, and import tariffs were not significantly increased.
61
62
See, Ibid, p. 80
See, Ibid, p. 78.
39
Tariff
Reform
Commission.
This
commission
made
Coefficient of Protection
14%
24%
31%
Source: Haber, Stephen, Armando Razo and Noel Maurer, The Politics of Property Rights.
Political Instability, Credible Commitments, and Economic Growth in Mexico, 1876-1929,
(Cambridge: Cambridge University Press, 2003), p, 152.
63
64
40
Average Import
Tariff for
Consumers Goods*
Average Import
Tariff for Textiles
1924
1930
38%
47%
45%
59%
Average Import
Tariff for
Manufactured
Clothing
43%
69%
According to Haber, Razo and Maurer, in the case of the mining sector, as in
the case of oil, the Mexican governments of the 1920s did not have the ability to
run the mines and smelters by themselves. Furthermore, as a consequence of
political instability, the government needed tax revenues more desperately than
the companies needed the income. Therefore, in the short run, companies had
the ability effectively to threaten the government to cut back production if they
were heavily taxed.65
The situation was even more difficult than in the case of oil revenues because
metal prices collapsed after the early 1920s, and the government had even less
room to negotiate an increase in taxes. As a result, in order at least to extract
some revenue, the Mexican government let the asset holders play a large role
in writing the mining laws.66 Obviously, the outcome was low tax rates, and
those rates, according to Haber, were also tied to metal prices in New York.
65
66
41
Source: Haber, Stephen, Armando Razo and Noel Maurer, The Politics of Property Rights.
Political Instability, Credible Commitments, and Economic Growth in Mexico, 1876-1929,
(Cambridge: Cambridge University Press, 2003), p, 283 (Table 7.13).
The governments coalition with peasants and some landlords, many of them
revolutionary generals who had replaced Porfirian landlords followed roughly
two paths. On the one hand, in areas with potential for agricultural exports,
some landlords (either military men, or civilian farmers allied with generals)
were allowed to keep relatively large extensions of land, and the federal
government provided them with credit and irrigation programmes. For instance,
the government constructed four large dams in Durango, Aguascalientes,
Tamaulipas, and Coahuila.67 Irrigation work sponsored by the federal
government was begun in 1926, and expenditure on irrigation grew in the
following years. In 1926 1.6% of all federal funds were expended on irrigation,
but by 1928 the amount achieved was 6.9%.68
On the other hand, in areas with staple crops, much land was distributed among
peasants in the forms of ejido lands.69
67
Ibid, p. 315.
See, Wilkie, The Mexican Revolution, pp. 132-34.
69
Ejido land is not private property and cannot be bought and sold as if it were. However, since the
constitutional reforms of 1992, ejido land can be converted into private property and sold to third parties.
68
42
criteria. For instance, former Zapatistas in Morelos who were allies of Obregn
and afterwards of Calles were among the first groups to receive land. By 1927
statistics indicated that Morelos had changed more from agrarian programs
than any other state Provisionally at least 80 per cent of the states farming
families now held field of their own, which altogether amounted to around 75 per
cent of the arable land.70 In other areas agrarian reform was accelerated during
and after the delahuertista uprising in compensation for peasants military
participation against the rebels.
The acceleration of agrarian reform after the delahuertista rebellion was clear.
Under Obregns government 624 villages and 139,320 heads of families
received around 1.2 million hectares of land. This was more than triple the
number of villages and ejidatarios receiving land during Carranzas regime.71
Yet, during the Calles government, after the de la Huerta uprising, 3.2 million
hectares of land were distributed to 1,576 villages and 307,607 ejidatarios. This
was more than three times as much land and villages as during the previous
land distribution.72
It is important to notice that agrarian reform and therefore the alliance between
the government and peasants followed a complicated and messy pattern.
Although the struggle for land was used by both the federal government and
caciques to construct clientelar relationships, agrarian reform in the 1920s was
not only controlled from above but also gained from below. The story of the
agrarian revolt in Naranja and the Zacapu region of Michoacn analyzed by
70
43
The alliance between the federal government and ejidatarios was bolstered by
another not very well known but important innovation: the ejidal fiscal waiver. It
might be true that many ejidatarios in the 1920s did not enjoy the same
irrigation benefits that some of the new big land owners enjoyed, yet during the
decade they were able to obtain a fiscal waiver.
At the beginning of land reform this fiscal waiver for the ejidos was not clear; but
from the early 1920s it was fairly evident that the federal government was trying
to create a special fiscal regime for the agrarian sector. In 1921 the Agrarian
National Commission established numerous fiscal waivers for the ejidos74.
Nonetheless, other federal departments ignored the Agrarian National
Commission regulations. For instance, the ejidos were charged for the use of
water until President Calles exempted them for the payment of this utility in
192675. A year later the law of patrimonio parcelario ejidal established that the
only tax that the ejidos must pay was the local property tax. This special fiscal
regime was confirmed by the agrarian codes of 1934 and 1943, and also by the
agrarian law of 1971.
73
See, Friederich, Paul, Agrarian Revolt in a Mexican Village, (New Jersey: Prentice-Hall, 1970).
See, Fabila, Manuel, Cinco siglos de legislacin agraria 1493-1940, (Mxico: Centro de Estudios
Histricos del Agrarismo Mexico-Secretara de la Reforma Agraria, 1981), p. 377.
75
Aboites Aguilar, Luis, Excepciones y privilegios, p. 232.
