the Political Economy of Rubber in the Brazilian Amazon, c.1870

372 Pages·2014·13.39 MB·English

London School of Economics and Political Science
Department of Economic History
PhD Thesis
Institutions, Geography and Market Power: the Political
Economy of Rubber in the Brazilian Amazon, c.1870-
1910
Felipe Tamega Fernandes
July 2009
UMI Number: U615694
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Declaration
I certify that the thesis I have presented for examination for the PhD degree of the London
School of Economics and Political Science is solely my own work other than where I have
clearly indicated that it is the work of others (in which case the extent of any work carried
out jointly by me and any other person is clearly identified in it).
The copyright of this thesis rests with the author. Quotation from it is permitted, provided
that full acknowledgement is made. This thesis may not be reproduced without the prior
written consent of the author.
I warrant that this authorization does not, to the best of my belief, infringe the rights of any
third party.
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ABSTRACT
The thesis applies a political economy approach to the study of how institutions
and geography explain the development of a commodity chain. Focusing on the Brazilian
Amazon from 1870 to 1910, the analysis develops a new theoretical framework
constructed by combining standard trade models with institutions and economic
geography. There are two levels of analysis: interactions among, and within, different
nodes of the commodity chain. A quantitative-driven analysis from macroeconomic data
supports inferences from microeconomic behaviour. The thesis provides new information
on rubber prices and exports, trader ledgers, estate accounts, newspapers, travellers
accounts, and official documents.
The research develops a demand- and supply-side analysis of the history of
rubber, from tappers to manufacturers. It features the main rubber manufacturing
countries, Britain and the USA, and shows how competition prevailed along the chain,
translating into a struggle for rubber supply. Rubber was not a homogeneous product.
Due to a combination of quantity and quality, the Brazilian Amazon possessed significant
market power, market power that shaped the rubber chain. In this light, the thesis
investigates how the Brazilian rubber supply chain was organised and how agents profited
from its monopolistic position. It also shows that taxation increased the regional welfare
and allowed the government to support two related activities: telegraphs and shipping.
The thesis proves that violence and coercion were not necessary features of
rubber production, as argued by much of the literature. Through a game-theoretic
approach, the thesis demonstrates conditions under which production could have
occurred without exploitation. In a context of high price-inelasticity of demand and rising
prices, production was driven by market forces. Inelasticity of demand was indeed one of
the main features of the rubber boom. It shaped production, bargaining power between
different nodes of the chain and competition within them, defining the distribution of profits
along the rubber chain.
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TABLE OF CONTENTS Pa9es
LIST OF FIGURES.................................................................................................... 04
ACKNOWLEDGEMENTS......................................................................................... 07
NOTES....................................................................................................................... 08
INTRODUCTION........................................................................................................ 09
1. Commodities and Trade..................................................................................... 34
1.1 - Introduction............................................................................................. 34
1.2 - Standard Trade Theory, Immiserising Growth and Geography 35
1.3 - Global Commodity Chain Approach..................................................... 44
1.4 - Global Commodity Chains: a Critique.................................................. 49
1.5 - Thesis Approach: Bringing Institutions and Geography to the Fore... 54
1.6 - Inside Look at Institutions and Geography........................................... 64
1.7- Final Remarks ............................................................................. 68
2. Demand for Crude Rubber: from early history to 1910.................................... 71
2.1 - Introduction............................................................................................. 71
2.2 - Early Rubber History until 1850s.......................................................... 72
2.3 - British Rubber Manufacturing Industry, 1860s-1910.......................... 81
2.4 - US Rubber Manufacturing Industry, 1860s-1910................................ 86
2.5 - Impulses of Demand............................................................................. 93
2.6 - Elasticities of Demand.......................................................................... 101
2.7 - Final remarks......................................................................................... 109
3. World Rubber Supply: the US and British Struggle for Rubber...................... 111
3.1 - Introduction............................................................................................. 111
3.2 - Re-Exporters (mainly Europe).............................................................. 113
3.3 - The Role of Colonies: Oceania, Asia and Africa................................ 114
3.4 - Americas (excluding Brazil).................................................................. 122
3.5 - The Brazilian Rubber Supply................................................................ 131
