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Advertising Bans in the United States

Jon P. Nelson, Pennsylvania State University

Freedom of expression has always ranked high on the American scale of values and fundamental rights. This essay addresses regulation of “commercial speech,” which is defined as speech or messages that propose a commercial transaction. Regulation of commercial advertising occurs in several forms, but it is often controversial. In 1938, the Federal Trade Commission (FTC) was given the authority to regulate “unfair or deceptive” advertising. Congressional hearings were first held in 1939 on proposals to ban radio advertising of alcohol beverages (Russell 1940; U.S. Congress 1939, 1952). Actions by the FTC during 1964-69 led to the 1971 ban of radio and television advertising of cigarettes. In 1997, the distilled spirits industry reversed a six decade-old policy and began using cable television advertising. Numerous groups immediately called for removal of the ads, and Rep. Joseph Kennedy II (D, MA) introduced a “Just Say No” bill that would have banned all alcohol advertisements from the airways. In 1998, the Master Settlement Agreement between that state attorneys general and the tobacco industry put an end to billboard advertising of cigarettes. Do these regulations make any difference for the demand for alcohol or cigarettes? When will an advertising ban increase consumer welfare? What legal standards apply to commercial speech that affect the extent and manner in which governments can restrict advertising?

For many years, the Supreme Court held that the broad powers of government to regulate commerce included the “lesser power” to restrict commercial speech.1 In Valentine (1942), the Court held that the First Amendment does not protect “purely commercial advertising.” This view was applied when the courts upheld the ban of broadcast advertising of cigarettes, 333 F. Supp 582 (1971), affirmed per curiam, 405 U.S. 1000 (1972). However, in the mid-1970s this view began to change as the Court invalidated several state regulations affecting advertising of services and products such as abortion providers and pharmaceutical drugs. In Virginia State Board of Pharmacy (1976), the Court struck down a Virginia law that prohibited the advertising of prices for prescription drugs, and held that the First Amendment protects the right to receive information as well as the right to speak. Responding to the claim that advertising bans improved the public image of pharmacists, Justice Blackmun wrote that “an alternative [exists] to this highly paternalistic approach . . . people will perceive their own best interests if only they are well enough informed, and the best means to that end is to open the channels of communication rather than to close them” (425 U.S. 748, at 770). In support of its change in direction, the Court asserted two main arguments: (1) truthful advertising coveys information that consumers need to make informed choices in a free enterprise economy; and (2) such information is indispensable as to how the economic system should be regulated or governed. In Central Hudson Gas & Electric (1980), the Court refined its approach and laid out a four-prong test for “intermediate” scrutiny of restrictions on commercial speech. First, the message content cannot be misleading and must be concerned with a lawful activity or product. Second, the government’s interest in regulating the speech in question must be substantial. Third, the regulation must directly and materially advance that interest. Fourth, the regulation must be no more extensive than necessary to achieve its goal. That is, there must be a “reasonable fit” between means and ends, with the means narrowly tailored to achieve the desired objective. Applying the third and fourth-prongs, in 44 Liquormart (1996) the Court struck down a Rhode Island law that banned retail price advertising of beverage alcohol. In doing so, the Court made clear that the state’s power to ban alcohol entirely did not include the lesser power to restrict advertising. More recently, in Lorillard Tobacco (2001) the Supreme Court invalidated a state regulation on placement of outdoor and in-store tobacco displays. In summary, Central Hudson requires the use of a “balancing” test to examine censorship of commercial speech. The test weighs the government’s obligations toward freedom of expression with its interest in limiting the content of some advertisements. Reasonable constraints on time, place, and manner are tolerated, and false advertising remains illegal.

This article provides a brief economic history of advertising bans, and uses the basic framework contained in the Central Hudson decision. The first section discusses the economics of advertising and addresses the economic effects that might be expected from regulations that prohibit or restrict advertising. Applying the Central Hudson test, the second section reviews the history and empirical evidence on advertising bans for alcohol beverages. The third section reviews bans of cigarette advertising and discusses the regulatory powers that reside with the Federal Trade Commission as the main government agency with the authority to regulate unfair or deceptive advertising claims.

The Economics of Advertising

Judged by the magnitude of exposures and expenditures, advertising is a vital and important activity. A rule of thumb in the advertising industry is that the average American is exposed to more than 1,000 advertising messages every day, but actively notices fewer than 80 ads. According to Advertising Age (http://www.adage.com), advertising expenditures in 2002 in all media totaled $237 billion, including $115 billion in 13 measured media. Ads in newspapers accounted for 19.2% of measured spending, followed by network TV (17.3%), magazines (15.6%), spot TV (14.0%), yellow pages (11.9%), and cable/syndicated TV (11.9%). Internet advertising now accounts for about 5.0% of spending. By product category, automobile producers were the largest advertisers ($16 billion of measured media), followed by retailing ($13.5 billion), movies and media ($6 billion), and food, beverages, and candies ($6.0 billion). Beverage alcohol producers ranked 17th ($1.7 billion) and tobacco producers ranked 23rd ($284 million). Among the top 100 advertisers, Anheuser-Busch occupied the 38th spot and Altria Group (which includes Philip Morris) ranked 17th. Total advertising expenditures in 2002 were about 2.3% of U.S. gross domestic product (GDP). Ad spending tends to vary directly with general economy activity as illustrated by spending reductions during the 2000-2001 recession (Wall Street Journal, Aug. 14, 2001; Nov. 28, 2001; Dec. 12, 2001; Apr. 25, 2002). This pro-cyclical feature is contrary to Galbraith’s view that business firms use advertising to control or manage aggregate consumer demand.

National advertising of branded products developed in the early 1900s as increased urbanization and improvements in communication, transportation, and packaging permitted the development of mass markets for branded products (Chandler 1977). In 1900, the advertising-to-GDP ratio was about 3.1% (Simon 1970). The ratio stayed around 3% until 1929, but declined to 2% during the 1930s and has fluctuated around that value since then. The growth of major national industries was associated with increased promotion, although other economic changes often preceded the use of mass media advertising. For example, refrigeration of railroad cars in the late 1870s resulted in national advertising by meat packers in the 1890s (Pope 1983). Around the turn-of-the-century, Sears Roebuck and Montgomery Ward utilized low-cost transportation and mail-order catalogs to develop efficient systems of national distribution of necessities. By 1920 more Americans were living in urban areas than in rural areas. The location of retailers began to change, with a shift first to downtown shopping districts and later to suburban shopping malls. Commercial radio began in 1922, and advertising expenditures grew from $113 million in 1935 to $625 million in 1952. Commercial television was introduced in 1941, but wartime delayed the diffusion of televison. By 1954, half of the households in the U.S. had at least one television set. Expenditures on TV advertising grew rapidly from $454 million in 1952 to $2.5 billion in 1965 (Backman 1968). These changes affected the development of markets — for instance, new products could be introduced more rapidly and the available range of products was enhanced (Borden 1942).

Market Failure: Incomplete and Asymmetric Information

Because it is costly to acquire and process, the information held by buyers and sellers is necessarily incomplete and possibly unequal as well. However, full or “perfect” information is one of the analytical requirements for the proper functioning of competitive markets — so what happens when information is imperfect or unequal? Suppose, for example, that firms charge different prices for identical products, but some consumers (tourists) are ignorant of the dispersion of prices available in the marketplace. For many years, this question was largely ignored by economists, but two contributions sparked a revolution in economic thinking. Stigler (1961) showed that because information is costly to acquire, consumer search for lower prices will be less than complete. As a result, a dispersion of prices can persist and the “law of one price” is violated. The dispersion will be less if the product represents a large expenditure (e.g., autos), since more individual search is supported and suppliers have an extra incentive to promote the product. Because information has public good characteristics, imperfect information provides a rationale for government intervention, but profit-seeking firms also have reasons to reduce search costs through advertising and brand names. Akerlof (1970) took the analysis a step further by focusing on material aspects of a product that are known to the seller, but not by potential buyers. In Akerlof’s “lemons model,” the seller of a used car has private knowledge of defects, but potential buyers have difficulty distinguishing between good used cars (“creampuffs”) and bad used cars (“lemons”). Under these circumstances, Akerlof showed that a market may not exist or only lower-quality products are offered for sale. Hence, asymmetric information can result in market failure, but a reputation for quality can reduce the uncertainty that consumers face due to hidden defects (Akerlof 1970; Richardson 2000; Stigler 1961).

Under some conditions, branding and advertising of products, including targeting of customer groups, can help reduce market imperfections. Because advertising has several purposes or functions, there is always uncertainty regarding its effects. First, advertising may help inform consumers of the existence of products and brands, better inform them about price and quality dimensions, or better match customers and brands (Nelson 1975). Indeed, the basic message in many advertisements is simply that the brand is available. Consumer valuations can reflect a joint product, which is the product itself and the information about it. However, advertising tends to focus on only the positive aspects of a product, and ignores the negatives. In various ways, advertisers sometimes inform consumers that their brand is “less bad” (Calfee 1997b). An advertisement that announces a particular automobile is more crash resistant also is a reminder that all cars are less than perfectly safe. Second, persuasive or “combative” advertising can serve to differentiate one firm’s brand from those of its rivals. As a consequence, a successful advertiser may gain some discretion over the price it charges (“market power”). Furthermore, reactions by rivals may drive industry advertising to excessive levels or beyond the point where net social benefits of advertising are maximized. In other words, excessive advertising may result from the inability of each firm to reduce advertising without similar reductions by its rivals. Because it illustrates a breakdown of desirable coordination, this outcome is an example of the “prisoners’ dilemma game.” Third, the costs of advertising and promotion by existing or incumbent firms can make it more difficult for new firms to enter a market and compete successfully due to an advertising-cost barrier to entry. Investments in customer loyalty or intangible brand equity are largely sunk costs. Smaller incumbents also may be at a disadvantage relative to their larger rivals, and consequently face a “barrier to mobility” within the industry. However, banning advertising can have much the same effect by making it more difficult for smaller firms and entrants to inform customers of the existence of their brands and products. For example, Russian cigarette producers were successful in banning television advertising by new western rivals. Given multiple effects, systematic empirical evidence is needed to help resolve the uncertainties regarding the effects of advertising (Bagwell 2005).

Substantial empirical evidence demonstrates that advertising of prices increases competition and lowers the average market price and variance of prices. Conversely, banning price advertising can have the opposite effect, but consumers might derive information from other sources — such as direct observation and word-of-mouth — or firms can compete more on quality (Kwoka 1984). Bans of price advertising also affect product quality indirectly by making it difficult to inform consumers of price-quality tradeoffs. Products for which empirical evidence demonstrates that advertising reduces the average price include toys, drugs, eyeglasses, optometric services, gasoline, and grocery products. Thus, for relatively homogeneous goods, banning price advertising is expected to increase average prices and make entry more difficult. A partial offset occurs if significant costs of advertising increases product prices.

The effects of a ban of persuasive advertising also are uncertain. In a differentiated product industry, it is possible that advertising expenditures are so large that an advertising ban reduces costs and product prices, thereby offsetting or defeating the purpose of the ban. For products that are well known to consumers (“mature” products), the presumption is that advertising primarily affects brand shares and has little impact on primary demand (Dekimpe and Hanssens 1995; Scherer and Ross 1990). Advertising bans tend to solidify market shares. Furthermore, most advertising bans are less than complete, such as the ban of broadcast advertising of cigarettes. Producers can substitute other media or use other forms of promotion, such as discount coupons, articles of apparel, and event sponsorship. Thus, government limitations on commercial speech for one product or media often lead to additional efforts to limit other promotions. This “slippery slope” effect is illustrated by the Federal Communications Commission’s fairness doctrine for advertising of cigarettes (discussed below).

The Industry Advertising-Sales Response Function

The effect of a given ban on market demand depends importantly on the nature of the relationship between advertising expenditures and aggregate sales. This relationship is referred to as the industry advertising-sales response function. Two questions regarding this function have been debated. First, it is not clear that a well-defined function exists at the industry level, since persuasive advertising primarily affects brand shares. The issue is the spillover, if any, from brand advertising to aggregate (primary) market demand. Two studies of successful brand advertising in the alcohol industry failed to reveal a spillover effect on market demand (Gius 1996; Nelson 2001). Second, if an industry-level response function exists, it should be subject to diminishing marginal returns, but it is unclear where diminishing returns begin (the inflection point) or the magnitude of this effect. Some analysts argue that diminishing returns only begin at high levels of industry advertising, and sharply increasing returns exist at moderate to low levels (Saffer 1993). According to this view, comprehensive bans of advertising will reduce market demand importantly. However, this argument is at odds with empirical evidence for a variety of mature products, which demonstrates diminishing returns over a broad range of outlays (Assmus et al. 1984; Tellis 2004). Simon and Arndt (1980) found that diminishing returns began immediately for a majority of 100-plus products. Furthermore, average advertising elasticities for most mature products are only about 0.1 in magnitude (Sethuraman and Tellis 1991). As a result, limited bans of advertising will not reduce sales of mature products or the effect is likely to be extremely small in magnitude. It is unlikely that elasticities this small could support the third prong of the Central Hudson test.

Suppose that advertising for a particular product convinces some consumers to use Brand X, and this results in more sales of the brand at a higher price. Are consumers better or worse off as a consequence? A shift in consumer preferences toward a fortified brand of breakfast cereal might be described as either a “shift in tastes,” an increase in demand for nutrition, or an increase in joint demand for the cereal and information. Because it concerns individual utility, it is not clear whether a “shift in tastes” reduces or increases consumer satisfaction. Social commentators usually respond that consumers just think they are better off or the demand effect is spurious in nature. Much of the social criticism of advertising is concerned with its pernicious effect on consumer beliefs, tastes, and desires. Vance Packard’s, The Hidden Persuaders (1957), was an early, but possibly misguided, effort along these lines (Rogers 1992). Packard wrote that advertisers can “channel our unthinking habits, our purchasing decisions, and our thought processes by the use of insights gleaned from psychiatry and the social sciences.” Of course, once a “hidden secret” is revealed, such manipulation is less effective in the marketplace for products due to cynicism toward advertisers or outright rejection of the advertising claims.

Dixit and Norman (1978) argued that because profit-maximizing firms tend to over-advertise, small decreases in advertising will raise consumer welfare. In their analysis, this result holds regardless of the change in tastes or what product features are being advertised. Becker and Murphy (1993) responded that advertising is usually a complement to products, so it is unclear that equilibrium prices will always be higher as advertising increases. Further, it does not follow that social welfare is higher without any advertising. Targeting by advertisers also helps to increase the efficiency of advertising and reduces the tendency to waste advertising dollars on uninterested consumers through redundant ads. Nevertheless, this common practice also is criticized by social commentators and regulatory agencies. In summary, the evaluation of advertising bans requires empirical evidence. Much of the evidence on advertising bans is econometric and most of it concerns two products, alcohol beverages and cigarettes.

Advertising Bans: Beverage Alcohol

In an interesting way, the history of alcohol consumption follows the laws of supply and demand. The consumption of ethyl alcohol as a beverage began some 10,000 years ago. Due to the uncertainties of contaminated water supplies in the West, alcohol is believed to have been the most popular and safe daily beverage for centuries (Valle 1998). In the East, boiled water in the form of teas solved the problem of potable beverages. Throughout the Middle Ages, beer and ale were drunk by common folk and wine by the affluent. Following the decline of the Roman Empire, the Catholic Church entered the profitable production of wines. Distillation of alcohol was developed in the Arab world in 700 A.D. and gradually spread to Europe, where distilled spirits were used ineffectively as a cure for plague in the 14th century. During the 17th century, several non-alcohol beverages became popular, including coffee, tea, and cocoa. In the late eighteenth century, religious sentiment turned against alcohol and temperance activity figured prominently in the concerns of the Baptist, Friends, Methodist, Mormon, Presbyterian, and Unitarian churches. It was not until the late nineteenth century that filtration and treatment made safe drinking water supplies more widely available.

