In Why Nations Fail we have emphasized that the roots of economic divergence between North and South America lie in the different ways that colonial institutions formed. Latin America is poorer today because the Spanish developed economic institutions designed to exploit indigenous people. Nowhere was this system more pernicious than in Bolivia. The “old regime” based on the extractive colonial institutions lasted until 1952 when a revolution, masterminded by a political party, the MNR (Movimiento Nacionalista Revolucionario – National Revolutionary Movement) overthrew the traditional political and economic system. As in many Latin American countries, in Bolivia the rise of new interests and cleavages in the early 20th century had led existing elites, often rurally based, to enter into a governing coalition with the military. This coalition was demolished in Bolivia in 1952.
The three great families that owned the tin mines were expropriated and the mines nationalized. All of the great haciendas and landed elites were expropriated and the land distributed to the peasants. The coalition which had represented these interests in politics, known as La Rosca, was displaced, universal suffrage was introduced, the military was disarmed, and pongueaje, the last form of colonial unpaid labor service, was abolished.
On the face of it this political revolution and the changes in economic institutions which it apparently brought ought to have led to a dramatic change in the development prospects for Bolivia. But it didn’t. The next figure from Jonathan Kelley and Herbert S. Klein’s seminal book Revolution and the Rebirth of Inequality shows the impact of the revolution on inequality. By 1960, 8 years after the revolution this had fallen by about 30%.
But the figure also shows that by the late 1960s inequality had increased back to levels which were greater than those before 1952!
What went wrong?
In Why Nations Fails we also emphasize that there is always conflict over institutions, and extractive institutions will be challenged not only by those who lose out from them and want to create a more inclusive society but also by those who wish to take over these extractive institutions and become the beneficiaries from extraction. It was this latter group that triumphed in 1952 in Bolivia.
But when institutions persist, sometimes they do so in different forms. The new extractive coalition that emerged after 1952 in Bolivia could not do the extraction using the same instruments as before. The new elites of the MNR could not simply take over the haciendas of the old elite. But there are many ways to skin a cat. Just how the cat was skinned after 1952 and the implications of this for economic institutions were researched in the late 1960s by the political anthropologist Dwight Heath. The title of the essay he wrote, “New Patrons for Old: Changing Patron-Client Relationships in the Bolivian Yungas”, is revealing.
What Heath showed is that after the revolution the MNR set themselves up as the new elite. He studied in detail how they interacted with different elements in society, for example, the colonos and arrenderos, the poorest peasants who had previously worked on the large haciendas. Before 1952 these workers were embedded in patron-client relationships with the hacienda owners, the hacendados. To get access to land they had to provide political services for the hacendados, for example voting in the way they were told.
As the next figure from Heath’s paper shows, after 1952 these people became “ex-colonos” and “ex-arrenderos” and were no longer in patron-client relations with the ex-hacendados. Instead, however, they had to engage in similar relations with new patrons, the institutions that the MNR had set up to allocate land such as the sindicato (trade union) or agrarian judge, both controlled by the MNR.
So poor people had again to deliver political services and had to be subservient to authority — this time to the MNR — in exchange for access to land rather than have secure property rights to their own land. The political and economic insecurities they faced meant that they still had few incentives.
Though there were improvements after 1952, particularly an expansion of education, this did not reach the poor rural people and in consequence Bolivia stayed poor.