Bulmer-Thomas V., Coatsworth J., Cortes-Conde R. The Cambridge Economic History of Latin America: Volume 2, The Long Twentieth Century

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192 Alan Dye

with national aspirations. Political pressure to reform it had been building

since before independence. But the response lag was greater in the civil law

tradition than would have occurred under a common law system. In the

latter, demands for legal changes were met with incremental, decentralized

responses. Where statutory law lagged, judge-made law ﬁlled in gaps. By

contrast, the civil law tradition resisted incremental adaptation. The proper

response under the civil law system was to undertake systematic reforms of

the codes, which required comprehensive reviews by legal scholars followed

by legislative action.

The elaboration and adaptation of systemic legal doctrine was a grand

undertaking, and the costs of achieving it were particularly high in

nineteenth-century Latin America because of the lumpy requirement of

designing original legal codes and the shortage of legal experts. The

authors of new legal codes were individuals or committees of experts,

but their approval required legislative action; therefore, authors assembled

documents with an eye to political approval. The writing process involved

debates at universities and law schools, polling for opinions, and formal

reviews and votes in legislatures. Attempts to economize on those costs

could result in failure. For example, Bolivia was the ﬁrst country to enact

its own commercial code, in 1834,yet it proved a hastily written, inefﬁcient

document. The country reinstated the Ordenanzas of Bilbao in 1843.In

another instance, the Dominican Republic operated ﬁrst under Spanish

law, then the Haitian code, then, in 1845, adopted the French code by

decree, but no ofﬁcial translation into Spanish was made until 1875.

Codiﬁcation reinforced other centralist tendencies. As an intellectual

endeavor, it followed centralist philosophical traditions of legal rationaliza-

tion exempliﬁed in the Code Napol

eon. Codiﬁers frequently used French,

Spanish, Italian, and German codes. The Chilean codes were also used

as models where political centralism was strong. Coatsworth and Tortella

emphasize the prerogatives of the Crown in the Spanish version of civil law

tradition in the Bourbon era. Adelman emphasizes the inﬂuence, in the

latter European civil law tradition, of the notion of legislative supremacy as

the sole source of rational law, against the notion of judicial autonomy and

judge-made law in the common law tradition. In the civil law tradition,

judges were not given formal autonomy to interpret statutes; their roles as

functionaries were to apply the law but, in principle, not to make or inter-

pret it. Although strict denial of any interpretative function to the courts

was not feasible in practice, its refusal as a formal principle affected the nor-

mal procedures for correcting defective law. Adelman ﬁnds, for example,

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The Institutional Framework 193

that in the debates over founding the judiciary in Argentina, “for the most

part lawmakers self-consciously opted to deplete judges of any discretionary

authority.”

Legislative supremacy was intended to protect the state from

judicial tyranny, but in Latin American political systems where presidential

powers vis-

a-vis the legislature were strengthened, it often seems to have

weakened the courts and contributed to the concentration of power in the

executive.

A formal principle of judicial independence is often included in consti-

tutions, but legal guarantees of independence and constitutional tenures

were not always respected. Adelman proposes that the civil law tradition

guided or “informed [constitutional] framers’ views of checks and balances

on state authority,” leading them to deemphasize characteristically North

American concerns to curb state powers and strengthen the powers of the

state to confront destabilizing political forces.

Finally, not only the legal tradition but also the process of framing legal

codes had a centralizing effect. Codiﬁcation was conducted at the national

level, in part, because there were economies of scale in the production of

legal codes, and the pool of requisite human capital was concentrated in

the capital cities. In addition, unlike in common law systems, codiﬁca-

tion was intended to destroy prior law, however derived, and replace it

with centrally produced law. Even in federalist systems, economies of scale

in codiﬁcation caused provincial governments to adopt codes authored in

the capital cities. In some cases, such as Mexico and Colombia, provincial

capitals contributed to what eventually became the national codes. Nev-

ertheless, the centralizing tendencies eventually dominated. Mexico ﬁrst

experimented with a national commercial code under Emperor Maximil-

lian by using a provincial model, the Codigo Larges, but dropped it (along

with the emperor) until the victorious republicans could make one of their

own. In Colombia, the national government abandoned federalism in 1886,

consolidated its formerly decentralized system of legal and administrative

codes, and set up unitary judicial and administrative institutions after 1886.

judicial reforms

The economic consequences of legal reforms depended on enforcement

and thus on the organization of the judicial system. Constitutions pro-

vided outlines for reorganizing and modernizing judiciaries, but reforms

Adelman, Republic of Capital, 201–2; Coatsworth and Tortella, “Institutions.”