During the colonial period, retail alcohol sellers were licensed by states, local courts, or town councils (Byse 1940). Some colonies fixed the number of licenses or bonded the retailer. Fixing of maximum prices by legislatures and the courts encouraged adulteration and misbranding by retailers. In 1829, the state of Maine passed the first local option law and in 1844, the territory of Oregon enacted a general prohibition law. Experimentation with statewide monopoly of the retail sale of alcohol began in 1893 in South Carolina. As early as 1897, federal regulation of labeling was enacted through the Bottling in Bond Act. Following the repeal of Prohibition in 1933, the Federal Alcohol Control Administration was created by executive order (O’Neill 1940). The Administration immediately set about creating “fair trade codes” that governed false and misleading advertising, unfair trade practices, and prices that were “oppressively high or destructively low.” These codes discouraged price and advertising competition, and encouraged shipping expansion by the major midwestern brewers (McGahan 1991). The Administration ceased to function in 1935 when the National Industrial Recovery Act was declared unconstitutional. The passage of Federal Alcohol Administration Act in 1935 created the Federal Alcohol Administration (FAA) within the Treasury Department, which regulated trade practices and enforced the producer permit system required by the Act. In 1939, the FAA was abolished and its duties were transferred to the Alcohol Tax Unit of the Internal Revenue Service (later named the Bureau of Alcohol, Tobacco, and Firearms). The ATF presently administers a broad range of provisions regarding the formulation, labeling, and advertising of alcohol beverages.

Alcohol Advertising: Analytical Methods

Three types of econometric studies examine the effects of advertising on the market demand for beverage alcohol. First, time-series studies examine the relationship between alcohol consumption and annual or quarterly advertising expenditures. Recent examples of such studies include Calfee and Scheraga (1994), Coulson et al. (2001), Duffy (1995, 2001), Lariviere et al. (2000), Lee and Tremblay (1992), and Nelson (1999). All of these studies find that advertising has no effect on total alcohol consumption and small or nonexistent effects on beverage demand (Nelson 2001). This result is not affected by disaggregating advertising to account for different effects by media (Nelson 1999). Second, cross-sectional and panel studies examine the relationship between alcohol consumption and state regulations, such as state bans of billboards. Panel studies combine cross-sectional (e.g., all 50 states) and time-series information (50 states for the period 1980-2000), which alters the amount of variation in the data. Third, cross-national studies examine the relationship between alcohol consumption and advertising bans for a panel of countries. This essay discusses results obtained in the second and third types of studies.

Background: State Regulation of Billboard Advertising

In the United States, the distribution and retail sale of alcohol beverages is regulated by the individual states. The Twenty-First Amendment, passed in 1933, repealed Prohibition and granted the states legal powers over the sale of alcohol, thereby resolving the conflicting interests of “wets” and “drys” (Goff and Anderson 1994; Munger and Schaller 1997; Shipman 1940; Strumpf and Oberholzer-Gee 2000). As a result, alcohol laws vary importantly by state, and these differences represent a natural experiment with regard to the economic effects of regulation. Long-standing differences in state laws potentially affect the organization of the industry and alcohol demand, reflecting incentives that alter or shape individual behaviors. State laws also differ by beverage, suggesting that substitution among beverages is one possible consequence of regulation. For example, state laws for distilled spirits typically are more stringent than similar laws applied to beer and wine. While each state has adopted its own unique regulatory system, several broad categories can be identified. Following repeal, eighteen states adopted public monopoly control of the distribution of distilled spirits. Thirteen of these states operate off-premise retail stores for the sale of spirits, and two states also control retail sales of table wine. In five states, only the wholesale distribution of distilled spirits is controlled. No state has monopolized beer sales, but laws in three states provide for restrictions on private beer sales by alcohol content. In the private license states, an Alcohol Beverage Control (ABC) agency determines the number and type of retail licenses, subject to local wet-dry options. Because monopoly states have broad authority to restrict the marketing of alcohol, the presumption is that total alcohol consumption will be lower in the control states compared to the license states. Monopoly control also raises search costs by restricting outlet numbers, hours of operation, and product variety. Because beer and wine are substitutes or complements for spirits, state monopoly control can increase or decrease total alcohol use, or the net effect may be zero (Benson et al. 1997; Nelson 1990, 2003a).

A second broad experiment includes state regulations banning advertising of alcohol beverages or which restrict the advertising of prices. Following repeal, fourteen states banned billboard advertising of distilled spirits, including seven of the license states. Because the bans have been in existence for many years and change infrequently over time, these regulations provide evidence on the long-term effectiveness of advertising bans. It is often argued that billboards have an important effect on youth behaviors, and this belief has been a basis for municipal ordinances banning billboard advertising of tobacco and alcohol. Given long-standing bans, it might be expected that youth alcohol behaviors will show up as cross-state differences in adult per capita consumption. Indeed, these two variables are highly correlated (Cook and Moore 2000, 2001). Further, fifteen states banned price advertising by retailers using billboards, newspapers, and visible store displays. In general, a ban of price advertising reduces retail competition and increases search costs of consumers. However, these regulations were not intended to advance temperance, but rather were anti-competitive measures obtained by alcohol retailers (McGahan 1995). For example, in 44 Liquormart (1996) the lower court noted that Rhode Island’s ban of price advertising was designed to protect smaller retailers from in-state and out-of-state competition, and was closely monitored by the liquor retailers association. A price advertising ban could reduce alcohol consumption by elevating full prices (search costs plus monetary prices). Because many states banned only price advertising of spirits, substitution among beverages also is a possible outcome.

Table 1 illustrates historical changes since 1935 in alcohol consumption in the United States and three individual states. Also, Table 1 shows nominal and real advertising expenditures for the U.S. After peaking in the early 1980s, per capita alcohol consumption is now at roughly the level experienced in the early 1960s. Nationally, the decline in alcohol consumption from 1980 to 2000 was 21.0%. This decline has occurred despite continued high levels of advertising and promotion. At the state-level, the percentage changes in consumption are Illinois, -25.3%; Ohio, -15.5%; and Pennsylvania, -20.5%. Pennsylvania is a state monopoly for spirits and wines and also banned price advertising of alcohol, including beer, prior to 1997. However, the change in per capita consumption in Pennsylvania parallels what has occurred nationally.

Econometric Results: State-Level Studies of Billboard Bans

Seven econometric studies estimate the relationship between state billboard bans and alcohol consumption: Hoadley et al. (1984), Nelson (1990, 2003a), Ornstein and Hanssens (1985), Schweitzer et al. (1983), and Wilkinson (1985, 1987). Two studies used a single year, but the other five employed panel data covering five to 25 years. Two studies estimated demand functions for beer or distilled spirits only, which ignores substitution. None of the studies obtained a statistically significant reduction in total alcohol consumption due to bans of billboards. In several studies, billboard bans increased spirits consumption significantly. A positive effect of a ban is contrary to general expectations, but consistent with various forms of substitution. The study by Nelson (2003a) covered 45 states for the time period 1982-1997. In contrast to earlier studies, Nelson (2003a) focused on substitution among alcohol beverages and the resulting net effect on total ethanol consumption. Several subsamples were examined, including all 45 states, ABC-license states, and two time periods, 1982-1988 and 1989-1997. A number of other variables also were considered, including prices, income, tourism, age demographics, and the minimum drinking age. During both time periods, state billboard bans increased consumption of wine and spirits, and reduced consumption of beer. The net effect on total ethanol consumption was significantly positive during 1982-1988, and insignificant thereafter. During both time periods, bans of price advertising of spirits were associated with lower consumption of spirits, higher consumption of beer, and no effect on wine or total alcohol consumption. The results in this study demonstrate that advertising regulations have different effects by beverage, indicating the importance of substitution. Public policy statements that suggest that limited bans have a singular effect are ignoring market realities. The empirical results in Nelson (2003a) and other studies are consistent with the historic use of billboard bans as a device to suppress competition, with little or no effect on temperance.

Econometric Results: Cross-National Studies of Broadcast Bans

Many Western nations have restrictions on radio and television advertising of alcohol beverages, especially distilled spirits. These controls range from time-of-day restrictions and content guidelines to outright bans of broadcast advertising of all alcohol beverages. Until quite recently, the trend in most countries has been toward stricter rather than more lenient controls. Following repeal, U.S. producers of distilled spirits adopted a voluntary Code of Good Practice that barred radio advertising after 1936 and television advertising after 1948. When this voluntary agreement ended in late 1996, cable television stations began carrying ads for distilled spirits. The major TV networks continued to refuse such commercials. Voluntary or self-regulatory codes also have existed in a number of other countries, including Australia, Belgium, Germany, Italy, and Netherlands. By the end of the 1980s, a number of countries had banned broadcast advertising of spirits, including Austria, Canada, Denmark, Finland, France, Ireland, Norway, Spain, Sweden, and United Kingdom (Brewers Association of Canada 1997).

Table 1
Advertising and Alcohol Consumption (gallons of ethanol per capita, 14+ yrs)

Illinois Ohio Pennsylvania U.S. Alcohol Ads Real Ads Real Ads Percent
Year (gal. p.c.) (gal. p.c.) (gal. p.c.) (gal. p.c.) (mil. $) (mil. 96$) per capita Broadcast
1935 1.20
1940 1.56
1945 2.25
1950 2.04
1955 2.00
1960 2.07
1965 2.27 242.2 1018.5 7.50 38.7
1970 2.82 2.22 2.28 2.52 278.4 958.0 6.41 34.7
1975 2.99 2.21 2.35 2.69 395.6 979.9 5.99 44.0
1980 3.00 2.33 2.39 2.76 906.9 1580.5 8.83 55.1
1981 2.91 2.25 2.37 2.76 1014.9 1618.7 8.91 56.6
1982 2.83 2.28 2.36 2.72 1108.7 1667.0 9.07 58.1
1983 2.80 2.22 2.29 2.69 1182.9 1708.4 9.18 62.0
1984 2.77 2.26 2.25 2.65 1284.4 1788.9 9.50 66.0
1985 2.72 2.20 2.22 2.62 1293.0 1746.1 9.16 68.2
1986 2.68 2.17 2.23 2.58 1400.2 1850.6 9.61 73.5
1987 2.66 2.17 2.20 2.54 1374.7 1766.1 9.09 73.5
1988 2.64 2.11 2.11 2.48 1319.4 1639.8 8.37 74.4
1989 2.56 2.07 2.10 2.42 1200.4 1436.6 7.27 68.2
1990 2.62 2.09 2.15 2.45 1050.4 1209.7 6.10 64.8
1991 2.48 2.03 2.05 2.30 1119.5 1247.2 6.22 66.4
1992 2.43 1.98 1.99 2.30 1074.7 1172.0 5.78 68.5
1993 2.38 1.95 1.96 2.23 970.7 1030.9 5.04 70.4
1994 2.35 1.85 1.93 2.18 1000.9 1041.1 5.03 69.4
1995 2.29 1.90 1.86 2.15 1027.5 1046.4 5.00 68.2
1996 2.30 1.93 1.86 2.16 1008.8 1008.8 4.77 68.5
1997 2.26 1.91 1.84 2.14 1087.0 1069.2 5.01 66.5
1998 2.25 1.97 1.86 2.14 1187.6 1154.6 5.36 66.3
1999 2.27 2.00 1.87 2.16 1242.2 1189.5 5.45 64.2
2000 2.24 1.97 1.90 2.18 1422.6 1330.8 5.89 62.8

Sources: 1965-70 ad data from Adams-Jobson Handbooks; 1975-91 data from Impact; and 1992-2000 data from LNA/Competitive Media. Nominal data deflated by the GDP implicit price deflator (1996 = 100). Alcohol data from National Institute on Alcohol Abuse and Alcoholism, U.S. Apparent Consumption of Alcoholic Beverages (1997) and 2003 supplement. Real advertising per capita is for ages 14+ based on NIAAA and author’s population estimates.

The possible effects of broadcast bans are examined in four studies: Nelson and Young (2001), Saffer (1991), Saffer and Dave (2002), and Young (1993). Because alcohol behavior or “cultural sentiment” varies by country, it is important that the social setting is considered. In particular, the level of alcohol consumption in the wine-drinking countries is substantially greater. In France, Italy, Luxembourg, Portugal, and Spain, alcohol consumption is about one-third greater than average (Nelson and Young 2001). Further, 20 to 25% of consumption in the Scandinavian countries is systematically under-reported due to cross-border purchases, smuggling, and home production. In contrast to other studies, Nelson and Young (2001) accounted for these differences. The study examined alcohol demand and related behaviors in a sample of 17 OECD countries (western Europe, Canada, and the U.S.) for the period 1977 to 1995. Control variables included prices, income, tourism, age demographics, unemployment, and drinking sentiment. The results indicated that bans of broadcast advertising of spirits did not decrease per capita alcohol consumption. During the sample period, five countries adopted broadcast bans of all alcohol beverage advertisements, apart from light beer (Denmark, Finland, France, Norway, Sweden). The regression estimates for complete bans were insignificantly positive. The results indicated that bans of broadcast advertising had no effect on alcohol consumption relative to countries that did not ban broadcast advertising. For the U.S., the cross-country results are consistent with studies of successful brands, studies of billboard bans, and studies of advertising expenditures (Nelson 2001). The results are inconsistent with an advertising-response function with a well-defined inflection point.

Advertising Bans: Cigarettes

Prior to 1920, consumption of tobacco in the U.S. was mainly in the form of cigars, pipe tobacco, chewing tobacco, and snuff. It was not until 1923 that cigarette consumption by weight surpassed that of cigars (Forey et al. 2002). Several early developments contributed to the rise of the cigarette (Borden 1942). First, the Bonsak cigarette-making machine was patented in 1880 and perfected in 1884 by James Duke. Second, the federal excise tax on cigarettes, instituted to help pay for the Civil War, was reduced in 1883 from $1.75 to 50 cents a thousand pieces. Third, during World War I, cigarette consumption by soldiers was encouraged by ease of use and low cost. Fourth, the taboo against public smoking by women began to wane, although participation by women remained substantially below that of men. By 1935, about 50% of men smoked compared to only 20% of women. Fifth, advertising has been credited with expanding the market for lighter-blends of tobacco, although evidence in support of this claim is lacking (Tennant 1950). Some early advertising claims were linked to health, such as a 1928 ad for Lucky Strike that emphasized, “No Throat Irritation — No Cough.” During this time, the FTC banned numerous health claims by de-nicotine products and devices, e.g., 10 FTC 465 (1925).

Cigarette advertising has been especially controversial since the early 1950s, reflecting known health risks associated with smoking and the belief that advertising is a causal factor in smoking behaviors. Warning labels on cigarette packages were first proposed in 1955, following new health reports by the American Cancer Society, the British Medical Research Council, and Reader’s Digest (1952). Regulation of cigarette advertising and marketing, especially by the FTC, increased over the years to include content restrictions (1942, 1950-52); advertising guidelines (1955, 1960, 1966); package warning labels (1965, 1970, 1984); product testing and labeling (1967, 1970); public reporting on advertising trends (1964, 1967, 1981); warning messages in advertisements (1970); and advertising bans (1971, 1998). The history of these regulations is discussed below.

Background: Cigarette Prohibition and Early Health Reports

During the 17th century, several of the northern colonies banned public smoking. In 1638, the Plymouth colony passed a law forbidding smoking in the streets and, in 1798, Boston banned the carrying of a lighted pipe or cigar in public. Beginning around 1850, a number of anti-tobacco groups were formed (U.S. Surgeon General 2000), including the American Anti-Tobacco Society in 1849, American Health and Temperance Association (1878), Anti-Cigarette League (1899), Non-Smokers Protective League (1911), and the Department of Narcotics of the Women’s Christian Temperance Union (1883). The WCTU was a force behind the cigarette prohibition movement in Canada and the U.S. During the Progressive Era, fifteen states passed laws prohibiting the sale of cigarettes to adults and another twenty-one states considered such laws (Alston et al. 2002). North Dakota and Iowa were the first states to adopt smoking bans in 1896 and 1897, respectively. In West Virginia, cigarettes were taxed so heavily that they were de facto prohibited. In 1920, Lucy Page Gaston of the WCTU made a bid for the Republican nomination for president on an anti-tobacco platform. However, the movement waned as the laws were largely unenforceable. By 1928, cigarettes were again legal for sale to adults in every state.