3.6 - Case Study: Edmund Schluter & Co. versus J.H. Andresen & Co 140
3.7 - Final Remarks........................................................................................ 149
4. Brazilian Production Chain: a Re-lnterepretation............................................. 153
4.1 - Introduction............................................................................................. 153
4.2 - Estate Owners & Tappers: a Game Theoretic Approach.................... 154
4.3 - How does Institutions Change the Likely Outcomes of the Game?.... 164
4.4 - Moving Along the Rubber Production Chain........................................ 172
4.5 - Re-Interpreting the Literature................................................................ 180
4.6 - Final Remarks........................................................................................ 187
5. The Political Economy of Taxation and its Impacts on Amazonian Welfare... 189
5.1 - Introduction............................................................................................. 189
5.2 - Estimating Market Power...................................................................... 190
5.3 - The Economics of Taxation: Impact on Elasticities............................. 200
5.4 - Welfare Analysis.................................................................................... 205
5.5 - The Political Economy of Taxation....................................................... 211
5.6 - Final Remarks........................................................................................ 218
6. Communications and Shipping: The Integration of the Brazilian Amazon 222
6.1 - Introduction............................................................................................. 222
6.2 - Communication: Mail and Telegraphs.................................................. 223
6.3 - Ocean Navigation.................................................................................. 235
6.4 - River and Coastal Navigation............................................................... 245
6.5 - Communication and Shipping: Measuring Integration......................... 254
6.6 - Final Remarks........................................................................................ 269
CONCLUSION............................................................................................................ 272
SOURCES AND BIBLIOGRAPHY........................................................................... 284
APPENDIX A: Econometric Results....................................................................... 319
APPENDIX B: Macroeconomic Data...................................................................... 329
APPENDIX C: Rubber Trade Data.......................................................................... 336
APPENDIX D: Productivity in Rubber Manufacturing........................................... 362
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LIST OF FIGURES Pages
1.1 - Main Occurrence of Hevea Brasiliensis Trees in the Brazilian Amazon 13
1.1- Rubber Chain..................................................................................................... 58
2.1 - Early Rubber Manufacturing Concerns, 1800-1840........................................ 74
2.2 - Exports of Rubber Shoes from Para to Selected Countries (in pairs), 1836-
1856.................................................................................................................... 76
2.3 - Exports of Crude Rubber from Para to Selected Countries (in lbs.), 1836-
1856.................................................................................................................... 79
2.4 - British Rubber Concerns, 1840s-1870.............................................................. 82
2.5 - Rubber Footwear Concerns Amalgamated into USRC Before 1900.............. 88
2.6 - Financial Performance of Major US Rubber Manufacturers, 1907 (in £)........ 89
2.7 - Monthly Price of two Varieties of Brazilian Crude Rubber in New York,
(Nov/1894-Dec/1910)......................................................................................... 94
2.8 - Implied Price Elasticities and Elasticity of Substitution of British Demand for
Rubber, 1870-1910............................................................................................. 106
2.9 - Implied Price Elasticities and Elasticity of Substitution of US Demand for
Rubber, 1870-1910............................................................................................. 107
3.1 - Breakdown of Value of Crude Rubber Imported into Britain and the USA,
1850-1910........................................................................................................... 114
3.2 - Map Showing Proximate Area of Crude Rubber Production in Asia. 116
3.3 - Map Showing Proximate Area of Crude Rubber Production in Africa. 118
3.4 - Map Showing Proximate Area of Crude Rubber Production in S. America... 126
3.5 - Geography of Crude Rubber Production in Para and Amapa States, 1897-8 132
3.6 - Amazonian Loans Contracted Abroad.............................................................. 135
3.7 - List of Exporters of Rubber from Para and Manaus during the year 1899-
1900.................................................................................................................... 137
3.8 -Sample Page of Schluter & Co.’s Ledger, 31st December 1888..................... 142
3.9 - J. H. Andresen’s Net Debtor Position Against Schluter & Co. 1891-1910, (in
current £)............................................................................................................ 146
3.10 - Rubber Shares in Schluter & Co.’s Portfolio 1873-1910 (in current £)........ 147
4.1 - Aviamento Credit Channel in the Amazon Region........................................... 155
4.2 - Game Matrix under Neoclassical Assumptions................................................ 165
4.3 - Outcomes of the Game...................................................................................... 171