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194 Alan Dye

of procedural law were required to complete the task. If the courts were

uncertain about procedure, then judicial action to enforce contracts and

property rights was more uncertain.

Judicial reforms were delayed along with other legislative reforms but,

more important, uncertainties about constitutional durability spilled over

to destabilize the organization of judicial systems. In Mexico, for exam-

ple, the federalist Constitution of 1824 established a two-level system of

state and federal courts, resembling the U.S. system. When General Santa

Anna seized power, he abolished federalism and, in 1837, centralized the

federal judiciary. He reorganized it again in 1843. The successor federalist

government restored the federalist structure to the judiciary in 1845, but

a subsequent coup d’

etat recentralized the judiciary in 1853. The federal-

ist structure was restored again in 1855 and written into the Constitution

of 1857, but it was dismantled again in 1859 because of civil war, then

suppressed under Maximilian, and restored gradually after 1863. The ﬁrst

organic law for the federal court system was promulgated in 1880 under

ıaz. Similar histories of repeated reorganizations of the judiciaries in Peru

and Venezuela give further evidence that political cycling halted judicial

reorganizations and made them unstable. The economic consequences are

difﬁcult to measure but straightforward to describe. Political instability

disrupted efforts to establish regular procedures and professional ethical

standards, authoritarian governments controlled appointees to the bench,

and coercive threats sometimes swayed their decisions.

Despite liberal demands to abolish the system of specialized tribunals,

inherited from the complex colonial system of courts, the most important

fueros (of the church, military, commercial, and mining guilds) generally

remained intact until mid-century. Even after legal reforms, interest groups

retained some corporate rights through ofﬁcial trade associations and com-

missions. Mexico, for example, initially abolished special commercial tri-

bunals in 1823 and 1827 only to restore them later, pressured by special

interests. Their jurisdictions were handed to the ordinary courts, but mer-

chants were so critical of the inefﬁciencies of the ordinary courts that, in

the late 1820s and 1830s, several states created chambers of commerce with

special mercantile courts. When Santa Anna consolidated the federal courts

into a centralist system in 1837,heabolished all other state courts but pre-

served the state commercial tribunals, and eventually expanded the system

of special courts by authorizing the creation of chambers of commerce

and mercantile tribunals in all major port cities. Chambers of commerce

and their tribunals revived some of the monopoly rights enjoyed by the

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The Institutional Framework 195

dominant merchant groups by controlling the number of merchants in

their communities. To engage in business as a merchant required a special

patent, or license, issued by the local chamber of commerce. The conse-

quences included higher prices, reduced competition, and discouragement

of commercial innovations.

Reforms that may be superior in principle were not superior in practice

if they introduced greater unpredictability. Disrupted by repeated reorga-

nizations, political interference, and insufﬁcient stafﬁng, ordinary courts

were often notoriously unpredictable. Though sometimes motivated by

rent-seeking, evidence shows that many demands to continue specialized

tribunals came from common people who saw them as more efﬁcient or

predictable than the ordinary courts. A study of the military tribunal in

Mexico shows that much of the political pressure to preserve the mili-

tary fuero came from widows and children of military ofﬁcers afraid to be

exposed to the arbitrariness of the ordinary court system. Merchants and

mining entrepreneurs expressed the same criticisms. The later creation of

corporatist bureaucracies, as in mining, merchant, and labor boards, sim-

ilarly targeted improved predictability in specialized contexts. They did

so, however, in ways that increased the vertical integration of public and

private sectors and invited more rent-seeking behavior. Although the long-

run effect is debated, evidence shows that judicial and other bureaucratic

continuity delayed, attenuated, or eased some of the revolutionary impact

of the liberal reforms.

PROPERTY RIGHTS AND REFORMS

If political instability and the uncertain duration of constitutional rules

spilled over into judicial systems, that unpredictability spilled over again

into entrepreneurs’ perceptions of the enforcement of property rights.

Policy-level reforms encountered two kinds of enforcement problems. First,

current enforcement was often uncertain or partial. Second, even if cur-

rently enforced, the long-run enforcement of a reform was uncertain if suc-

cessor governments were unconstrained by constitutional limits. Through

the mechanisms of enforcement, uncertainty about the effectiveness of con-

stitutional limits on government was transmitted into more speciﬁc insti-

tutional reforms. Enforcement problems were encountered in the reforms

of land, labor, and capital markets in domestic, import, and export mar-

kets. Space does not permit discussion of them all, so I focus on property

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196 Alan Dye

rights in land, from which extensions to the enforceability of holding or

exchanging other kinds of property or assets may be inferred.