As the popularity of cigarette smoking spread, so too did concerns about its health consequences. As a result, the hazards of smoking have long been common knowledge. A number of physicians took early notice of a tobacco-cancer relationship in their patients. In 1912, Isaac Adler published a book on lung cancer that implicated smoking. In 1928, adverse health effects of smoking were reported in the New England Journal of Medicine. A Scientific American report in 1933 tentatively linked cigarette “tars” to lung cancer. Writing in Science in 1938, Raymond Pearl of Johns Hopkins University demonstrated a statistical relationship between smoking and longevity (Pearl 1938). The addictive properties of nicotine were reported in 1942 in the British medical journal, The Lancet. These and other reports attracted little attention from the popular press, although Reader’s Digest (1924, 1941) was an early crusader against smoking. In 1950, three classic scientific papers appeared that linked smoking and lung cancer. Shortly thereafter, major prospective studies began to appear in 1953-54. At this time, the research findings were more widely reported in the popular press (e.g., Time 1953). In 1957, the Public Health Service accepted a causal relationship between smoking and lung cancer (Burney 1959; Joint Report 1957). Between 1950 and 1963, researchers published more than 3,000 articles on the health effects of smoking.

Cigarette Advertising: Analytical Methods

Given the rising concern about the health effects of smoking, it is not surprising that cigarette advertising would come under fire. The ability of advertising to stimulate primary demand is not debated by public health officials, since in their eyes cigarette advertising is inherently deceptive. The econometric evidence is much less clear. Three methods are used to assess the relationship between cigarette consumption and advertising. First, time-series studies examine the relationship between cigarette consumption and annual or quarterly advertising expenditures. These studies have been reviewed several times, including comprehensive surveys by Cameron (1998), Duffy (1996), Lancaster and Lancaster (2003), and Simonich (1991). Most time-series studies find little or no effect of advertising on primary demand for cigarettes. For example, Duffy (1996) concluded that “advertising restrictions (including bans) have had little or no effect upon aggregate consumption of cigarettes.” A meta-analysis by Andrews and Franke (1991) found that the average elasticity of cigarette consumption with respect to advertising expenditure was only 0.142 during 1964-1970, and declined to -0.007 thereafter. Second, cross-national studies examine the relationship between per capita cigarette consumption and advertising bans for a panel of countries. Third, several time-series studies examine the effects of health scares and the 1971 ban of broadcast advertising. This essay discusses results obtained in the second and third types of econometric studies.

Econometric Results: Cross-National Studies of Broadcast Bans

Systematic tests of the effect of advertising bans are provided by four cross-national panel studies that examine annual per capita cigarette consumption among OECD countries: Laugesen and Meads (1991); Stewart (1993); Saffer and Chaloupka (2000); and Nelson (2003b). Results in the first three studies are less than convincing for several reasons. First, advertising bans might be endogenously determined together with cigarette consumption, but earlier studies treated advertising bans as exogenous. In order to avoid the potential bias associated with endogenous regressors, Nelson (2003b) estimated a structural equation for the enabling legislation that restricts advertising. Second, annual data on cigarette consumption contain pronounced negative trends, and the data series in levels are unlikely to be stationary. Nelson (2003b) tested for unit roots and used consumption growth rates (log first-differences) to obtain stationary data series for a sample of 20 OECD countries. Third, the study also tested for structural change in the smoking-advertising relationship. The motivation was based on the following set of observations: by the mid-1960s the risks associated with smoking were well known and cigarette consumption began to decline in most countries. For example, per capita consumption in the United States increased to an all-time high in 1963 and declined modestly until about 1978. Between 1978 and 1995, cigarette consumption in the U.S. declined on average by -2.44% per year. Further, the decline in consumption was accompanied by reductions in smoking prevalence. In the U.S., male smoking prevalence declined from 52% of the population in 1965 to 33% in 1985 and 27% in 1995 (Forey et al. 2002). Smoking also is increasingly concentrated among individuals with lower incomes or lower levels of education (U.S. Public Health Service 1994). Changes in prevalence suggest that the sample of smokers will not be homogeneous over time, which implies that empirical estimates may not be robust across different time periods.

Nelson (2003b) focused on total cigarettes, defined as the sum of manufactured and hand-rolled cigarettes for 1970-1995. Data on cigarette and tobacco consumption were obtained from International Smoking Statistics (Forey et al. 2002). This comprehensive source includes estimates of sales in OECD countries for manufactured cigarettes, hand-rolled cigarettes, and total consumption by weight of all tobacco products. The data series begin around 1948 and extend to 1995. Regulatory information on advertising bans and health warnings were obtained from Health New Zealand’s International Tobacco Control Database and the World Health Organization’s International Digest of Health Legislation. For each country and year, HNZ reports the media in which cigarette advertising are banned. Nine media are covered, including television, radio, cinema, outdoor, newspapers, magazines, shop ads, sponsorships, and indirect advertising such as brand names on non-tobacco products. Based on these data, three dummy variables were defined: TV-RADIO (= 1 if only television and radio are banned, zero otherwise); MODERATE (= 1 if 3 or 4 media are banned); and STRONG (= 1 if 5 or more media are banned). On average, 4 to 5 media were banned in the 1990s compared to only 1 or 2 in the 1970s. Except for Austria, Japan and Spain, all OECD countries by 1995 had enacted moderate or strong bans of cigarette advertising. In 1995, there were 9 countries in the strong category compared to 5 in 1990, 4 in 1985, and only 3 countries in 1980 and earlier. Additional control variables in the study included prices, income, warning labels, unemployment rates, percent filter cigarettes, and demographics.

The results in Nelson (2003b) indicate that cigarette consumption is determined importantly by prices, income, and exogenous country-specific factors. The dummy variables for advertising bans were never significantly negative. The income elasticity was significantly positive and the price elasticity was significantly negative. The price elasticity estimate of -0.39 is identical to the consensus estimate of -0.4 for aggregate data (Chaloupka and Warner 2000). Beginning about 1985, the decline in smoking prevalence resulted in a shift in price and income elasticities. There also was a change in the political climate favoring additional restrictions on advertising that followed rather than caused reductions in smoking and smoking prevalence, which is “reverse causality.” Thus, advertising bans had no demonstrated influence on cigarette demand in the OECD countries, including the U.S. The advertising-response model that motivates past studies is not supported by these results. Data and estimation procedures used in three previous studies are picking-up the substantial declines in consumption that began in the late-1970s, which were unrelated to major changes in advertising restrictions.

Background: Regulation of Cigarettes by the Federal Trade Commission

At the urging of President Wilson, the Federal Trade Commission (FTC) was created by Congress in 1914. The Commission was given the broad mandate to prevent “unfair methods of competition.” From the very beginning, this mandate was interpreted to include false and deceptive advertising, even though advertising per se was not an antitrust issue. Indeed, the first cease-and-desist order issued by the FTC concerned false advertising, 1 FTC 13 (1916). It was the age of the patent medicines and health-claims devices. As early as 1925, FTC orders against false and misleading advertising constituted 75 percent of all orders issued each year. However, in Raladam (1931) the Supreme Court held that false advertising could be prevented only in situations where injury to a competitor could be demonstrated. The Wheeler-Lea Act of 1938 added a prohibition of “unfair or deceptive acts or practices” in or affecting commerce. This amendment broadened Section 5 of the FTC Act to include consumer interests as well as business concerns. The FTC could thereafter proceed against unfair and deceptive methods without regard to alleged effects on competitors.

As an independent regulatory agency, the FTC has rulemaking and adjudicatory authorities (Fritschler and Hoefler 1996). Its rulemaking powers are quasi-legislative, including the authority to hold hearings and trade practice conferences, subpoena witnesses, conduct investigations, and issue industry guidelines and proposals for legislation. Its adjudicatory powers are quasi-judicial, including the authority to issue cease-and-desist orders, consent decrees, injunctions, trade regulation rules, affirmative disclosure and substantiation orders, corrective advertising orders, and advisory opinions. Administrative complaints are adjudicated before an administrative law judge in trial-like proceedings. Rulemaking by the FTC is characterized by broad applicability to all firms in an industry, whereas judicial policy is based on a single case and affects directly only those named in the suit. Of course, once a precedent is established, it may affect other firms in the same situation. Lacking a well-defined constituency, except possibly small business, the FTC’s use of its manifest powers has always been controversial (Clarkson and Muris 1981; Hasin 1987; Miller 1989; Posner 1969, 1973; Stone 1977).

Beginning in 1938, the FTC used its authority to issue “unfair and deceptive” advertising complaints against the major cigarette companies. These actions, known collectively as the “health claims cases,” resulted in consent decrees or cease-and-desist orders involving several major brands during the 1940s and early 1950s. As several cases neared the final judgment phase, in September 1954 the FTC sent a letter to all companies proposing a seven-point list of advertising standards in light of “scientific developments with regard to the [health] effects of cigarette smoking.” A year later, the FTC issued its Cigarette Advertising Guides, which forbade any reference to physical effects of smoking and representations that a brand of cigarette is low in nicotine or tars that “has not been established by a competent scientific proof.” Following several articles in Reader’s Digest, cigarette advertising in 1957-1959 shifted to emphasis on tar and nicotine reduction during the “tar derby.” The FTC initially tolerated these ads if based on tests conducted by Reader’s Digest or Consumer Reports. In 1958, the FTC hosted a two-day conference on tar and nicotine testing, and in 1960 it negotiated a trade practice agreement that “all representations of low or reduced tar or nicotine, whether by filtration or otherwise, will be construed as health claims.” This action was blamed for halting a trend toward increased consumption of lower-tar cigarettes (Calfee 1997a; Neuberger 1963). The FTC vacated this agreement in 1966 when it informed the companies that it would no longer consider advertising that contained “a factual statement of tar and nicotine content” a violation of its Advertising Guides.

On January 11, 1964, the Surgeon General’s Advisory Committee on Smoking and Health issued its famous report on Smoking and Health (U.S. Surgeon General 1964). One week after the report’s release, the FTC initiated proceedings “for promulgation of trade regulation rules regarding unfair and deceptive acts or practices in the advertising and labeling of cigarettes” (notice, 29 Fed Reg 530, January 22, 1964; final rule, 29 Fed Reg 8325, July 2, 1964). The proposed Rule required that all cigarette packages and advertisements disclose prominently the statement, “Caution: Cigarette smoking is dangerous to health [and] may cause death from cancer and other diseases.” Failure to include the warning would be regarded as a violation of the FTC Act. The industry challenged the Rule on grounds that the FTC lacked the statutory authority to issue industry-wide trade rules, absent congressional guidance. The major companies also established their own Cigarette Advertising Code, which prohibited advertising aimed at minors, health-related claims, and celebrity endorsements.

The FTC’s Rule resulted in several congressional bills that culminated in the Federal Cigarette Labeling and Advertising Act of 1965 (P.L. 89-92, effective Jan. 1, 1966). The Labeling Act required each cigarette package to contain the statement, “Caution: Cigarette Smoking May Be Hazardous to Your Health.” According to the Act’s declaration of policy, the warnings were required so that “the public may be adequately informed that cigarette smoking may be hazardous to the health.” The Act also required the FTC to report annually to Congress concerning (a) the effectiveness of cigarette labeling, (b) current practices and methods of cigarette advertising and promotion, and (c) such recommendations for legislation as it may deem appropriate. Beginning in 1967, the FTC commenced its annual reporting to Congress on advertising of cigarettes. It recommended that health warning be extended to advertising and strengthened to conform to its original proposal, and it called for research on less-hazardous cigarettes. These recommendations were repeated in 1968 and 1969, and a recommendation was added that advertising on television and radio should be banned.

Several other important regulatory actions also took place in 1967-1970. First, the FTC established a laboratory to conduct standardized testing of tar and nicotine content for each brand. In November 1967, the FTC commenced public reporting of tar and nicotine levels by brand, together with reports of overall trends in smoking behaviors. Second, in June of 1967, the Federal Communications Commission (FCC) ruled that the “fairness doctrine” was applicable to cigarette advertising, which resulted in numerous free anti-smoking commercials by the American Cancer Society and other groups during July 1967 to December 1970.2 Third, in early 1969 the FCC issued a notice of proposed rulemaking to ban broadcast advertising of cigarettes (34 Fed Reg 1959, Feb. 11, 1969). The proposal was endorsed by the Television Code Review Board of the National Association of Broadcasters, and its enactment was anticipated by some industry observers. Following the FCC’s proposal, the FTC issued a notice of proposed rulemaking (34 Fed Reg 7917, May 20, 1969) to require more forceful statements on packages and extend the warnings to all advertising as a modification of its 1964 Rule in the “absence of contrary congressional direction.” Congress again superseded the FTC’s actions, and passed the Public Health Smoking Act of 1969 (P.L. 91-222, effective Nov. 1, 1970), which banned broadcast advertising after January 1, 1971 and modified the package label to read, “Warning: The Surgeon General Has Determined that Cigarette Smoking Is Dangerous to Your Health.” In 1970, the FTC negotiated agreements with the major companies to (1) disclose tar and nicotine levels in cigarette advertising using the FTC Test Method, and (2) include the health warning in advertising. By 1972, the FTC believed that it had achieved the recommendations in its initial reports to Congress.3

In summary, the FTC has engaged in continuous surveillance of cigarette advertising and marketing practices. Industry-wide regulation began in the early 1940s. As a result, the advertising of cigarettes in the U.S. is more restricted than other lawful consumer products. Some regulations are primarily informational (warning labels), while others affect advertising levels directly (broadcast ban). During a six-decade period, the FTC regulated the overall direction of cigarette marketing, including advertising content and placement, warning labels, and product development. Through its testing program, it has influenced the types of cigarettes produced and consumed. The FTC engaged in continuous monitoring of cigarette advertising practices and prepared in-depth reports on these practices; it held hearings on cigarette testing, advertising, and labeling; and it issued consumer advisories on smoking. Directly or indirectly, the FTC has initiated or influenced promotional and product developments in the cigarette industry. However, it remains to be shown that these actions had an important or noticeable effect on cigarette consumption and/or industry advertising expenditures. Is there empirical evidence that federal regulation has affected aggregate cigarette consumption or advertising? If the answer is negative or the effects are limited in magnitude, it suggests that the Congressional and FTC actions after 1964 did not add materially to information already in the marketplace or these actions were otherwise misguided.4

Table 2 displays information on smoking prevalence, cigarette consumption, and advertising. Smoking prevalence has declined considerably compared to the 1950s and 1960s. Consumption per capita reached an all-time high in 1963 (4,345 cigarettes per capita) and began a steep decline around 1978. By 1985, consumption was below the level experienced in 1947. Cigarette promotion has changed greatly over the years as producers substituted away from traditional advertising media. As reported by the FTC, the category of non-price promotions includes expenditures on point-of-sale displays, promotional allowances, samples, specialty items, public entertainment, direct mail, endorsements and testimonials, internet, and audio-visual ads. The shift away from media advertising reflects the broadcast and billboard bans as well as the controversies that surround advertising of cigarettes. As a result, spending on traditional media now amounts to only $356 million, or about 7% of the total marketing outlay of $5.0 billion. Clearly, regulation has affected the type of promotion, but not the overall expenditure.

Econometric Results: U.S. Time-Series Studies of the 1971 Advertising Ban

Several econometric studies examine the effects of the 1971 broadcast ban on cigarette demand, including Franke (1994), Gallet (1999), Ippolito et al. (1979), Kao and Tremblay (1988), and Simonich (1991). None of these studies found that the 1971 broadcast ban had a noticeable effect on cigarette demand. The studies by Franke and Simonich employed quarterly data on cigarette sales. The study by Ippolito et al. covered an extended time period from 1926 to 1975. The studies by Gallet and Kao and Tremblay employed simultaneous-equations methods, but each study concluded that the broadcast advertising ban did not have a significant effect on cigarette demand. Although health reports in 1953 and 1964 may have reduced the demand for tobacco, the results do not support a negative effect of the 1971 Congressional broadcast ban. By 1964 or earlier, the adverse effects of smoking appear to have been incorporated in consumers’ decisions regarding smoking. Hence, the advertising restrictions did not contribute to consumer information and therefore did not affect cigarette consumption.

Conclusions

The First Amendment protects commercial speech, although the degree of protection afforded is less than political speech. Commercial speech jurisprudence has changed profoundly since Congress passed a flat ban on broadcast advertising of cigarettes in 1971. The courts have recognized the vital need for consumers to be informed about market conditions — an environment that is conducive to operation of competitive markets. The Central Hudson test requires the courts and agencies to balance the benefits and costs of censorship. The third-prong of the test requires that censorship must directly and materially advance a substantial goal. This essay has discussed the difficulty of establishing a material effect of limited and comprehensive bans of alcohol and cigarette advertisements.