4.4 - Top Aviador Houses (Intermediaries) in Manaus and Respective Amount of
Rubber Handled, 1902/03-1910........................................................................ 174
4.5 - Market Equilibria (5-Year Moving Average), 1870-1910................................. 184
4.6 - Supply Equations, 1870-1910........................................................................... 186
5.1 - Implied Elasticities of Demand for Rubber, 1870-1910................................... 194
5.2 - Implied Elasticity of Export Demand for Brazilian Rubber under Different
Scenarios............................................................................................................ 195
5.3 - Elasticity of Demand for Brazilian Rubber (20-Year Moving Windows),
1870-1910........................................................................................................... 196
5.4 - Competitive and Monopoly Market Equilibria................................................... 202
5.5 - Implicit Optimal Export Tariff............................................................................. 203
5.6 - Ad Valorem Export Tariff Levied by the Government, 1870-1910.................. 205
5.7-Annual Real Net Welfare of the Export Tariff (in 1910£), 1870-1910............ 208
5.8 - Real Net Welfare of the Export Tariff (% of Amazonian GDP), 1870-1910.... 209
5.9 - Real Net Welfare of the Counterfactual Optimum Export Tariff (% of
Amazonian GDP), 1870-1910............................................................................ 210
5.10 - Total Possible Welfare Had the Government Set the Export Tariff at the
Optimum Level, selected periods...................................................................... 211
5.11 - Lobby Incentives............................................................................................... 215
5.12 - Interaction Between Export Houses and State Government......................... 216
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5.13 - Actual Government Revenue Minus Government Revenue under
Optimum Export Tax but Full Rebate to the Export Houses (T’-T+L),
selected periods................................................................................................ 217
6.1 - Kilometres of Wire and Number of Telegrams Sent, Brazilian Government
Land System, 1881-1912................................................................................... 227
6.2 - Main Telegraph Connections in 1882............................................................... 230
6.3 - The Eastern Telegraph Co. Submarine System in 1901................................. 232
6.4 - Return of Ocean Vessels Entering the Port of Belem, selected years 238
6.5 - Steamships Registered at the Belem Harbour Authorities, 1902................... 250
6.6 - Passenger Fares from Belem to Manaus in selected years............................ 252
6.7 - Freight Rates in British Old Pences at the End of the Rubber Boom 256
6.8 - Comparison of Amazonian Freight Rates with Equivalent Rates for Coal
and Grain............................................................................................................ 258
6.9 - Passenger Fares (1st Class Tickets) at the End of the Rubber Boom 260
6.10 - Rank of Proximity to Belem at the End of the Rubber Boom........................ 261
6.11 - Price of Telegrams Sent to Several Destinations through Different
Companies at the End of the Rubber Boom, 1915........................................... 264
6.12- Exchange Rate in Para, 1876-1911............................................................... 265
6.13- Exchange Rate in Rio de Janeiro, 1876-1911............................................... 266
6.14 - Coefficient of Variation of Para Exchange Rate vis-a-vis the Rio de
Janeiro Exchange Rate, selected periods....................................................... 267
6.15 - Prices of Several Goods at Different Locations, 1913................................... 268
A.02 - AIDS System from British data, 1870-1910................................................... 323
A.03-AIDS System from US Data, 1870-1910....................................................... 324
A.04 - Symmetry Test for the British System........................................................... 325
A.05 - Symmetry Test for the US System................................................................. 326
A.06 - AIDS System for British and US data combined, 1870-1910....................... 327
A.07 - Symmetry Test for British and US data combined, 1870-1910.................... 328
B.01 - Total Population in the Brazilian Amazon (divided by Provinces/States),
1840-1910.......................................................................................................... 330
B.02 - Population Breakdown (selected years), 1854-1920.................................... 331
B.03 - GDP Estimates for the Brazilian Amazon, 1800-1915.................................. 332
B.04 - Rural Wages in the Brazilian Amazon, 1911................................................. 333
B.05 - Price Differential in the Brazilian Amazon...................................................... 334
B.06 - Exchanges Rates, 1870-1912......................................................................... 335
C.02 - Comparing Different Sources of Rubber Trade Statistics, 1870-1912......... 339
C.03 - Brazilian Official Statistics of Trade, 1870-1912........................................... 340
C.04 - Value of Brazilian Rubber Traded, 1870-1912.............................................. 341
C.05 - Quantity of Brazilian Rubber Traded, 1870-1912......................................... 342
C.06 - Price of Brazilian Rubber Traded, 1870-1912............................................... 343
C.07 - Value of Rubber Imported into Britain, 1870-1912........................................ 344