At the end of the colonial period, the institutions of land ownership

were in disarray. For several reasons, maintaining formal property rights

in land, especially in rural areas, had come to involve high transaction

costs, including private guards and frequent litigation. The original royal

land grants had only vaguely speciﬁed property boundaries. Property limits

were deﬁned, for example, using potentially ambiguous natural landmarks

(e.g., s

treams, hills), by declaring their adjacency to an existing (also poorly

deﬁned) grant, or even as a vague circular perimeter around a geographical

point. These methods clearly were rationally chosen at original coloniza-

tion to minimize the transaction costs of transferring land rights when the

low value of the land did not justify the higher transaction costs of pre-

cise measurement. But the method was not updated with need. Boundary

disputes thus became endemic as further population growth increased the

demand for lands.

Spanish American institutions for making claims created overlapping

formal claims and introduced ambiguities about rightful possession. First,

original land grants were made on the condition that the lands would be

occupied and used. The condition was often neglected by grantees; and

yet, except in rare cases, the Crown did not revoke land grants for noncom-

pliance. The institution of composici

on, established later, allowed parties to

purchase rights to unoccupied lands on the legal principle that they were

part of the royal patrimony. When competing claims emerged, conﬂict-

ing jurisprudence found composiciones, original land grants, and historical

claims of village communities to be valid. As time passed, most of the

original c

edulas documenting the grants had deteriorated or were lost. Typ-

ically, if any documentary evidence for land claims existed, it was ad hoc.

There were no central registries; therefore, competing documentary

“proofs” were issued by notaries and local ofﬁcials. Use of sales receipts

was common (but whereas they might name the property, they usually did

not specify its boundaries). These kinds of evidence were easily forged and,

therefore, in principle, unveriﬁable. In colonial courts, the Crown was the

ﬁnal arbiter, but independence eliminated the royal prerogative and intro-

duced greater uncertainty into the legal standards for settling disputes. By

the nineteenth century, endless legal disputes were a normal cost of formal

land ownership.

At local levels, claims were often secured by local informal institutions;

therefore, informal markets for land existed parallel to formal markets.

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The Institutional Framework 197

Problems with formal claims drove more property in land into informal

markets. There were not one but many sets of informal institutions. We

know little about them, but we know that they were less integrated than

modern land markets, segmented by the social networks in which they

existed – in local elite, ethnic, and poor communities. They facilitated

exchange, but informal land markets were not perfect substitutes for formal

land markets because they were geographically limited and, except within

elite social networks, could not serve as security for credit. Therefore, for-

malization of titles offered substantial private and public-good beneﬁts.

More secure titles meant fewer resources would be dissipated in unneces-

sary court expenses, bribes, and maintaining private guards to police claims.

Lower risks of owning property in land would increase its market value and

encourage more active rural land and credit markets. Yet despite potential

economic beneﬁts, reforms of land laws to improve titling institutions were

slow to be approved, did not go the heart of the problem, and were often

derailed.

Why were reforms slow to emerge? Governments encountered con-

straints that limited the credibility and legitimacy of their policies. Legiti-

macy is a subtle, but essential, concept for understanding the enforcement

of policy reforms. A policy may be described as legitimate when compliance

was reinforced by a socially accepted norm or shared belief that it should be

respected or obeyed. If most people willingly complied, formal rules worked

well and required limited exercise of the state’s coercive powers; but, if a

critical mass refused to comply, formal rules were too costly to enforce.

Governments’ legitimacy to implement land reforms depended on their

ability to obtain self-enforcing compliance of local hacendados, squatters,

or villagers. The liberal rules adopted to formalize titles often conﬂicted

with rights established in informal institutions. Generally, they were unsuc-

cessful unless land claimants perceived net private gains from formalizing

their titles. Historians have often thought that the main source of political

demand for formal titles came from wealthy landowners (assuming they

had a comparative advantage in legal institutions), yet that is not what the

record shows.