Sales per cap. 5-media Non-Price Total per cap.

Table 2
Advertising and Cigarette Consumption

Prevalence: Total Cig Sales Cigs
per cap.
Ad Spending:
5-media
Promotion:
Non-Price
Real Total Real Total
per cap.
Male Female
Year (%) (%) (bil.) (ages 18+) (mil. $) (mil. $) (mil 96$) (ages 18+)
1920 44.6 665
1925 79.8 1,085
1930 119.3 1,485 26.0 213.1
1935 53 18 134.4 1,564 29.2 286.3
1940 181.9 1,976 25.3 245.6
1947 345.4 3,416 44.1 269.7 2.70
1950 54 33 369.8 3,552 65.5 375.4 3.61
1955 50 24 396.4 3,597 104.6 528.8 4.83
1960 47 27 484.4 4,171 193.1 870.2 7.53
1965 52 34 528.8 4,258 249.9 1050.9 8.49
1970 44 31 536.5 3,985 296.6 64.4 1242.3 9.26
1975 39 29 607.2 4,122 330.8 160.5 1227.3 8.28
1980 38 29 631.5 3,849 790.1 452.2 2177.9 13.29
1985 33 28 594.0 3,370 932.0 1544.4 3360.6 19.09
1986 583.8 3,274 796.3 1586.1 3163.5 17.78
1987 32 27 575.0 3,197 719.2 1861.3 3326.2 18.49
1988 31 26 562.5 3,096 824.5 1576.3 2993.1 16.44
1989 540.0 2,926 868.3 1788.7 3190.8 17.35
1990 28 23 525.0 2,817 835.2 1973.0 3246.1 17.52
1991 28 24 510.0 2,713 772.6 2054.6 3153.2 16.86
1992 28 25 500.0 2,640 621.5 2435.0 3328.1 17.62
1993 28 23 485.0 2,539 542.1 2933.9 3695.9 19.38
1994 28 23 486.0 2,524 545.1 3039.5 3733.6 19.41
1995 27 23 487.0 2,505 564.2 2982.6 3615.5 18.62
1996 487.0 2,482 578.2 3220.8 3799.0 19.37
1997 28 22 480.0 2,423 575.7 3561.4 4058.0 20.47
1998 26 22 465.0 2,320 645.6 3908.0 4412.4 22.03
1999 26 22 435.0 2,136 487.7 4659.0 4918.0 24.29
2000 26 21 430.0 2,092 355.8 5015.0 5043.0 24.53
Sources: Smoking prevalence and cigarette sales from Forey et al (2002) and U.S. Public Health Service (1994). Data on advertising compiled by the author from FTC Reports to Congress (various issues); 1930-1940 data derived from Borden (1942). Nominal data deflated by the GDP implicit price deflator (1996=100). Advertising expenditures include TV, radio, newspapers, magazine, outdoor and transit ads. Promotions exclude price-promotions using discount coupons and retail value-added offers (“buy one, get one free”). Real total includes advertising and non-price promotions.

Law Cases

44 Liquormart, Inc., et al. v. Rhode Island and Rhode Island Liquor Stores Assoc., 517 U.S. 484 (1996).

Central Hudson Gas & Electric Corp. v. Public Service Commission of New York, 447 U.S. 557 (1980).

Federal Trade Commission v. Raladam Co., 283 U.S. 643 (1931).

Food and Drug Administration, et al. v. Brown & Williamson Tobacco Corp., et al., 529 U.S. 120 (2000).

Lorillard Tobacco Co., et al. v. Thomas F. Reilly, Attorney General of Massachusetts, et al., 533 U.S. 525 (2001).

Red Lion Broadcasting Co. Inc., et al. v. Federal Communications Commission, et al., 395 U.S. 367 (1969).

Valentine, Police Commissioner of the City of New York v. Chrestensen, 316 U.S. 52 (1942).

Virginia State Board of Pharmacy, et al. v. Virginia Citizens Consumer Council, Inc., et al., 425 U.S. 748 (1976).

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“Does Tobacco Harm the Human Body?” (by I. Fisher). Reader’s Digest (Nov. 1924): 435. “Nicotine Knockout, or the Slow Count” (by G. Tunney). Reader’s Digest (Dec. 1941): 21. “Cancer by the Carton” (by R. Norr). Reader’s Digest (Dec. 1952): 7.

Richardson, Gary. “Brand Names before the Industrial Revolution.” Unpub. working paper, Department of Economics, University of California at Irvine, 2000.

Rogers, Stuart. “How a Publicity Blitz Created the Myth of Subliminal Advertising.” Public Relations Quarterly 37 (1992): 12-17.

Russell, Wallace A. “Controls Over Labeling and Advertising of Alcoholic Beverages.” Law and ContemporaryProblems 7 (1940): 645-64.

Saffer, Henry. “Alcohol Advertising Bans and Alcohol Abuse: An International Perspective.” Journal of Health Economics 10 (1991): 65-79.

Saffer, Henry. “Advertising under the Influence.” In Economics and the Prevention of Alcohol-Related Problems, edited by M.E. Hilton, 125-40. Washington, DC: National Institute on Alcohol Abuse and Alcoholism, 1993.

Saffer, Henry and Frank Chaloupka. “The Effect of Tobacco Advertising Bans on Tobacco Consumption.” Journal of Health Economics 19 (2000): 1117-37.

Saffer, Henry and Dhaval Dave. “Alcohol Consumption and Alcohol Advertising Bans.” Applied Economics 34 (2002): 1325-34.

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Schweitzer, Stuart O., Michael D. Intriligator, and Hossein Salehi. “Alcoholism.” In Economics and Alcohol: Consumption and Controls, edited by M. Grant, M. Plant, and A. Williams, 107-22. New York: Harwood, 1983.

Sethuraman, Raj and Gerard J. Tellis. “An Analysis of the Tradeoff Between Advertising and Price Discounting.” Journal of Marketing Research 28 (1991): 160-74.

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Simmons, Steven J. The Fairness Doctrine and the Media. Berkeley, CA: University of California Press, 1978.

Simon, Julian L. Issues in the Economics of Advertising. Urbana, IL: University of Illinois Press, 1970.

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Endnotes

1. See, for example, Packer Corp. v. Utah, 285 U.S. 105 (1932); Breard v. Alexandria, 341 U.S. 622 (1951); E.F. Drew v. FTC, 235 F.2d 735 (1956), cert. denied, 352 U.S. 969 (1957).

2. In 1963, the Federal Communications Commission (FCC) notified broadcast stations that they would be required to give “fair coverage” to controversial public issues (40 FCC 571). The Fairness Doctrine ruling was upheld by the Supreme Court in Red Lion Broadcasting (1969). At the request of John Banzhaf, the FCC in 1967 applied the Fairness Doctrine to cigarette advertising (8 FCC 2d 381). The FCC opined that the cigarette advertising was a “unique situation” and extension to other products “would be rare,” but Commissioner Loevinger warned that the FCC would have difficulty distinguishing cigarettes from other products (9 FCC 2d 921). The FCC’s ruling was upheld by the D.C. Circuit Court, which argued that First Amendment rights were not violated because advertising was “marginal speech” (405 F.2d 1082). During the period 1967-70, broadcasters were required to include free antismoking messages as part of their programming. In February 1969, the FCC issued a notice of proposed rulemaking to ban broadcast advertising of cigarettes, absent voluntary action by cigarette producers (16 FCC 2d 284). In December 1969, Congress passed the Smoking Act of 1969, which contained the broadcast ban (effective Jan. 1, 1971). With regard to the Fairness Doctrine, Commissioner Loevinger’s “slippery slope” fears were soon realized. During 1969-1974, the FCC received thousands of petitions for free counter-advertising for diverse products, such as nuclear power, Alaskan oil development, gasoline additives, strip mining, electric power rates, clearcutting of forests, phosphate-based detergents, trash compactors, military recruitment, children’s toys, airbags, snowmobiles, toothpaste tubes, pet food, and the United Way. In 1974, the FCC began an inquiry into the Fairness Doctrine, which concluded that “standard product commercials, such as the old cigarette ads, make no meaningful contribution toward informing the public on any side of an issue . . . the precedent is not at all in keeping with the basic purposes of the fairness doctrine” (48 FCC 2d 1, at 24). After numerous inquires and considerations, the FCC finally announced in 1987 that the Fairness Doctrine had a “chilling effect,” on speech generally, and could no longer be sustained as an effective public policy (2 FCC Rcd 5043). Thus ended the FCC’s experiment with regulatory enforcement of a “right to be heard” (Hazlett 1989; Simmons 1978).

3. During the remainder of the 1970s, the FTC concentrated on enforcement of its advertising regulations. It issued consent orders for unfair and deceptive advertising to force companies to include health warnings “clearly and conspicuously in all cigarette advertising.” It required 260 newspapers and 40 magazines to submit information on cigarette advertisements, and established a task force with the Department of Health, Education and Welfare to determine if newspaper ads were deceptive. In 1976, the FTC announced that it was again investigating “whether there may be deception and unfairness in the advertising and promotion of cigarettes.” It subpoenaed documents from 28 cigarette manufacturers, advertising agencies, and other organizations, including copy tests, consumer surveys, and marketing plans. Five years later, it submitted to Congress the results of this investigation in its Staff Report on Cigarette Investigation (FTC 1981). The report proposed a system of stronger rotating warnings and covered issues that had emerged regarding low-tar cigarettes, including compensatory behaviors by smokers and the adequacy of the FTC’s Test Method for determining tar and nicotine content. In 1984, President Reagan signed the Comprehensive Smoking Education Act (P.L. 98-474, effective Oct.12, 1985), which required four rotating health warnings for packages and advertising. Also, in 1984, the FTC revised its definition of deceptive advertising (103 FTC 110). In 2000, the FTC finally acknowledged the shortcoming of its tar and nicotine test method.

4. The Food and Drug Administration (FDA) has jurisdiction over cigarettes as drugs in cases involving health claims for tobacco, additives, and smoking devices. Under Dr. David Kessler, the FDA in 1996 unsuccessfully attempted to regulate all cigarettes as addictive drugs and impose advertising and other restrictions designed to reduce the appeal and use of tobacco by children (notice, 60 Fed Reg 41313, Aug. 11, 1995; final rule, 61 Fed Reg 44395, Aug. 28, 1996); vacated by FDA v. Brown & Williamson Tobacco Corporation, et al., 529 U.S. 120 (2000)

Citation: Nelson, Jon. “Advertising Bans, US”. EH.Net Encyclopedia, edited by Robert Whaples. May 20, 2004. URL http://eh.net/encyclopedia/nelson-adbans/

Debt and Slavery in the Mediterranean and Atlantic Worlds

Reviewer(s):Engerman, Stanley L.

Published by EH.Net (October 2013)

Gwyn Campbell and Alessandro Stanziani, editors, Debt and Slavery in the Mediterranean and Atlantic Worlds. London: Pickering & Chatto, 2013. xiv + 185 pp. $99 (hardcover), ISBN: 978-1-84893-374-3.

Reviewed for EH.Net by Stanley L. Engerman, Department of Economics, University of Rochester.

Debt and Slavery in the Mediterranean and Atlantic Worlds contains nine essays plus a long introduction by the co-editors, dealing with topics related to the importance of debt in leading to enslavement in many places over a long period of time. The period covered ranges from about 300 B.C. (Early Rome) to 1956 (Anglo-Egyptian Sudan), and covers various nations of the world in Europe, Asia, and Africa.

The editors introduction discusses the various types of slavery and the meaning of enslavement. While they consider most slaves to be the result of wartime capture, they point to the relative importance (though few numerical estimates are given) of slavery resulting from the failure to pay debt in full, which permits the creditor to enslave the debtor, presumably for life. They note the occasional practice of self-enslavement for debt and sale of children (p. 13), but little attention is given to its major role in times of subsistence crises. They distinguish, as do several of the authors, between pawnship (the provision of collateral for loans) and debt slavery, although they indicate that these categories are often difficult to distinguish ? and while pawnship may lead to slavery in some times and places, at other times and places it does not.

Marc Kleijwegt’s chapter on early Rome focuses on Moses Finley’s contention that chattel slavery began in Rome only after 326 B.C., with the abolition of the nexum as a form of temporary bondage, requiring its replacement by a different form of coerced labor. Kleijwegt argues, against Finley, that chattel slavery in Rome had begun earlier, and that debt enslavement did not end in 326 B.C., so that while some aspects of the arguments made by Finley did take place, these changes were less dramatic and sharp than Finley argued, and that this complicates the belief in an abrupt transition from debt bondage to chattel slavery? (p. 37).

In the most wide-ranging essay in terms of time and location, Alessandro Stanziani deals with enslavement for debt and by war captivity in several Mediterranean and Central Asian states as well as in Russia, China, and India. In some cases these were suppliers of slaves, and in others users of slaves.? In most cases, although debt slavery was important, war captives played a dominant role (p. 48), reflecting the political instability and military operations that characterized these areas.

Michael Ferguson details the Ottoman Empire state-initiated emancipations, mainly of African slaves from the third quarter of the nineteenth century. These may have been a minority of emancipations, but state-initiated emancipation generally led to keeping ex-slaves under state protection, where they often served in the military, or performed agricultural work. Two essays on debt slavery and pawnship, by Paul Lovejoy in West Africa and Olatunji Ojo on the Yoruba, focus on the distinctions and similarities between pawnship and slavery. Pawnship, a form of providing an individual as security for debt, did not necessarily lead to slavery, although there were important legal changes over time and its conditions varied from place to place. In West Africa, as elsewhere, most slaves were the result of violence, including kidnapping, not debt. The same was apparently the case among the Yoruba, where many slaves were also the result of violence, not debt. Most pawns who were to become slaves were women and children, “whereas adult males” were more likely to be taken in combat? (p. 90).

In an update of his classic article of some forty years ago, in “The Africanization of the Work Force in English America,” Russell R. Menard analyzes the transition from the debts entered into by indentured labor, mainly from England, to the growth in the importance of African slaves in the colonial Chesapeake and in Barbados. Based on the detailed work of Lorena Walsh and John C. Coombs in pointing to the differences in the types of tobacco produced in different parts of the Chesapeake, Menard argues for a shift in chronology and explanation from his earlier arguments. In regard to Barbados, he argues that the transition to slavery had begun prior to the sugar revolution, based on other export crops, although sugar greatly accelerated the growth in slavery.

In an attempt to link the development of commerce and credit in various parts of Europe, the Americas, and Africa to the role of slavery and the slave trade, Joseph Miller describes the role of European states and merchants in obtaining and shifting specie and funds in trading with Africa and elsewhere.? While this commercialization did benefit the Europeans, he argues that its effect upon African societies and economies was negative, leading to more militarization and the need to provide slaves to pay for the debts accumulated.

Henrique Espada Lima presents a detailed examination of various forms of coerced labor in Brazil in the nineteenth century, including some labor based on voluntary immigration from Portugal and the Azores.? There were provisions made for self-purchase by slaves, making for a conversion of slavery into debt, and thus having slaves pay financial compensation to their former owners (p. 131). Slavery finally ended in Brazil in 1888, 17 years after passage of the so-called law of the free womb, with no compensation paid to either slaves or slave owners. According to Steven Serels, it was debt, not taxation, which led to the increased labor force participation in cotton production in the Anglo-Egyptian Sudan between 1898 and the coming of independence in 1956. This debt influenced both laborers and tenants, and bound these cultivators to the land and prevented them from regaining their lost independence? (p. 142) over the first half of the twentieth century.

All the essays are based upon extensive primary and secondary research, are clearly presented, and are quite useful additions to understanding the historical meaning of slavery, serfdom, pawnship, and different forms of coerced labor. As with such a diverse set of essays, there are differences in the caliber of the argument and in the authors? perceived importance of the role of debt slavery in different times and places. Nevertheless, the great value of this collection is to indicate the widespread frequency and social importance of this particular form of enslavement.

Stanley Engerman is co-author (with Kenneth Sokoloff) of Economic Development in the Americas since 1500: Endowments and Institutions, Cambridge University Press, 2012.