74
44
According to Aboites, although the local property tax could not exceed 5% of
the annual value of the ejidal production, many ejidos refused to pay it76. Many
local governments protested, but the federal government was as a rule not very
receptive to their complaints. Therefore, many ejidos did not even pay the
property tax77.
Finally, in the case of the income tax, despite all the efforts to impose it,
according to Aboites there are some indications that this tax was also used as a
negotiating tool between the federal government and taxpayers, especially the
wealthiest.78
For instance, just after the 1920s, in 1933, the Under-secretary of Finance,
Marte R. Gmez, argued that income tax has been perverted and its
performance is very similar to the inconvenient system of the stamp tax 79.
Furthermore, in the plan sexenal80 of 1934, the National Revolutionary Party
protested that income tax had been transformed into a working class tax
because this segment of the population was the only one that was unable to
avoid it.81 However, Aboites himself recognizes that the evidence is still weak,
and that more archival research is needed to present a better picture of this
phenomenon. Yet, following the logic of forging political alliances at the cost of
taxation that we found with other taxes, it would not be odd to find that some
76
Property tax was calculated in terms of production rather than property value.
See, Aboites, Excepciones y privilegios, p. 233 and 234.
78
Ibid, p. 152.
79
Ibid, p. 149.
80
Plan Sexenal was the name of the Government Plan. It was presented at the beginning of the
presidential terms. Nowadays it is called Plan Nacional de Desarrollo (National Plan for Development).
81
Ibid, p. 149.
77
45
kind of evasion was indeed tolerated in the case of income tax in exchange of
political support.
46
Conclusion
A key element when seeking to understand the process that gave birth to this
coalition is the combination of the fiscal structure inherited by the new regime
with the type of financial demands that it was enduring. The new regime
inherited from the old regime a poor fiscal system dependent on indirect taxes,
and from the Revolution monetary chaos and the impossibility of accessing
international or national credit. The financial demands that the revolutionary
governments had to meet came from inside rather than from outside. The new
regime did not have to prepare a national army in order to fight an international
war. On the contrary, it had to demobilise and bring under its control a
heterogeneous revolutionary army commanded by ambitious generals scattered
all around the country. Therefore, the fiscal demands were modest in
47
comparison with the fiscal demands generated by total wars.82 Defeating local
rebellions is cheaper than defeating foreign armies, especially when rebels can
be counterbalanced through political alliances rather than through revenues.
The inheritance of a weak fiscal system and the inability to get quick money
through credit created the incentives to forge a broad coalition in order to
counterbalance the military. It was precisely the fiscal limitation inherited by the
new regime that restricted its ability to offer material benefits in exchange for
political support. One of the elements that helped the government to forge a
broad coalition (without spending huge quantities of money that it did not have)
was offering low tax rates and fiscal waivers in exchange for political support.
Ironically, the weakness of the fiscal structure helped to forge a stronger and
more stable state than its previous counterpart, though the formula of low taxes
in exchange for political support that created a national state without taxation
was also one of the main weaknesses of the new regime. After some decades,
the Mexican state, was put in an extremely difficult position by the lack of
revenues, the growth of the population and the demand for more expensive
82
48
social and economic benefits, such as health, housing, and education, instead
of the relatively cheap demands of agrarian reform and eight hours journey.
49
Aguilar, Gustavo, Los presupuestos mexicanos, desde los tiempos de la Colonia hasta
nuestros das, (Mxico: SHCP, 1940).
Centeno, Miguel ngel, Blood and Debt. War and the Nation-State In Latin America,
(Philadelphia: The Pennsylvania State University Press, 2002).
Coso Villegas, Daniel, La cuestin arancelara en Mxico, vol. III, (Mxico: Centro
Mexicano de Estudios Econmicos, 1932?).
50
Haber, Stephen, Armando Razo and Noel Maurer, The Politics of Property Rights.
Political Instability, Credible Commitments, and Economic Growth in Mexico,
1876-1929, (Cambridge: Cambridge University Press, 2003).
Harris, John, Janet Hunter and Colin M. Lewis, The New Institutional Economics and
Third World Development, (London: Routledge, 1995).
Herz, John, Political Realism and Political Idealism: A Study in Theories and Realities,
(Chicago: Chicago University Press, 1951).
Katz, Friederich, The Life and Times of Pancho Villa, (Stanford: Stanford University
Press, 1998), pp. 50 and 129-130.
Knight, Alan, The Mexican Revolution, 2 vols, (Lincoln: University of Nebraska Press,
1990).
51
Meyer, Jean, Revolution and Reconstruction, in Bethell, Leslie (ed), Mexico since
Independence, (Cambridge: Cambridge University Press, 1991).
Middlebrook, Kevin, The Paradox of Revolution. Labor, the State and Authoritarianism
in Mexico, (Baltimore: The Johns Hopkings University Press, 1995).
Noel, Maurer, The Power and the Money. The Mexican Financial System, 1876-1932,
(Stanford: Stanford University Press, 2002).
Simpson, Eyler, The Ejido. Mexicos Way Out, (Chapel Hill: The University of North
Carolina Press, 1937).
Wilkie, James, The Mexican Revolution: Federal Expenditure and Social Change since
1910, (Berkley: University of California Press, 1967).
Womack, John, Zapata and the Mexican Revolution, (New York: Vintage Books, 1970).
52
Womack, John, The Mexican Revolution, in Bethell, Leslie (ed), Mexico since
Independence, (Cambridge: Cambridge University Press, 1991).
53