There were several related issues. First, formalizing titles required

expenses to survey land, set up registry ofﬁces, and provide local judicial

and police forces to enforce titles. These costs were covered at the owners’

expense or indirectly through local payment of taxes, processing fees, or

bribes. With low population densities, many lands were used for subsis-

tence, forage, or grazing and did not generate incomes per hectare high

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198 Alan Dye

enough to justify the private cost of surveying. The legislative initiative,

therefore, usually came instead from governments seeking to establish effec-

tive property rights over public lands. With private property rights in dis-

pute, governments were unable to sell or lease public lands for revenue

because the titles they issued were subject to subsequent legal challenges.

An investigation in Mexico under Ju

arez found that much of the land con-

sidered as public land was disputed by private land claimants, yet most

disputants had documentation for only a fraction of their claims.

Second, many land claimants expected the existing informal institutions

to work better than titles to enforce their property rights. If formal titles

were not enforced by the government, there was little reason to have one.

There were reasons to doubt the effectiveness of government enforcement

of property rights. Even though legal reforms required it, surveying was

often dispensed with because of the high cost and dangers of conducting

them. The inadequacy of police protection was also a factor. Prior to reform,

landowners employed private security forces or relied on local informal

institutions to enforce their claims. Without major changes in police pro-

tection, most expected to continue to incur private security expenses. For

similar reasons, peasants and indigenous communities were reluctant to

abandon traditional institutions of enforcement.

Third, title reforms imposed risks of adverse rulings. The uncertainty of

courts’ rulings was factored into landowners’ expectations as risks of losing

their land, or a portion of it. Formalization required making one’s claims,

and one’s imperfect documentation, public. Uncertainty about the legal

outcomes of disputes depended on the validity of competing claims, the

arbitrariness or unpredictability of judicial rulings, and expected biases of

the court.

The policies enacted varied signiﬁcantly with context, so it is useful to

focus on an example. In Mexico, the liberal Ley Lerdo of 1856 provided for

the disentailment and conversion of all corporate (inalienable) lands into

fee-simple property, targeting in particular ecclesiastical and village commu-

nal lands. For the latter, the law established low-cost procedures by which

indigenous peasants could receive title for the lands they tilled. Although

the law is generally regarded as a sincere effort to transfer modern prop-

erty rights to the peasants, outcomes varied considerably. Peasants’ private

rights to property in village communities were relatively secure, allocated

and enforced according to local custom. The security of titles promised

by the national government, under Ju

arez, was less certain. Enforcement

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depended in part on local authorities within the villages, who often opposed

the reform because it undermined their authority. Jurisdiction over land

rights passed from village ofﬁcials to the courts, which had been destabi-

lized by political instability and repeated reorganizations. Peasants correctly

attached perceptions of enforcement risk to the liberal land reform. The

courts were known to be unpredictable, arbitrary, and swayed by local

government and hacendado interests.

System effects complicated the impact of land reform laws. Their

expected effectiveness depended on their compatibility with other formal

and informal rules. Under traditional communal institutions, peasants held

various kinds of rights to different parts of each village’s communal lands,

including exclusive private usufruct rights to till a speciﬁed plot and com-

mon grazing and forage rights in the marginal areas claimed by the com-

munity. Even though the Ley Lerdo aimed to preserve some of these rights,

it put others at risk. The boundaries of communal claims were not well

speciﬁed, and claims were often disputed by adjacent village communities

or hacendados.Moreover, the land reform laws proposed to accommodate

peasant property rights only in a narrow doctrinaire way, which, if imple-

mented, threatened to disrupt local economies. The rights offered did not

allow a continuation of some customary agrarian technologies. The more

complex governance systems, to which peasants were accustomed, func-

tioned in part to diversify agricultural risks. The reform law proposed to

modernize land laws without complementing them with alternative insti-

tutions for diversifying risk.

A ﬁnal problem was that, no matter how sincere its policy was, the Ju

arez

government had no means of ensuring that future governments would

enforce it. The case can be made by looking at what happened in successive

regimes. The Ju

arez government’s inability to implement the reforms on

communal lands was characteristic of repeated failed attempts by a number

of the Mexican states to implement similar reforms. That pattern changed

under the more stable Porﬁrian regime, both in its objectives and effec-

tiveness. Among the ﬁrst measures the D

ıaz regime undertook to build

its credibility was the granting of a large number of concessions to rail-

road companies. As soon as these concessions were made, private seizures

of lands (especially village lands) along projected railway routes escalated,

usurped by speculators. Occasionally, villages challenged the seizures in the

courts. Coatsworth ﬁnds that, although in previous periods the courts were

perhaps less biased, during this period they usually favored the hacendado

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200 Alan Dye

usurpers.