Copyright (c) 2013 by EH.Net. All rights reserved. This work may be copied for non-profit educational uses if proper credit is given to the author and the list. For other permission, please contact the EH.Net Administrator (administrator@eh.net). Published by EH.Net (October 2013). All EH.Net reviews are archived at http://www.eh.net/BookReview

Subject(s):Servitude and Slavery
Geographic Area(s):General, International, or Comparative
Time Period(s):General or Comparative

The Development of American Finance

Author(s):Konings, Martijn
Reviewer(s):Redenius, Scott A.

Published by EH.Net (January 2013)

Martijn Konings, The Development of American Finance.? New York: Cambridge University Press, 2011.? xii + 199 pp.? $90 (hardback), ISBN: 978-0-521-19525-6.

Reviewed for EH.Net by Scott A. Redenius, Department of Economics, Brandeis University.

As the blurb on the inside cover notes, the decline of the U.S.-led international financial order has been long predicted.? Yet, despite financial crises and the buildup of debt, the U.S. state retains significant financial flexibility and international influence.? In The Development of American Finance, Martijn Konings, Lecturer in Political Economy at the University of Sydney, looks to U.S. financial history to better understand the nature and origins of this financial order and the position of the U.S. within it.? Starting with the colonial period, Konings describes how U.S. economic conditions, business practices, and politics reshaped transplanted British financial institutions to produce a more dynamic and innovative financial system that has aggressively broadened access to credit.? Since World War II, U.S. financial practices and institutions have spread globally and bolstered the country?s position within the global financial system.

The book is pitched to an international political economy (IPE) audience.? For this audience, Konings offers methodological critiques and distinctions such as that between the U.S. and British versions of Anglo-Saxon finance.? These are used to advance Konings? larger goal: to replace central parts of the current IPE narrative with alternative interpretations that better fit the historical evidence.? That said, the book has much to offer a broader audience.? Most economic historians will be interested in Konings? revised narrative, and his account draws heavily on the work of contemporary economic writers and political and economic historians.? For this broader audience, the book provides an insightful and useful survey of the evolution of the U.S. financial system with a strong emphasis on its international connections.

Konings lays out his thesis and general methodological approach in the introductory chapter.? Chapters 2 through 4 focus on some of the factors that led U.S. finance to evolve away from British practice, including greater demand for agricultural credit, political fragmentation, and political pressure for decentralization.? What emerged was a distinct financial system in which credit was extended on the basis of reputation, not just trade collateral; financial resources were centralized through the correspondent system rather than branch networks; and the call money market, which linked banks and the stock market, assumed the role of the bill market as an outlet for short-term funds.? However, these features, combined with the lack of a central bank, also made the U.S. financial system prone to liquidity crises.

The middle chapters of the book shift between domestic and international financial developments.? Chapter 5 deals primarily with the creation of the Federal Reserve System, and Chapter 7 with the New Deal financial reforms.? Here, Konings argues that the usual interpretations of these reforms are incomplete.? While they did seek to reign in financial excesses, the reforms aided rather than slowed the process of financial expansion ? the postwar portion of this expansion is discussed in Chapter 9 ? by putting in place a government safety net for the financial system and promoting financial innovation.? For example, New Deal financial reforms set the stage for future growth in the residential mortgage market by introducing securitization and making amortization standard for mortgage loans.

Chapters 6 and 8 consider international developments.? Chapter 6 takes aim at the theories of hegemonic succession that blame the U.S. for failing to take the lead in supporting the international system during the interwar period.? Konings points out that there is no reason to expect hegemonic succession to proceed in the manner suggested by the theory.? Britain continued to serve as a major entrepot and therefore, despite its relative decline, still had strong international interests.? By contrast, U.S. interests remained primarily domestic given its limited foreign trade and international financial connections.? This changed with the creation of the Bretton Woods system (Chapter 8), which solidified the dollar?s role as a reserve currency.? While many early IPE scholars identified Bretton Woods as the apogee of U.S. financial power, Konings sees it merely as a step in the expansion of U.S. influence.? The later decision to abandon the system was not a sign of U.S. weakness but a move that eliminated policy constraints without compromising the country?s dominant international position.

The remaining chapters integrate domestic and international developments.? Chapter 10 looks at the Fed?s difficulty in controlling inflation in the face of regulatory arbitrage and the growing Eurodollar market.? Chapters 11 and 12 examine disinflation, neoliberalism, and financial crises.? In Konings? view, the continued fiscal flexibility of the U.S. during and after the 2007-2008 financial crisis suggests that its financial power remains intact and has many years still to run.? However, the rise in household indebtedness in the lead up to the crisis and subsequent deleveraging suggest the financial deepening that has been a hallmark of U.S. finance has reached or surpassed its limit.

The book has many strengths.? Konings provides a skilled synthesis of a wide range of secondary sources and is adept at identifying contrary evidence and logical inconsistencies in existing interpretations.? Most economic historians will find the treatment of neoliberalism and financial crises of less interest than the earlier parts of the book.? Here, the presentation shifts to a more general level as Konings focuses on their implications for the IPE narrative.? Financial historians will also have some quibbles.? There are a few points in the early chapters where direct familiarity with primary sources would have been helpful, and the citations could do a better job of pointing readers to the most relevant sources listed in the bibliography.

It is always interesting to read a financial history written by someone in another field.? It provides a welcome opportunity to get a different perspective and make broader connections.? I am always looking for sources that will better organize my existing knowledge or place it in a larger context, and this book did that for me.? I expect other readers will find this true as well.

Scott A. Redenius is Senior Lecturer in Economics at Brandeis University.? His current research focuses on antebellum branch banking systems and on the evolution of antebellum payment networks in the U.S.
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Copyright (c) 2013 by EH.Net. All rights reserved. This work may be copied for non-profit educational uses if proper credit is given to the author and the list. For other permission, please contact the EH.Net Administrator (administrator@eh.net). Published by EH.Net (January 2013). All EH.Net reviews are archived at http://www.eh.net/BookReview

Subject(s):Financial Markets, Financial Institutions, and Monetary History
Geographic Area(s):North America
Time Period(s):18th Century
19th Century
20th Century: Pre WWII
20th Century: WWII and post-WWII

Forms of Enterprise in 20th Century Italy: Boundaries, Structures and Strategies

Author(s):Colli, Andrea
Vasta, Michelangelo
Reviewer(s):Barbiellini Amidei, Federico

Published by EH.Net (July 2012)

Andrea Colli and Michelangelo Vasta, editors, Forms of Enterprise in 20th Century Italy: Boundaries, Structures and Strategies. Cheltenham, UK: Edward Elgar, 2010. xii + 327 pp. $147 (hardcover), ISBN: 978-1-84720-383-0.

Reviewed for EH.Net by Federico Barbiellini Amidei, Banca d?Italia.

While it is well established in the economics literature that technological change is a key ingredient for fostering growth, there is no consensus among scholars concerning the different capability of countries in exploiting the successive waves of innovation that, since the first Industrial Revolution, have marked modern economies. Italy, in this respect, represents an ideal case study: starting from an agricultural-based economy in the nineteenth century, it undertook a distinctive industrialization process and registered unprecedented output and total factor productivity growth in the second half of the twentieth century, which made it one of the richest countries in the world ? although it has recently been hard-hit by a stagnation and negative productivity growth phase. In this book Andrea Colli (Department of Institutional Analysis and Public Management, Bocconi University) and Michelangelo Vasta (Department of Economics, University of Siena), supported by the valuable contributions of other distinguished economic historians, turn to the ambitious task of offering the reader a broad and comprehensive reconstruction of the evolution of the Italian productive system across its different economic phases characterizing the twentieth century. By extending Chandler?s classic micro- business history-based perspective, focused on large corporations, to the rich variety of business forms contributing to Italy?s wealth, the authors build a conceptual framework in which they distinguish both the common features as well as the peculiarities of Italy?s economic development with respect to those experienced by other leading economies. The task is challenging and the detailed introduction by the editors clearly shows that the different approaches followed by economic historians in this field are still far from being reconciled. Colli and Vasta ? considering the standard set of characteristics such as size, legal form, performance, and type of governance and ownership ? identify seven different relevant typologies of enterprise for Italy: big business, State Owned Enterprises (SOE), foreign-controlled companies, small firms, medium-sized firms, municipalized firms and cooperatives.

The first part of the book focuses on large companies, showing how, depending on switches in technological regimes, their importance for Italy?s economic growth changed over time in relation to the Italian delay in the diffusion of new technologies (Giannetti and Vasta) and documenting the relative weight of the different types of corporate ownership and financing structures (Conte and Piluso).? As neatly stated in the Foreword by Franco Amatori, ?big business ? was the engine of growth especially in the phases of more intensive growth.? At the same time, according to the editors, ?strong turbulence is a dominant feature of Italian big business, both in manufacturing and [especially] in the service sector? (p. 11), i.e. Italian big corporations were often unable to consolidate their position after having successfully joined the top 200, due mainly to the impact of new technological waves in the case of manufacturing, and to the impact of major institutional changes induced by the State ? in particular a sequence of nationalization and privatization processes ? in the case of the service sector. The role of family-owned companies is also discussed, even if the relevance of this type of enterprise for the Italian economy?s long-term competitive performance does not emerge distinctly enough in this first section of the book. In two separate essays, the crucial role of State intervention is measured ? this deserves to be highlighted ? and assessed, both as a direct supplier of products and services (Toninelli and Vasta), and as an enhancing mechanism for the development and consolidation of private-owned Italian corporations, especially through sound international and domestic technological transfer promoting economic and industrial policies in the post-WWII phase (Fauri). Interestingly while the European Recovery Program (ERP) loans accrued mostly to Italian big business to buy modern U.S. machinery, the Italian government also ?passed specific financing laws for the SMEs? (p. 125) and made possible the purchasing of domestically-produced machinery with ERP (counterpart) funds. Andrea Colli?s essay on foreign-controlled firms as a crucial actor for Italy?s developmental path is particularly innovative and rewarding. Via a quantitative investigation, foreign capital, invested in high-tech and capital-intensive industries, emerges as constantly relevant in the country?s industrialization process, in particular for its crucial contribution in transferring technologies to the indigenous industrial fabric in the 1950s-60s, thanks to a ?more friendly governmental attitude towards foreign investments? and a new legislation on foreign direct investments (p. 102). Considering that in the early 1960s 80 percent of Italian stock market capitalization pertained to enterprises belonging to one of the eight main industrial groups and that half of the 200 main industrial firms belonged to a group[1], additional research could be fruitfully devoted to ?not independent firms? ? to the measurement and assessment of the nature and consequences of the affiliation of many Italian big, medium and small firms to private (often family-controlled) and public groups.

The second section of the book is dedicated to the study of small firms and local production systems. In particular, three essays discuss the evolution of industrial clusters (Perugini and Romei), municipalized firms (Fari and Giuntini), and artisanal firms (Longoni and Rinaldi). By using a mix of quantitative and qualitative methods, how these different forms of enterprise coped with changes in the economic and institutional environment, supported by public intervention, is clearly spelled out. Actually, one of the main points raised is that ?the Italian state played a central role in fostering the post Second World War advancement of SMEs? (p. 205), on a scale unparalleled in Europe in particular for artisanship/micro-firms. While only future research will allow us to evaluate the relative weight of state aid and its impact on the two entrepreneurial forms[2], the evidence provided here convincingly encourages a reconsideration of the ?traditional dichotomous view of the existence of large, state-supported enterprises on the one hand, and of small and Mancunian-like, not state supported enterprises on the other hand? (p. 14). The long period here covered by the authors ? 1900 to 1960/70 ? allows them to track and highlight the long-term nature of the Italian industrial districts? developmental path. This section?s historical analysis of industrial districts deserves careful attention from anyone interested in understanding the peculiar structure of Italian SMEs. It emerges from the volume, for example, that their success was historically often driven by international trade trends and trade liberalizations (while interestingly their crucial expansion following World War II, was driven by the virtuous association of export growth and internal market expansion).

The third section of the book represents a bridge between the two previous ones, as it explores with analytical details the dynamics of firms? size changes. The two essays (Castellucci and Giannetti, and Lavista) are focused on the tension faced by Italian firms between growing, consolidating, and downsizing. The crucial feature that emerges from the authors? long run analysis is the transitory condition of the Italian medium-size firm, with few exceptions, such as those representing the post-WWII ?Made in Italy? sectors (in an appropriate enlarged definition to include upstream mechanical suppliers of capital and intermediary goods to light consumer goods producers). Moreover, by looking more generally at the changes in firm size ? focusing on firms which expanded the most during the 1930s-1970s time span ? it appears that growth was fostered by market competition (the fastest growing firms were mostly active in sectors characterized by relatively lower barriers to entry) and that it was typically associated with technology-intensive sectors. Again a strong turbulence emerges as characterizing leap-frogging medium-sized firms, showing over the long run a high mortality rate in the period after the leap. The authors consistently challenge, for the post-1970s era, the traditional picture of an Italian business system characterized by a complete polarization between large and small (often very small) companies, highlighting in particular the emergence in recent decades of a new entrepreneurial form in Italian industrial demography: the medium-sized pocket multinational enterprise, described often as the protagonist of a new ?fourth [industrial] capitalism.? The challenge of identifying these firms capable of competing in globalized markets specializing in niches (by) maintaining a medium size ? often emerging from the entrepreneurial seedbed of industrial districts once exposed to the strains and opportunities of globalization ? and explaining their competitive positioning into an intermediate size category, calls for a new generation of business history studies, complementary to the newly provided statistical evidence.
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The final section of the book consists of a single essay (Battilani and Zamagni) exploring a type of enterprise which is quite relevant for the Italian economy (almost 6 percent of total employment in 2001 ? much more than in other countries), which has expanded significantly in recent decades: the cooperative firm. It is interesting to notice that, as highlighted by the authors, the recent successes of Italian cooperatives came in large-scale service production ? an area of structural weakness for Italian private initiatives ? thanks to the gradual overcoming of financing constraints through access to a wider range of debt and (quasi-) risk capital, and to the formation of cooperative networks in charge of strategic coordination and common crucial business functions, rather than the still significant State support.??

The lesson we learn from this book is that there is no such thing as a free lunch in economic history; we cannot reduce the complexity of the interplay between private and public actors of the economy into a few, stand-alone elements. On the contrary, the book invites the reader to consider the interaction of the different forms of enterprise with local and national institutional changes, coupled with the opportunities offered by international trade, in order to understand the conditions that allowed (but sometimes prevented) the country to gain from the different processes of technological advancements developed during the twentieth century. The very rich variety of subjects discussed and the widespread use of quantitative information to corroborate the analyses, offer a unique opportunity to look at the evolution of the Italian economy from many different views, and, cross-checking and referencing the different essays, to draw stronger and broader conclusions out of the information contained in each of them. Echoing and paraphrasing Amatori?s foreword, this an important book as it represents: i) a successful attempt to combine structural, institutional and macroeconomic perspectives of economic history together with the microeconomic perspective of business history, through the unifying fabric of quantitative micro, meso and macro evidence, so as to maximize their specific strong points and overcome their specific weaknesses; and ii) a fruitful reconciliation ?of the two ?souls? of Italian business history,? the Chandlerian big business centered one and the ?Copernican? ?small businesses and non-heavy industrial sectors? based one, so as to produce a convincing eclectic new ?localized? synthesis. This two-fold innovative character of their research project allows the authors to tackle the challenge of re-writing the Italian chapter of the ?varieties of capitalism? story with useful new answers and intriguing new questions. In conclusion, since a historical perspective of Italian enterprises is extremely useful nowadays when it comes to discussions of the new role of State intervention, the strengths and weaknesses of the Italian productive system, the windows of opportunity offered to SMEs by the globalization process, etc., this book is greatly rewarding reading for anyone interested in deepening knowledge of the rise and the ongoing transformation of Italian capitalism.

Notes:

1. Only one quarter of these firms were listed on the stock exchange, as shown by Federico Barbiellini Amidei and Claudio Impenna (1999) ?Il mercato azionario e il finanziamento delle imprese negli anni Cinquanta,? in F. Cotula (ed.), Stabilit? e sviluppo negli anni Cinquanta. 3. Politica bancaria e struttura del sistema finanziario, Editori Laterza: Rome-Bari.