C.08 - Quantity of Rubber Imported into Britain, 1870-1912................................... 345
C.09 - Implicit Price of Rubber Imported into Britain, 1870-1912........................... 346
C.10 -Value of Rubber imported into the USA, 1870-1912.................................... 347
C. 11 - Quantity of Rubber imported into the USA, 1870-1912................................ 348
C.12 - Implicit Price of Rubber imported into the USA, 1870-1912......................... 349
C. 13 - Quarterly Price of Brazilian Rubber Traded in New York, 1870-1894......... 350
C.14 - Monthly Prices of Different Grades of Brazilian Rubber Traded in New
York, 1894-1900................................................................................................. 351
C.15 - Monthly Prices of Different Grades of Brazilian Rubber Traded in New
York, 1901-1905................................................................................................. 352
C.16 - Monthly Prices of Different Grades of Brazilian Rubber Traded in New
York, 1906-1912................................................................................................. 353
C.17 - Prices for Different Grades of Rubber in New York on 29th January 1906
(cents per pound)............................................................................................... 354
C.18 - Rubber Stocks, selected dates...................................................................... 355
5
C.19 - Proceeds from Exported Rubber from Para State, 1870-1912................... 356
C.20 - Proceeds from Exported Rubber from Amazonas State, 1870-1912......... 358
C.21 - Proceeds from Exported Rubber from Acre Territory, 1904-1912.............. 359
C.22 - African Rubber Concerns Incorporated in London and still active in March
1911.................................................................................................................... 360
C.23 - American Rubber Concerns Incorporated in London and still active in
March 1911........................................................................................................ 361
D.02 - Productivity as Consumption of Crude Rubber per Wage Earner, 1870-
1910.................................................................................................................... 365
D.03 - Computation of Rubber Productivity............................................................... 366
D.04 - Growth of US Rubber Manufacturing Industry, 1849-1909.......................... 367
D.05 - Productivity in the US Rubber Industry, 1869-1909...................................... 368
D.06 - Rubber Manufacturing Productivity, 1904-1912............................................ 369
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ACKNOWLEDGEMENTS
First and foremost, I must thank my wife for her love, patience and unrelenting
support to my work. The thesis is dedicated to her. Our families were also extremely
supportive, providing further guidance and strength in these nearly four years that we
have stayed abroad.
There is also a long list of people and organisations that, in the course of this work,
I became indebted to. First, I need to highlight the role and importance of my supervisor,
Prof. Colin M. Lewis who, from day one, was very helpful and supportive. He early saw
the potential of the the thesis and believed in me. Without his comments and suggestions,
the thesis would have never found completion.
Secondly, I need to acknowledge my great indebtedness with Prof. Marcelo de
Paiva Abreu. This thesis was born out of a conversation we had, many years ago, while I
was still in Brazil.
Thirdly, I need to thank the Brazilian Government and CAPES for providing me
financial support during my PhD. During all these nearly four years in London, I also
received small financial support from several organisations. The University of London
(travel grants), Department of Economic History at London School of Economics (Radwan
Travel and Discovery Fund), Economic History Society (travel grant), Economic History
Association (travel grant), Business Archives Council (Bursary for data mining at
Porthcurno), and the Business History Conference (travel grant). These bodies provided
much needed funds for travel to conferences to present my work, which ultimately
improved it. I thus need to thank all participants of the following conferences: LSE
Economic History Seminars (London, 2006, 2007 and 2008), LSE Cliometrics Seminar
(London, 2007 and 2008), the Portuguese Economic and Social History Association
(2007), Oxford University (Oxford, 2008), ASSA Meeting (New Orleans, 2008), the
Business History Conference (Sacramento, 2008), World Cliometrics Society Meeting
(Edinburgh, 2008), the Economic History Society Annual Meeting (Nottingham, 2008),
Universidad Carlos III - Economic History Department (Madrid, 2008), and Harvard
Business School (Cambridge, 2008).
Fourthly, I need to thank some people who directly contributed in certain parts of
the thesis. I hereby express my gratitude to Profs. Jeffrey Williamson, Marcelo de Paiva
Abreu, Luiz Aranha Correa do Lago, Dr. Leonardo Monasterio and Eustaquio Reis. I am
also indebted to all those who contributed in an indirect way, either by reading and
commenting on parts of the dissertation or by simply discussing it with me: Prof. Nick
Crafts, Dr. Max-Stephan Schulze, Dr. Aldo Musacchio, Dr. Andre Villela and my friends
Xavier Duran, Leonardo Weller and Klenio Barbosa. Lastly, I thank all archivists who were
extremely helpful and without whom I would not have found half of the material I used in
this thesis. More precisely, I would like to thank people at Arquivo Publico de Belem,
Biblioteca Arthur Vianna (Belem), Biblioteca do Ministerio da Fazenda, Biblioteca
Nacional (Rio de Janeiro), Biblioteca da PUC-Rio, UCL Archives, Porthcurno Telegraph
Museum, British Library, LSE Library, Senate House Library, Kings College Library, and
Guildhall Library.
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