In effect, the reform laws were corrupted by courts bending to

political demands and used, not as the Ju

arez government had intended,

but rather to invalidate peasants’ claims. The legal act was not reversed, but

its intended effect was. The dismantling of communal land rights and the

vast expansion of the latifundios in Mexico are believed to have occurred

largely during this period, in this institutional environment.

An early accomplishment of the D

ıaz government was the implementa-

tion of a general survey of public lands. A study by Robert Holden examines

the complex set of political and economic factors that had to be balanced

to implement the policy. The D

ıaz regime contracted with private com-

panies to complete the survey, compensating them with one-third of all

public lands they documented and surveyed. This resulted in the survey of

approximately one-third of the nation’s land, and according to one estimate,

land prices rose by 50 percent as a consequence.

The survey was itself

aremarkable feat. Similar efforts by other Latin American governments

were unsuccessful because of landowner opposition. Nevertheless, as a

title reform policy, it was not comprehensive. To avoid confrontation with

landowners, it did not target private lands, except for those adjacent to or

overlapping with public lands. Consequently, most established landowner

areas were left unsurveyed.

The continued murkiness of land titles had negative spillover effects onto

national economic development. Among the most signiﬁcant, it impeded

not only the supply but also the demand for modern mortgage credit. A

modern mortgage market could have improved the efﬁciency of credit by

facilitating regional rural credit-market integration. However, the modern

mortgage instrument required perfected titles. Wherever titles remained

defective, landowners continued to use and to prefer informal credit mar-

kets based on locally speciﬁc kinship-based or other social networks.

Continued reliance on locally speciﬁc informal credit markets limited

landowners’ access to credit and wealth holders’ ability to diversify their

portfolios using national assets, possibly encouraging them to use foreign

capital markets more frequently to manage risk.

Insight into the problems of clearing up property rights may be obtained

by contrasting the U.S. federal government’s approach to the same prob-

lems. The 930,000 square miles of Mexican land transferred to the United

John H. Coatsworth, “Railroads, Landholding, and Agrarian Protest in the Early Porﬁriato,” Hispanic

American Historical Review 54, 1 (1974): 48–71.

Robert Holden, Mexico and the Survey of Public Lands: The Management of Modernization 1876–1911

(DeKalb, IL, 1994).

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The Institutional Framework 201

States in 1848 as a result of the Mexican–American War embodied the

same endemic disarray of property rights in land as elsewhere in Mexico.

A potentially explosive political situation was brewing in California dur-

ing the post-1848 provisional military government. Under the Treaty of

Guadalupe-Hidalgo, the U.S. federal government was obligated to honor

the property rights of owners of Spanish and Mexican land grants or titles

(which would be costly to renege because many owners were by then Amer-

ican citizens). Competing against that obligation were hordes of squatters

who had settled in California after the discovery of gold there in 1848.(The

news spread about the same time as the transfer took place.) The squat-

ting issue was explosive because many settlers had squatted on land that

was claimed under Spanish or Mexican land grants. Following Hispanic

tradition, the land grants were made on the condition of occupation and

use. If interpreted by the letter, failure to meet that condition made the

lands available for squatters to claim under U.S. federal laws of preemp-

tion. The United States had a history of accommodating squatters’ claims

on federal lands, and squatters’ shared expectations had led them to act

as if that tradition would be honored in California. Landowners opposed

squatters’ demands, arguing that adjudicating the rights to land grants by

the letter would be unjust and inconsistent with preestablished practices,

which, under the common law tradition in the United States, should be

upheld. It created considerable uncertainty as to how the prior land claims

would be validated.

The United States moved quickly to establish ﬁrm titles, with boundaries

ﬁxed by survey, undisputed and in public registry. U.S. federal authorities

had observed in previous phases of territorial expansion that failure to pro-

vide strong incentives for claimants to bring their claims forward led to slow

resolution of claims and occasional violence. Therefore, in contrast with

Mexico, Congress made formal declaration of all land claims mandatory.

Claimants were required to ﬁle their claims, along with documentation,

byacertain deadline; failure to do so resulted in automatic forfeiture of

the land to the public domain. If the courts validated the claim, the land

then had to be surveyed and all boundary disputes resolved. In contrast with

Mexico, landowners generally accepted the legitimacy of the government to

mandate the presentation of claims and complied with it, though claimants

of Mexican land grants (of both Mexican and U.S. nationality) complained

that the process discriminated against them. Californian landowners’ accep-

tance of mandatory formalization of titles was coupled with an expectation

that government policies would facilitate the development of a competitive