2. For example, the impact of 58 billion lire in preferential loans to artisanal firms granted in 1963 by Artigiancassa should be compared to the 14 trillion in total loans granted by the banking system or to the 6 trillion in loans granted by the medium/long-term special credit institutions in the same year. (These data come from a study in progress at our research unit.)

Federico Barbiellini Amidei is an Economist at Banca d?Italia, Economic Research Department, Economic and Financial History Unit. His main fields of interest are economics of innovation, Italian economic history, FDI and MNC development, corporate finance, and financial regulation in a historical perspective. His recent publications include The Dynamics of Knowledge Externalities. Localized Technological Change in? Italy, Edward Elgar, 2011 (with C. Antonelli); ?Innovation and Foreign Technology in Italy, 1861-2011,? Economic History Working Papers, 7, Rome: Bank of Italy, 2011 (with J. Cantwell and A. Spadavecchia); and ?Corporate Europe in the U.S.: Olivetti?s Acquisition of Underwood Fifty Years On,? Business History, 2012 (with A. Goldstein).

Copyright (c) 2012 by EH.Net. All rights reserved. This work may be copied for non-profit educational uses if proper credit is given to the author and the list. For other permission, please contact the EH.Net Administrator (administrator@eh.net). Published by EH.Net (July 2012). All EH.Net reviews are archived at http://www.eh.net/BookReview.

Subject(s):Business History
Geographic Area(s):Europe
Time Period(s):20th Century: Pre WWII
20th Century: WWII and post-WWII

Peaceful Surrender: The Depopulation of Rural Spain in the Twentieth Century

Author(s):Collantes, Fernando
Pinilla, Vicente
Reviewer(s):Rosés, Joan R.

Published by EH.Net (June 2012)

Fernando Collantes and Vicente Pinilla, Peaceful Surrender: The Depopulation of Rural Spain in the Twentieth Century. Newcastle-upon-Tyne: Cambridge Scholars Publishing, 2011.? viii + 202 pp. $60 (hardcover), ISBN: 978-1-4438-2838-3.

Reviewed for EH.Net by Joan R. Ros?s, Department of Economic History and Institutions, Universidad Carlos III.

Not only military history is written by the victors, but also economic and business history. Academic books and articles are mainly devoted to the histories of successful firms, industries, regions and countries. The losers receive much less attention than winners and sometimes are condemned for their reluctance toward economic development and resistance to the adoption of innovations. In sharp contrast, the authors of this book, Fernando Collantes and Vicente Pinilla from the University of Zaragoza, have published many contributions about one of the main losers of modern development: rural areas. It is an empirical regularity that, as a country develops, the countryside loses ground in comparison to cities, in terms of both population and relative income.

This well-written book examines the dramatic process of rural depopulation that took place in Spain during the twentieth century, particularly after the 1950. The aim of the authors is not censoring rural inhabitants for their inaction or indolence but explaining how they have been able to cope with the enormous economic and social changes that accompanied the process of rural depopulation. The book is divided into three main parts. The first provides theoretical, historical and comparative context for rural depopulation. Part two examines the causes for this process. Part three analyzes what happened with rural areas after the depopulation.

As Collantes and Pinilla persuasively argue, there were several forces behind rural depopulation, which often resulted in disparate experiences and outcomes. Urbanization and industrialization were the underlining prime movers of the process of rural change. This is easy to observe since urbanization and industrialization had an obvious parallel in the release of labor from the countryside. Demographic developments also had, nonetheless, their role in rural depopulation. In countries with low demographic dynamism, like the majority of European economies during the twentieth century, massive migrations from the countryside led to an absolute decrease in the amount of rural inhabitants. On the other hand, in countries with substantial natural rates of growth, such as many of today?s developing countries, the movements of labor from rural to urban locations were counterbalanced by birth rates, which implied that rural locations did not depopulate despite their release of labor. To complicate the picture, agrarian economic progress had no clear-cut consequences for rural population. When Smithian economic change takes place (that is, economic growth was based on increasing trade and specialization) rural population doesn?t necessarily decrease as an economy develops (this could be the case of Western Europe?s countryside during the Industrious Revolution).? However, when Schumpeterian innovations are implemented in agriculture (particularly the massive adoption of labor-saving innovations like tractors and threshers), the outcome is a decrease of the agrarian workforce and the subsequent release of labor. Finally, access to new consumption bundles (education, cultural amenities, health services and so on) also had a role in the allocation of population between urban and rural locations. So, rural locations with easy access to these amenities could maintain their inhabitants or attract former urbanites looking for a new lifestyle.??

In the rest of the book, the authors analyze the Spanish experience with rural depopulation in the light of this general framework. Rural depopulation arrived later in Spain than in other Western European countries due to the lack of ?pull? from Spanish industrial centers and the relative productivity improvements of Spanish agriculture prior to 1950. In other words, the income gap between rural and urban locations was not large enough to provoke a rural exodus. The situation was dramatically altered after 1950. Spanish agriculture began to adopt labor-saving technologies which dramatically reduced the workforce required to maintain production. Furthermore, a simultaneous expansion of many non-farm activities in rural areas was unable to cope with the increasing amount of underemployed agrarian workers. As a consequence, a massive rural exodus took place. Despite these economic transformations, and the subsequent substantial improvements in living conditions of rural inhabitants, a large ?rural penalty? persisted. Rural inhabitants had less income, infrastructure and services than urbanites. Therefore, many rural locations were unable to attract former urbanites and became (and will remain) practically uninhabited.??

There are many reasons to praise this volume. First, the book considers a topic practically untouched in economic history. Needless to say that urbanization and industrialization have received more attention by economic historians specializing in the twentieth century than rural communities and their (mis)fortunes. Second, Collantes and Pinilla do not identify rural population with agrarian activities but consider other non-agricultural activities in the countryside. Reluctance of the countryside to complete depopulation is more related to the development of these new activities than the subsistence of farming, which rapidly declined during the twentieth century. For example, in 1991, only one fourth of the rural employed population in Spain was still engaged in agriculture (p. 124). The failure to understand the diversified nature of rural economies hampers the relevance of many analyses of the European countryside which mechanically associate rural areas with farming. Third, the authors consider several facets of the process including what they label the ?rural penalty?; that is, the opportunity cost of living in the countryside instead of cities. As they forcefully argue, the ?rural penalty? is not only composed of income differences but also of the differences in labor opportunities and amenities among cities and the countryside. Interestingly, as the economy urbanized, the ?rural penalty? grew since services and jobs left the countryside and tended to cluster in the most densely populated locations. And, finally, the book has an underlining comparative narrative. The Spanish experience is not seen in isolation but is considered within a more ample framework. This makes their conclusions relevant not only for Spain?s economic historians but also for all researchers interested in studying the long-run development of rural societies.
?

Joan R. Ros?s (jroses@clio.uc3m.es) is Associate Professor and Director in the Department of Economic History and Institutions of Universidad Carlos III in Madrid, Spain.? He has recently published several papers related to Spanish regional development and the performance of factor markets. His most recent article on the topic (with Juan Carmona) appeared in the European Review of Economic History (?Land Markets and Agrarian Backwardness (Spain, 1904-1934),? February, 2012).

Copyright (c) 2012 by EH.Net. All rights reserved. This work may be copied for non-profit educational uses if proper credit is given to the author and the list. For other permission, please contact the EH.Net Administrator (administrator@eh.net). Published by EH.Net (June 2012). All EH.Net reviews are archived at http://www.eh.net/BookReview.

Subject(s):Economywide Country Studies and Comparative History
Urban and Regional History
Geographic Area(s):Europe
Time Period(s):20th Century: Pre WWII
20th Century: WWII and post-WWII

Famous Figures and Diagrams in Economics

Author(s):Blaug, Mark
Lloyd, Peter
Reviewer(s):Whaples, Robert

Published by EH.Net (December 2011)

Mark Blaug and Peter Lloyd, editors, Famous Figures and Diagrams in Economics.? Cheltenham, UK: Edward Elgar, 2010. xvii + 468 pp. ?112.50 (hardcover), ISBN: 978-1-84844-160-6.

Reviewed for EH.Net by Robert Whaples, Department of Economics, Wake Forest University.

As Avinash Dixit puts it, ?The only correct answer to the question whether economics is a science or an art is ?Both?? (p. 327). And perhaps our best ?art? is didactic ? the useful, but creative graphs and diagrams that we use in our articles, textbooks and classrooms. Mark Blaug (Professor Emeritus at the University of London and the University of Buckingham) and Peter Lloyd (Professor Emeritus at the University of Melbourne) have enlisted a stellar international cast of contributors to provide an account of the role and history of about sixty figures and diagrams used in economic analysis.? ?We have selected figures that have been prominent in the history of economic analysis and that are, with a few exceptions, still found in contemporary textbooks and research? (p. 1). If you use these diagrams in your research or teaching, you may learn a lot from this pithy collection.

The editors? introduction makes a compelling case that economists have shown great ingenuity in devising figures and diagrams.? While the use of these geometric diagrams ?as a device for discovery and proof has declined in recent decades? (p. 7), their effectiveness as an expository device ? especially in the classroom ? has endured.? Many of us reflexively think in terms of these diagrams, so it?s worthwhile to consider their origins and delve deeper into their assumptions and nuances.?

The volume includes 58 chapters in seven subsections ? ?Basic Tools of Demand and Supply Curve Analysis? (such as Marshall?s supply and demand graph, indifference curves and isoquants, substitution and income effects, and Engel Curves); ?Welfare Economics? (including the Harberger triangle, taxation of external costs, monopoly and price discrimination, duopoly reaction curves, and monopolistic competition); ?Special Markets and Topics? (including location theory, cobweb diagrams, and reswitching and reversing in capital theory); ?Basic Tools of General Equilibrium Analysis? (including the Edgeworth box, production possibilities frontier, and factor price frontier); ?Open Economies? (including the offer curve, the Stolper-Samuelson box; the Lerner diagram, and the four-quadrant diagram for the two-sector Heckscher-Ohlin model); ?Macroeconomic Analysis and Stabilisation? (including the IS-LM diagram, the aggregate demand aggregate supply diagram, the Phillips curve, and the Beveridge curve); and ?Growth, Income Distribution and Other Topics? (including the Solow-Swan growth model diagram, Lorenz curve, and Kuznets curve).

Among the chapters that should be singled out as worth reading are two by Yew-Kwang Ng (on the Harberger triangle and on the taxation of external costs) and especially Richard Lipsey?s on the AS-AD diagram, which will profit almost everyone who teaches an introductory macroeconomics course by reminding them about the foundations of this tool, which many textbook writers fail to convey.?

The volume has a bit of a nostalgic feeling in places.? The chapter on kinked demand curves concludes that ?despite its weaknesses, the KDC concept survives, at least in undergraduate texts in microeconomic theory? (p. 157).? I used to jokingly tell students that they should tear out and crumple up the textbook page or pages discussing kinked demand curves, but (alas?) they have disappeared from the textbooks I use.? Marc Nerlove?s chapter on cobweb diagram opens by saying ?Mordecai Ezekiel?s 1938 paper made ?The Cobweb Theorem? and his famous diagram well-known to every student of economics? (p. 184) ? surely this is not true of recent cohorts ? and concludes that ?the cobweb theorem is fatally flawed as a theory of agricultural price movements; it has little empirical relevance, nor is it supported by any empirical evidence? (p. 188).? Like the kinked demand curve, I suspect that part of the reason the cobweb diagram hung on in textbooks for so long is that getting students to work through it was simply good mental exercise for them ? even if the model had little bearing on reality. Textbooks? recent turn toward integrating both the latest news and the profession?s explosion of empirical research findings seems to have crowded out both the kinked demand curve and the cobweb model.? I see this as progress.??

Although the book is a terrific success, I spotted several errors in the diagrams themselves that the publisher needs to correct.? Figure 10.3 mislabels the horizontal axis as KL, when it should be K/L.? Figure 16.1 features an upward-sloping marginal revenue curve and a downward-sloping marginal cost curve.? In Figure 36.1 the contract curve fails to go through the origin in the lower-left corner.? Figure 50.4 is imprecisely drawn.? The AD1, SRAS1 and LRAS curves are supposed to meet at a unique point, but they don?t ? and the Phillips curve in the bottom panel slightly misses the mark too. Finally, despite explaining that ?these conditions imply that the Lorenz curve is represented in a unit square? (p. 432), Figure 57.1 (like almost every textbook illustration of the Lorenz curve) isn?t a unit square.

Robert Whaples is the editor, with Randall Parker, of The Handbook of Modern Economic History (Routledge, forthcoming).

Copyright (c) 2011 by EH.Net. All rights reserved. This work may be copied for non-profit educational uses if proper credit is given to the author and the list. For other permission, please contact the EH.Net Administrator (administrator@eh.net). Published by EH.Net (December 2011). All EH.Net reviews are archived at http://www.eh.net/BookReview.

Subject(s):History of Economic Thought; Methodology
Geographic Area(s):General, International, or Comparative
Time Period(s):19th Century
20th Century: Pre WWII
20th Century: WWII and post-WWII

Manors and Markets: Economy and Society in the Low Countries, 500-1600

Author(s):van Bavel, Bas
Reviewer(s):McCants, Anne E.C.

Published by EH.NET (June 2011)

Bas van Bavel, Manors and Markets: Economy and Society in the Low Countries, 500-1600.? New York: Oxford University Press, 2010.? xiv + 492 pp. $140 (hardcover), ISBN: 978-0-19-927866-4.

Reviewed for EH.Net by Anne E.C. McCants, Department of History, Massachusetts Institute of Technology.

The search for the medieval origins of European economic growth over the long run has become something of a growth industry in recent years.? For example, since 2008 the field of economic history has witnessed the publication of major book-length contributions from Jack Goldstone, Jan Luiten van Zanden, Paolo Palanima, and Timur Kuran, all of which argue strongly that there are readily identifiable causal linkages that extend in a meaningful way from at least the High Middle Ages (or even earlier) to present realities.[1]? For anyone familiar with an earlier instantiation of medieval economic history this trend may be unexpected.? It wasn?t long ago that the medieval economy was interesting only in so far as it was quaint (serfs and their lords eking out a living in the autarkic wilderness of the manorial economy); or worse, as it was brutal (the Middle Ages as the quintessential locus of the Four Horsemen of the Apocalypse: Conquest, War, Famine and Death).? Or if one?s tastes were not quite so dramatic there was always the longue duree of the Annales School, in which a relatively stable world of European peasants ran more or less seamlessly from late antiquity to the eighteenth century.? Admittedly, the greatest spokespersons of this view were Early Modernists, but the Medievalists were never far behind.? Indeed, it wasn?t always easy to tell them apart, given that they depicted a world of little change other than the cyclical fluctuations in the climate and the ebb and flow of population within its fairly narrow neo-Malthusian bounds.? None of this suggested the likely emergence of a historiography in which modern economic growth (of the kind defined by Simon Kuznets in the middle of the twentieth century and countless followers since) could be attributed back to conditions that prevailed in the years around or even before 1000.

This is not to say that the modern, industrial world as something sui generis has disappeared from recent scholarship; not at all.? Yet another group of important books of recent vintage seeking to explain the extraordinary economic achievement of Western Europe in the last two and a half centuries either passes over the question of medieval origins,[2] or in one prominent case counters it explicitly.[3]?? Jan de Vries finds his explanation for the modern transformation rooted in the new, consumerist, decision making strategies of households in the sixteenth and later centuries, while Deirdre McCloskey turns instead to the new ethical attachments, and the rhetoric by which they were expressed, of a commercial and middle class culture, more or less about the same time period.? Joel Mokyr turns his attention just a bit later to the eighteenth century proper when Enlightenment ideas loom large for both the development of new methods for organizing economic activities and in the tools and techniques employed in production, that is to say technological change in the broadest sense of that term.? For all of these arguments, newness is the important point; what may or may not have happened in the Middle Ages is hardly decisive.? In Greg Clark?s analysis, it is completely irrelevant.? Any economic breakthrough that may have occurred prior to 1800 would have been so quickly dissipated in a Malthusian population response that according to Clark there is no discernible change in living standards prior to the end of the eighteenth century.? Indeed, this position requires what this reader sees as the ironic claim that the only way to increase welfare before the advent of the modern world was for human suffering to increase; i.e. when other people die, you could then benefit.? In any event, all trends break at 1800, much as they did in the older historiography that separated the medieval economy from what came later in every fundamental way.

