Order against Progress: Government, Foreign Investment, and Railroads in Brazil, 1854-1913

Published by EH.NET (August 2005)

William Summerhill, Order against Progress: Government, Foreign Investment, and Railroads in Brazil, 1854-1913. Stanford: Stanford University Press, 2003. xv + 297 pp. $60 (cloth), ISBN: 0-8047-3224-8.

Reviewed for EH.NET by Albert Fishlow, Institute for Latin American Studies, Columbia University.

William Summerhill’s Order against Progress provides a clear message. The railroad, whatever the occasional disputed findings geographically elsewhere, was the single element most responsible for the emergence of rapid Brazilian economic growth in the twentieth century. Or to put it the other way round, “poor transport conditions posed the most formidable barrier to Brazilian economic growth before 1900” (p. 1).

He makes his case utilizing a technology now well familiar: calculation of the savings in transportation costs as a result of the new technology, as opposed to the alternatives of road and water transportation. Brazil, unlike the United States or Europe, did not have a prior canal revolution, and its rivers were largely irrelevant to the coffee growth that triggered economic expansion after 1850 Thus the conclusion, that social saving in freight transport amounted to some 19 percent of Brazilian income in 1913 and passenger saving an additional 1 percent — much larger than comparable results found in the industrialized world. Equally relevant, his calculation of marginal social rates of return comes out with numbers that indicate that Brazil had not over invested in the sector. He goes on to repeat the exercise for the six largest railway networks in the country, finding no correlation between foreign ownership and social return. Forty-one tables and seven figures give a good indication of the substantial research, historical as well as numeric, underlying the volume.

Summerhill has performed these elaborate calculations with a degree of care and precision that can only be admired. Moreover, he makes clear his assumptions and the sensitivity to variation in them. Thus, he shows that depending upon the price indices used to project 1864 non-rail transport cost, one gets very different estimates for 1913 freight savings: the consumer price index for Rio de Janeiro yields social savings of 38 percent of GDP, while the wholesale price index approximates 19 percent. Then, again, if one presumes an elasticity of demand other than zero, say 0.6, as his own statistical experiment suggests, the savings falls to between 8 and 14 percent of GDP. On the other hand, there is the question of the potential increasing cost of non-rail services over the long interval from 1864 to 1913. When he opts for 19 percent as the value he prefers, for a period sixty years after the introduction of rail transport, I worry somewhat that the casual reader will take the value too seriously.

Not only are the price indices substantially suspect, yielding results only for Rio de Janeiro for a small number of items, but equally, the national income numbers earlier than 1900 are not at all to be relied upon. That may not affect the 1913 assessment, but it certainly does affect the earlier calculations going back to 1869 in Table 4.16. They rely on nominal trade and monetary stock series, and are converted to real terms, using the same inadequate deflators described above. While Furtado’s estimate of 1.5 percent per capita income growth in the second half of the nineteenth century has been rightly criticized – because it yields too low a level in 1850 when extrapolated back – the Contador and Haddad results of a decline in real income per capita of almost 40 percent between 1880 and 1900 are difficult to believe. The same can be said about the Goldsmith estimates used by Angus Maddison. Summerhill steps into the middle of this controversy, but without apparent recognition. If railways were bringing about great positive consequences for Brazil exactly in this period, as he argues, why were per capita incomes falling?

I therefore wish that he had been somewhat more adventurous in going beyond rail social savings to the actual process of changed Brazilian economic performance in this pre-World War I period. To be sure there is a chapter exploring the absence of backward linkages – no locomotives or iron and steel produced domestically – and the presence of forward linkages – but not to the extent of fomenting export-led growth.

But this brief exercise does not really give one the feel of late-comer development in Brazil: The Encilhamento in the 1890s, with its high rate of inflation and industrial growth after the establishment of the Republic, is not even indicated in the index. And there is precious little about the debates that must have occurred about the level of freight rates being charged – especially during periods when coffee prices were falling. Summerhill is always eager to dismiss the views of the dependistas and to assert the fact that British profits were modest: “the magnitude … was small in comparison to conservative measures of social benefits …. [The subsidy] indicates a modest prediction error made by the officials that devised the guarantees” (p. 185). He should have been equally eager to confront the fact that by 1880, less than 15 percent of pre-World War I rail mileage had been constructed, although the first line dates to 1854. Why this long lag in adapting to the new technology? Who, and what, were responsible? And thereafter, how did the subsequent great advance occur, with the obvious regional pressures growing more intense?

Although he speaks about the state and regulation, it is done indirectly, without either being a real presence. About two-thirds of the book is dedicated to the direct calculation of aggregate social savings, and a large part of the residual is focused on the individual lines and their results. Summerhill has obviously engaged in long and serious research to produce this volume. It will repay careful reading. Still, I eagerly await his next project, now that he has achieved tenure at UCLA, and the broader insights it may bring to Brazilian and Latin American economic history.

Albert Fishlow, Professor of International and Public Affairs, Columbia University, is now working on a book on Brazil after the return to democracy in 1985.