This is a long introductory discussion that references a lot of books other than the one under review, for which I crave the reader?s indulgence.? In fact, Bas van Bavel?s Manors and Markets: Economy and Society in the Low Countries, 500-1600, is at least as important for what it contributes to the emerging literature on the medieval origins of modern European economic growth, as it is for its direct contribution to the more narrowly circumscribed economic history of the Low Countries.? I should add, however, that it does indeed offer a significant contribution to the latter.? It is rich in detail, documenting the substantial regional variation that existed there (shockingly so given the relatively small area overall), and the shifting locus of the most advanced areas across the thousand years covered by his survey.? The Meuse Valley figures prominently in the Carolingian period, followed by the flowering of urban and industrial inland Flanders during the High Middle Ages, and finally by mercantile and maritime Holland, and its coastal cities in particular, in a sixteenth century he still characterizes as the Late Middle Ages.? Van Bavel?s range of topics includes everything from soil types, hydrological projects, choice of grains between spelt, wheat, and rye, forms of lordship, technological innovations in agriculture and industry, labor contracting arrangements, the standard of living, biometric and material evidence from the archeological record, legal rights to land, the power of political authorities, the emergence of communes and guilds, processes of urbanization, the minting of coins, the location of trade routes and the products traded along them, disease, social unrest, household structure, and of course, the making of cloth.? This list is even so not comprehensive, but it conveys the right idea.? For any economic activity that took place in the medieval Low Countries, van Bavel?s book will be the go-to source for a long time to come.? This is especially helpful as much of the monographic work on which he relies for his own source material is written in languages not readily accessible to a global scholarly audience.?

As wonderfully rich as all this is, most readers of this review are likely to find the broader argument about the powerful continuities between the distant past and the present the most provocative aspect of van Bavel?s work.? Broadly speaking, his argument rests on three components.? First, he postulates that what he calls the ?socio-institutional organization of the economy,? more specifically ?the rules that govern exchange,? is the most productive explanation for economic development (p. 4).? Second, he argues that these factors can vary considerably across even relatively small areas.? Finally, he asserts that the socio-institutional characteristics of a community demonstrate remarkable persistence over the very long run.? Despite the seemingly logical intuition that beneficial institutions ought to be readily adopted by at least close neighbors, this seems not to have been in fact the case.? Instead, van Bavel finds evidence of substantial variation in the response of even micro-regions to similar economic opportunities and changes in climate or population, depending on the socio-institutional framework with which they began.? The attentive reader will of course worry about the problem of origins, but in this case much of the land in question was reclaimed from the sea or swamp over the long Middle Ages, so van Bavel can often build his case from the moment of the original period of settlement.? In the final analysis he finds in the medieval history of the Low Countries ?a clear demonstration of how great the degree of socio-institutional path dependency and long-term continuity in regional structures was? (p. 396).

It is his close attention to the remarkable complexity of regional variation that leads him to reject many of the other commonly proffered explanations for long term economic fluctuations found in the broader economic history literature.? So while he acknowledges the importance of technological change, climate shifts, and population movements for the specific experiences of economic actors, he is not willing to grant them explanatory power for economic development.? He argues that they are too blunt an instrument for parsing the remarkable geographic variation in outcome already witnessed in the Middle Ages.? For example he says of climate and demography that ?these factors often vary little over wide areas, whereas economic and social developments within these areas may differ widely? (p. 3).? Likewise with arguments about commercialization, which he admits seem especially attractive in discussing the history of the Low Countries, characterized as it was from an early date by large cities and unusually intensive trade networks.? All of these factors, ?climatic, geographical, demographic, and political,? had their impact of course, but those effects were ?directed? by the differing socio-institutional factors ?in divergent directions? (p. 387).? Not surprisingly, given this perspective, he also upends the more typical narrative about urbanization as a factor in economic development.? Instead of seeing urbanization as a cause of economic growth, he argues it was more likely the other way around.? Economic growth, especially as it concerned the agricultural sector, was the necessary precursor of rapid urban growth (p. 384).

What then were the critical socio-institutional factors to which we can attribute the largely successful economic development of the Low Countries, at least as measured by the standards of a wider medieval Europe?? The answer to this question is not always entirely clear.? But it seems safe to say that van Bavel gives particular pride of place to two factors:? ?a relatively efficient system of exchange combined with social balance? (p. 405).? His definition of an efficient system of exchange is straightforward enough.? It includes unhindered regional interaction, the presence of open and flexible markets, and the early disappearance of non-economic coercion (p. 11).?? But his understanding of what might constitute social balance is more elusive.? The closest he comes to a concrete definition is to say that social balance occurs directly when ?independent actors and their associations played an important social and economic role,? and indirectly when those actors have ?influence on the authorities? (p. 408).? The Low Countries were blessed with this ?social balance? on account of ?the large degree of freedom for ordinary people? that occurred quite early in their history (p. 409).?

In the final analysis then, we have a story about the medieval period that resonates closely with our understanding of what makes a modern economy work best: relatively unrestricted and autonomous individuals, with access to efficient and well integrated markets, whose worst instincts are held in check by social institutions that promote balance.? No wonder their world proved to be such a good predictor of ours — their world was essentially ours, just on a smaller scale.? Some readers might be daunted by the level of detail that van Bavel dives into in order to substantiate his most important fact: the incredible complexity and variety of micro-regional differences in social institutions in the medieval Low Countries.? But for those who persevere to the end of this long book, his is a happy, and persuasive, tale indeed.

Notes:
1. Jack Goldstone, Why Europe? The Rise of the West in World History 1500-1850, McGraw-Hill: 2008; Jan Luiten van Zanden, The Long Road to the Industrial Revolution: The European Economy in a Global Perspective, 1000-1800, Brill: 2009; Paolo Malanima, Pre-Modern European Economy: One Thousand Years (10th-19th Centuries), Brill: 2009; and Timur Kuran, The Long Divergence: How Islamic Law Held Back the Middle East, Princeton University Press: 2010.
2. See for example, Deirdre McCloskey, Bourgeois Dignity: Why Economics Can’t Explain the Modern World, University of Chicago Press: 2010; Jan de Vries, The Industrious Revolution: Consumer Behavior and the Household Economy, 1650 to the Present, Cambridge University Press: 2008; or Joel Mokyr, The Enlightened Economy: An Economic History of Britain, 1700-1850, Yale University Press: 2010.
3. Gregory Clark, A Farewell to Alms: A Brief Economic History of the World, Princeton University Press: 2008.

Anne E.C. McCants teaches medieval and early modern economic history at the Massachusetts Institute of Technology.? Her research interests in the Low Countries have ranged from historical demography to the role of social welfare institutions and the rise of consumer culture.? She is currently working on a project to explore the financial underpinnings of Gothic cathedral construction in the High Middle Ages.

Copyright (c) 2011 by EH.Net. All rights reserved. This work may be copied for non-profit educational uses if proper credit is given to the author and the list. For other permission, please contact the EH.Net Administrator (administrator@eh.net). Published by EH.Net (June 2011). All EH.Net reviews are archived at http://www.eh.net/BookReview.

Subject(s):Economic Development, Growth, and Aggregate Productivity
Economywide Country Studies and Comparative History
Markets and Institutions
Geographic Area(s):Europe
Time Period(s):Medieval
16th Century
17th Century

Modernizing a Slave Economy: The Economic Vision of the Confederate Nation

Author(s):Majewski, John
Reviewer(s):Delfino, Susanna

Published by EH.Net (March 2011)

John Majewski, Modernizing a Slave Economy: The Economic Vision of the Confederate Nation. Chapel Hill: University of North Carolina Press, 2009. xiii + 240 pp. $40 (hardcover), ISBN: 978-0-8078-3251-6.

Reviewed for EH.Net by Susanna Delfino, Department of European Research, University of Genoa, Italy.

?A Modern Economy without Modernization? — A Southern Paradox

Scholarship of the past few decades has amply documented that, from the late 1700s, capitalist-oriented entrepreneurial and business forces were at work in the southern states, and that their strength and visibility increased during the first half of the following century. Defining the contours of a univocal southern economic vision in the antebellum era has, however, proved extremely challenging, exposing all the ambiguities and inconsistencies immanent in the thinking of elite southerners, from political economists to politicians, from planters to manufacturers, and to businessmen in general. Even the staunchest agrarians, in fact, did not fail to appreciate the desirability of an albeit moderate industrial development. The seeming contradictions, which stemmed from their effort to reconcile economic development — including industrialization — with the preservation and protection of the institution of slavery, resulted in the shaping of a distinctively southern idea of economic modernity which rejected the tenets of modernization as commonly understood in the North and Europe as well by the mid-nineteenth century.[1]??? ??? ????????

John Majewski?s Modernizing a Slave Economy focuses on Virginia and South Carolina to explore the implications of such inconsistencies in the shaping of the secessionists ideology and, ultimately, in accounting for the failure of the Confederate experiment. Whereas a traditional historiography had identified the principles inspiring secession in the defense of thoroughly agrarian values, minimal government, and laissez-faire, Majewski shows that the secessionist ideology comprised instead visions of industrial expansion and economic independence that ought to be achieved largely through government activism. As a result, Majewski argues, the experience of a centralized and highly bureaucratic Confederate nation was not ?a radical disjuncture but a natural outgrowth of southern attitudes established during the antebellum period? (p. 7).

To demonstrate his thesis, Majewski adopts multiple and intertwined perspectives: from the environmental, to the economic, and to the political. Such an approach provides him with a broad compass of sensibilities that make the analysis well articulated and sophisticated at every turn.
The environmental argument constitutes the core around which Majewski?s analysis unfolds. Through it, he illustrates the distance separating reality from imagination in the economic vision of white southerners, as well as in northern perceptions and representations of the South?s economy. By showing that the extremely widespread use of shifting — as opposed to continuous — cultivation was determined by the highly acidic composition of much of the South?s soil, he both refutes the cultural explanation upheld by northerners to account for the seemingly backward state of southern agriculture and pinpoints the objective limits to regional economic development. In fact, by leaving vast stretches of land unimproved, shifting cultivation resulted in low population density. This, in turn, generated negative effects on the extent and depth of markets and on transportation costs: two essential factors for the development and expansion of the manufacturing sector. Slavery, of course, aggravated the situation but, as the case of Maryland well illustrates, was not the primary cause for either shifting cultivation or the South?s difficulties in triggering a self-sustaining process of industrial development. While only a relatively small number of enlightened southerners fully understood the real nature of the problem with southern agriculture, most believed that it could be solved through a vast reform program. However, because of the complexity and scope of the actions needed, this could only be pursued through the support of state governments. Investment was needed in the fields of research and education, and in the funding of local agricultural societies that might introduce farmers to a correct use of fertilizers and to the advantages of crop rotation. Steps forward were made during the last few antebellum decades, but the results obtained did not match the efforts lavished by agricultural reformers. Majewski rightly ascribes those meager results to the relatively low short-term return that the southern state governments anticipated from massive investment in agriculture as opposed to more ?visible? undertakings, such as railroad building, in the face of both intrastate and interstate rivalries.

The connection Majewski identifies between agricultural reformism, pleas for state intervention in the economy, and secessionism is crucial to his thesis that social conservatism and economic development coexisted in the secessionists? vision of an independent southern nation. Political independence, in fact, was only an empty word if not accompanied by certain economic requisites — a manufacturing base to free themselves from northern dependence, and the establishment of direct trade links with Europe. Toward the achievement of these goals, the modernization of agriculture was central. As Majewski effectively contends, the strong focus secessionists placed on agriculture has been wrongly understood as revealing their adhesion to a traditional, outmoded vision of the South?s future. Quite the contrary, it conveyed their awareness that the quest for southern political independence implied economic diversification, including industrialization. In their envisioning of an independent southern Confederacy, secessionists were, however, caught in the straits of a number of more or less apparent inconsistencies. For example, they criticized the activist government and the gospel of modernization embraced by northerners while at the same time placing these very assumptions at the core of their southern nationalism.

As Majewski points out, the advocacy of state-promoted economic policies dated back to the antebellum era. The example of railroads is revealing in this regard. Heavy spending in railroad construction by the southern state governments — and eminently by those of Virginia and South Carolina — stemmed from the belief that this sort of intervention could make up for the structural problems impairing a ?natural? development of the South?s economy. Due to the sparseness and scantiness of the population, the building of railroads could not be sustained — as in the North — by local communities; but if the lines were built thanks to massive public investment, their beneficial effects would reverberate on the economy as a whole, stimulating the growth of commerce and manufacturing, opening new prospects for international trade, and uniting the several parts of the South. Such a course of action, however, ?produced a boom in railroad construction without revolutionizing the southern economy,? thus failing ?to correct the region?s fundamental economic problems? (p. 104).

In their desire to reconcile the creation of a modern economy with the protection of slavery, secessionists made gross mistakes in evaluation. Their quite simplistic understanding of economic interest, for example, led them to believe that the Confederacy would have won both international and internal support, even from the slaves themselves. Reality would prove completely different. This is not, however, the only paradox that Majewski identifies in his analysis of the political economy embraced by secessionists in their envisioning of the future of an independent southern nation, vis-?-vis the region?s economic and social conditions. Advocacy of free trade had traditionally been one of the mainstays of southern economic thought within the national fold. However, an independent South required both a free trade international policy and an albeit moderate protectionist one, to shield its infant industry from northern and foreign competition. Confederate nationalism was therefore based on mixed ideas of economic liberalism and state regulation. Ultimately, the vast array of either domestic and international issues the Confederate government had to cope with often required measures of opposite sign, resulting in the adoption of contradictory and therefore largely ineffective policies that contributed to the collapse of the Confederate nation.

Secessionists emerge from the pages of Modernizing a Slave Economy in a completely new light as opposed to previous interpretations: modern men with a vision, rather than backward-looking traditionalists. Throughout the book, slavery comes forward as the core problem in determining the ambivalence and incongruities steeped in southern economic thought. Majewski?s work demonstrates, once and for all, that the defense of slavery was not deemed incompatible with the quest for economic modernity by even the most conservative members of the southern elites. More generally, it reiterates the need to definitely abandon rigid, dichotomous understandings of the economic, cultural, and political assumptions underlying unionism and secessionism, respectively. Modernizing a Slave Economy confirms that love for the Union and secessionism; unionism and the defense of slavery; secessionism and the envisioning of an economically modern South could and did coexist in the minds of antebellum and Civil War white southerners.?

This book is absolutely original in its placing the consequences of shifting cultivation at the basis of the South?s failure to achieve higher standards of economic modernization in the late antebellum decades. Through this example, and in contrast with previous interpretations, it effectively downplays the pre-eminence of the cultural factor in accounting for the South?s relative failure in catching up with the North in terms of industrial development before the Civil War.[2] Culture did matter, of course, but its impact was most revealed by the inconsistencies immanent in southern thought, which concurred to define the traits of a southern paradox still difficult to grasp in its complexity and entirety. By suggesting a different kind of continuity between antebellum and Civil War southern political economy as compared with traditional interpretations, John Majewski opens important directions in historical investigation and sets a new standard in the scholarly debate. The scope and complexity of the subject indeed deserve further research toward an increasingly sophisticated understanding of southern history in the slave era.

Notes:
1. In his monumental work on the South?s intellectual life, Michael O?Brien discusses the economic thought of southerners, illustrating its traits of ambivalence and modernity as well. He shows that not even the most conservative among them failed to acknowledge that the encouragement of manufacturing was central to the South?s future. Michael O?Brien, Conjectures of Order: Intellectual Life and the American South, 1810-1860, 2 vols. (Chapel Hill, NC: University of North Carolina Press, 2004).? I have also argued for a fundamental convergence of opinion among southern political economists and political thinkers on the subject of manufacturing. Susanna Delfino, La fabbrica dei sogni: dilemmi economici nel sud degli Stati Uniti tra l?et? della Rivoluzione e la crisi di met? Ottocento (Milano: Selene Edizioni, 2008).

2. The argument that the cultural factor was the main constraint to southern industrial development is set forth by Fred Bateman and Thomas Weiss, A Deplorable Scarcity: The Failure of Industrialization in the Slave Economy (Chapel Hill, NC: University of North Carolina Press, 1981).

Susanna Delfino is the author of La fabbrica dei sogni: dilemmi economici nel sud degli Stati Uniti tra l?et? della Rivoluzione e la crisi di met? Ottocento (Milano: Selene Edizioni, 2008).

Copyright (c) 2011 by EH.Net. All rights reserved. This work may be copied for non-profit educational uses if proper credit is given to the author and the list. For other permission, please contact the EH.Net Administrator (administrator@eh.net). Published by EH.Net (March 2011). All EH.Net reviews are archived at http://www.eh.net/BookReview.

Subject(s):Agriculture, Natural Resources, and Extractive Industries
Economic Development, Growth, and Aggregate Productivity
Economic Planning and Policy
Geographic Area(s):North America
Time Period(s):19th Century

Doing Well and Doing Good: Ross & Glendining ? Scottish Enterprise in New Zealand

Author(s):Jones, Stephen R.H.
Reviewer(s):Roberts, Evan

Published by EH.NET (October 2010)

Stephen R.H. Jones, Doing Well and Doing Good: Ross & Glendining ? Scottish Enterprise in New Zealand. Dunedin, New Zealand: Otago University Press, 2010. 422 pp. $50NZD (paperback), ISBN: 978-1-877372-74-2.

Reviewed for EH.Net by Evan Roberts, Department of History, University of Minnesota.

Stephen Jones — now a research fellow at the University of Dundee, but formerly Director of the Centre for Business History at the University of Auckland — has written a well-researched history of what was once the largest manufacturer in New Zealand. Of course, ?in New Zealand? is a significant qualification to ?largest manufacturer? since establishment size in New Zealand manufacturing was low. At the peak in 1945, Ross & Glendining employed approximately 2500 people in its factories, and no single factory had more than a thousand employees (p. 324). Ross & Glendining produced clothing, shoes, and sundry woolen products exclusively for the New Zealand domestic market, after beginning life as an importer and distributor of foreign textiles. Since few readers of this review will have ever heard of the company, foreign interest in the book has to be motivated by something more academic than familiarity with the firm. Happily there is more to learn from this book than its specific and remote subject might suggest.

More general interest in this book is merited because of the clarity of its discussion of some common business and economic problems: managing and motivating dispersed employees, vertical integration (and disintegration) as a business strategy, and succession from the first generation of a tightly managed family firm to a limited liability company in the second generation. By highlighting these economic issues and discussing them for a couple of pages when they arise, Doing Well & Doing Good overcomes some of the limitations of the ?case study? or ?firm biography? genre. Jones is able to step back and be more critical, in part, because the firm failed. Writing more than forty years after Ross & Glendining was split up in 1966, Jones owes no one any favors in his account.??

The eponymous firm founded by John Ross and Robert Glendining — both Scottish migrants to New Zealand — began as a drapery importing and distribution firm during the New Zealand gold rush of the early 1860s in the Otago province. The parable that the riches to be found on nineteenth century gold fields were from provisioning rather than prospecting holds true in New Zealand too. Ross & Glendining was founded in Dunedin, the major center for Scottish migrants in New Zealand, and at the time the largest city in the country.? Being the closest city to the Otago goldfields and having a natural sheltered deep-water port contributed to Dunedin?s status as the largest city in the 1860s. Jones shows that the Dunedin headquarters were at first an advantage to the firm. After the Otago gold rush ended, being based in Dunedin was, at least, no barrier to success through the end of the nineteenth century. Dunedin, however, is the southern-most of New Zealand’s major cities. Being on the way to the gold fields gave it an early locational advantage. As gold declined in importance, and the center of New Zealand’s population and economy moved northward, by the early twentieth century Dunedin was clearly the [relative] laggard of New Zealand’s major cities. Although Ross & Glendining had opened its own manufacturing plants in the late 1880s, more than 90% of the firm?s profits between 1900 and 1914 came from warehousing and distribution of local and imported textile products (p. 227). Jones shows clearly how the import and distribution business was tied to where population and income were growing. The firm had to be on the ground in many different places far from the company?s headquarters.

Ross & Glendining faced a microeconomic problem: motivating and monitoring employees who worked hundreds of miles from the firm?s founders, owners and managers. Jones gives a clear exposition of how the well-known principal-agent problem works in practice (pp. 69-71, 142-43). Clearly grounded in theory, yet tractable to the general reader, Jones makes the story of Ross & Glendining?s employee-management problems relevant to a wider audience of economic and business historians than the title and subject of the book would suggest.

After the Otago gold rush ended in 1863 it was clear to the firm?s founders that profits could not keep growing by merely servicing the rush of migrants to the area. The search for alternative profit centers led Ross & Glendining into a range of vertical integration (and then disintegration) strategies over the firm?s life. The first of these was the establishment in the late 1870s of their own manufacturing plant, the Roslyn mill near Dunedin. The Roslyn mill remained part of the company to the end in the 1960s, and in the late nineteenth century with just under a thousand employees it was New Zealand’s largest single factory. A much less successful investment was the purchase of a large sheep farm (or ?station? to use the New Zealand parlance) in the Otago highlands in 1878. While profitable, Lauder Station demanded a disproportionate share of the owners? time, and required them to develop yet another set of skills beyond what they were already doing. When the reforming Liberal government came to power in 1890 with the intention of ?busting up? the great estates, the prospect of any capital gain from selling the station diminished too. Ross & Glendining held onto the station until 1909, but had been trying to exit without losing too much money since the turn of the century.

Again, the virtue of Doing Well & Doing Good is that it makes clear how an economic concept, in this instance vertical integration, works in practice. Jones shows how the firm repeatedly struggled with how to price the output of constituent parts of the business when transferring goods between each other. A perennial problem was how to price the output of the Roslyn Mills for sale to the warehouses that Ross & Glendining operated around New Zealand. Ross & Glendining did not want to give their own goods an unfair advantage by transferring the goods at cost, so that the warehouses would continue to sell a wide range of imported goods. Being seen as selling primarily ?inferior? New Zealand-made products would be a disadvantage in competition against other textile distribution companies. (One might note here that although parts of Ross & Glendining were in the fashion business, this history rarely touches on the colorful, fashionable side of the story. This is resolutely a history of balance sheets.) Jones suggests in his understated way that internal pricing was an issue the firm never properly resolved.

Controlled by its founders for decades, it was not until 1900 that the firm became a joint stock limited liability company. Yet even after the transition John Ross and Robert Glendining — assisted by their accountant in Dunedin, Charles Hercus — remained tightly in control of the firm. The change in structure was largely nominal, and not substantive. John Ross remained central to the firm?s management until 1922. Robert Glendining retreated from active involvement in the firm as he became senile before his death in 1917. Despite the transition to a limited liability company, on John Ross?s death the firm?s management passed largely to Ross and Glendining?s children. While the firm remained nominally profitable through the Depression, and was boosted by government spending on uniforms in World War II, the rate of return on capital fell steadily. Manufacturing became even more central to the firm when the first Labour government, elected in 1935, imposed strict import controls. As a long-established firm Ross & Glendining was able to obtain import licenses relatively easily. Jones downplays the costs of the import-licensing regime to the firm, and the wider economic distortions they caused. A fillip to demand in the Korean War again boosted Ross & Glendining, but the long-term problems of poor management remained. Jones tells the story of the firm?s decline as one of the second generation being poorer managers than their fathers. Again, Jones makes clear in the particulars a familiar issue in business history, the difficulties faced by a family firm in displacing poorly performing managers who have their surname on the letterhead.

The relevance of this book to a wider audience comes from its effective illustration of common economic and business issues: designing contracts for a dispersed workforce, pricing goods for internal sale, and making the transition from family ownership and control to a joint stock company employing managers who can be fired. Jones makes relatively few explicit connections to the economic history of New Zealand. What can a single firm tell us about a whole economy? Jones shows how Ross & Glendining grew prodigiously in line with growing incomes for the whole New Zealand economy. On the eve of World War I per-capita incomes in New Zealand were among the highest in the world. Operating in a business sensitive to consumer incomes, Ross & Glendining rode the wave of extensive and then intensive growth in the New Zealand economy before World War I. From the 1920s though, the oft-told story of New Zealand’s economy is of decline relative to its peers in North America, western Europe and ?across the ditch? in Australia. Since at least the 1960s there has been a debate in New Zealand about how to make the economy less reliant on simply exporting untransformed agricultural products. For half a century New Zealand has been trying to do better than being good at transforming grass into butter or wool. The importance of ?staples theory? and the ?external balance constraint? in New Zealand economic debate will ring familiar in other countries.? On the face of it the history of Ross & Glendining, an importing company that manufactured for the domestic market only, may seem irrelevant to that debate.? Yet Ross & Glendining tried to create value by manufacturing woolens in New Zealand, rather than shipping textiles abroad. What Doing Well & Doing Good illuminates is the struggle of New Zealand firms to adopt practices and structures that survive the individual management talents of founders, and allow them to add more value. Recent research suggests that the quality of management in New Zealand firms lags compared to management in comparable countries. Poor management acts as a brake on firms growing beyond their family origins. Ross & Glendining was one of the largest firms in the country, but it did well enough with an outdated organizational structure and management dominated by the reprobate children of the founders, that it did not restructure, and was unable to respond to changing conditions in the early 1960s. The eminent New Zealand historian Keith Sinclair suggested in 1950 that New Zealand history required a ?generation of pedants? because there was so much of New Zealand’s history that lay untold by historians. This is still largely true of the country?s business history. Stephen Jones has mined the archival gold of Ross & Glendining?s records to tell its story. He does well and does good himself by going beyond the specific history of this one firm and speaking to larger issues in business and economic history.

Evan Roberts is Assistant Professor of History at the University of Minnesota, and lectured in History at Victoria University of Wellington (New Zealand) from 2007-2010. He has written about the business history of New Zealand (?Don?t Sell Things, Sell Effects,? Business History Review, 77(2): 265-290), and is currently researching living standards in New Zealand since the nineteenth century. Forthcoming work from this project includes Kris Inwood, Les Oxley and Evan Roberts, ?Physical Stature in Nineteenth Century New Zealand: A Preliminary Interpretation? in the Australian Economic History Review.

Copyright (c) 2010 by EH.Net. All rights reserved. This work may be copied for non-profit educational uses if proper credit is given to the author and the list. For other permission, please contact the EH.Net Administrator (administrator@eh.net). Published by EH.Net (October 2010). All EH.Net reviews are archived at http://www.eh.net/BookReview.

Subject(s):Business History
Geographic Area(s):Australia/New Zealand, incl. Pacific Islands
Time Period(s):19th Century
20th Century: Pre WWII
20th Century: WWII and post-WWII

When Sugar Ruled: Economy and Society in Northwestern Argentina, Tucum?n, 1876-1916

Author(s):Juarez-Dappe, Patricia
Reviewer(s):Johnson, Lyman L.

Published by EH.NET (October 2010)

Patricia Juarez-Dappe, When Sugar Ruled: Economy and Society in Northwestern Argentina, Tucum?n, 1876-1916. Athens: Ohio University Press, 2010. xiii + 233 pp. $32 (paperback), ISBN: 978-0-89680-274-2.

Reviewed for EH.Net by Lyman L. Johnson, Professor of History, University of North Carolina — Charlotte.

This book is a useful contribution to the history of Argentina during the era of economic? expansion that had been initiated by national integration and institution building in the decades following 1861. Patricia Juarez-Dappe, Associate Professor of History at California State University, Northridge, provides a well-researched survey of four decades of growth in Tucum?n driven by the rapid expansion of its sugar industry. Historians and economists with limited knowledge of Argentine history might wonder why this case deserves focused attention given the already-large literature devoted to the impressive expansion of the national economy in this period. Juarez-Dappe shows that while Tucum?n tracked the fast-rising arc of Argentine economic growth, imitating in many details the national experience, the character and legacy of the province’s expansion diverged in crucial ways from national experience.

Once potential profits from sugar production were demonstrated by early innovators, landowners moved from tobacco and other long-established crops to sugar and investors provided the capital to develop large and efficient refineries. Profits rose dramatically as new technologies, especially railroads and steam engines, increased efficiency and contributed to economies of scale in Tucum?n. As the industry expanded, estate managers and refinery owners attracted laborers from surrounding provinces and then enforced the discipline required by the rhythms of the sugar cycle with the support of a pliant provincial government. The prodigious wealth produced in the countryside as this process matured allowed the province’s modernizing government to transform its tax regime and harvest revenues that paid for the delivery of expanded and improved education, medical services and hygiene as well as to remake San Miguel, the provincial capital, as a modern city.?

While Argentina’s remarkable economic growth in this period was driven by profits from a rapidly expanding agricultural sector, Tucum?n’s prosperity during the sugar era was fundamentally unlike that of the still more profitable provinces of the Argentine littoral. Those regions grew rich from the profitable export of wheat, beef, mutton and other products to Europe. Tucum?n’s sugar producers, on the other hand, depended almost entirely on the national market. Given Argentina’s fast-rising population and accumulating wealth, price equilibrium and profitability could be sustained during the first stages of the modernization of sugar production in Tucum?n despite dramatically increased production. As a result, the province’s planters and refiners enjoyed many advantages relative to those in other Western Hemisphere sugar-producing nations who were forced to accept ever-lower prices in the increasingly competitive export markets of the Atlantic Basin.

Over time falling international prices and increased Atlantic market integration meant that this advantage could not be sustained permanently. Ultimately, the prosperity of Tucum?n’s sugar sector would come to depend on the willingness of the Argentine national government to protect it from foreign competition. Wealth transfers from the households of Buenos Aires and other littoral cities to the farmers, agricultural laborers and refiners of Tucum?n and other provinces were managed by national political leaders to service their own electoral ambitions. Once profits and market stability came to depend on political deals and electoral alliances, rather than price competitiveness, Tucuman’s sugar sector entered a dark cul-de-sac that offered little potential for continued modernization or for the stimulation of other sectors of the provincial economy. While the sugar industry’s growing reliance on protection is acknowledged by the author, she does not engage this topic in depth. If the story had been pursued beyond 1916, these issues would have been forced to the center of the discussion.

The author is more interested in the process of modernization and consolidation of the provincial sugar industry and describes this process in a thorough and convincing way, providing the reader with a rich array of detail drawn from her intensive excavation of archival resources. In addition to samples drawn from national censuses, the records of the provincial statistical office, and civil and criminal records, Juarez-Dappe uses notary records to great effect. These rich sources are seldom consulted by national era economic historians, although they are routinely used in systematic ways by colonial historians with excellent results. In addition, to these archival sources, Juarez-Dappe has thoroughly surveyed the secondary literature, supplanting earlier works of synthesis with her fresh account.?

The result is a dense descriptive narrative of Tucum?n’s sugar industry that ranges widely to include changing patterns of land use, the introduction of new technologies, and the fast-changing relations between sugar growers and the owners of refineries. The author also provides a very useful examination of the provincial labor regime, examining in turn migration, work, housing, and labor discipline. This broad survey is organized topically, allowing the reader to follow changes in, say, land use or technology across time. This same organization limits the author’s ability to analyze the specific effects of changing market conditions or altered political and fiscal policies on the allocation of land, labor, technology, and capital across the period. Despite this limitation, Juarez-Dappe has provided a comprehensive and highly readable introduction to this topic.

Lyman L. Johnson is Professor of History at the University of North Carolina at Charlotte. His recent books include Workshop of Revolution: Plebeian Buenos Aires and the Atlantic World, 1776-1810 (forthcoming Duke University Press); Aftershocks: Earthquakes and Popular Politics in Latin America (edited with J?rgen Buchenau); and Death, Dismemberment, and Memory. He has served as president of the Conference on Latin American History. ljohnson@uncc.edu???? ??? ??????????

Copyright (c) 2010 by EH.Net. All rights reserved. This work may be copied for non-profit educational uses if proper credit is given to the author and the list. For other permission, please contact the EH.Net Administrator (administrator@eh.net). Published by EH.Net (October 2010). All EH.Net reviews are archived at http://www.eh.net/BookReview.

Subject(s):Agriculture, Natural Resources, and Extractive Industries
Economywide Country Studies and Comparative History
Geographic Area(s):Latin America, incl. Mexico and the Caribbean
Time Period(s):19th Century
20th Century: Pre WWII