Students of recent Latin American history may find Bennett’s study useful in understanding certain aspects of Mexico’s impressive economic growth since World War II. In essence he applies the Gurley-Shaw theory of finance to an imposing array of statistical evidence (seventeen tables in the text and thirty-three more in the appendix) for the years, 1945-1959. The author believes that Mexico’s bold and imaginative use of the financial sector has helped to bring about the far-reaching structural changes which have transformed “a relatively stagnant agricultural economy to one of rapid and self-sustaining economic development” (p. 5).
Bennett’s initial chapter (“Financial Intermediary Activities and Economic Development”) can best be appreciated by readers familiar with economic theory and econometrics. No mention is made of Mexico until the closing paragraphs. The preceding thirty-two pages discuss the theories of John G. Gurley and Edward S. Shaw—especially their joint work, Money in a Theory of Finance (Washington, 1960)—and relevant contributions to the field by other economists.
Chapter II (“The Mexican Financial Sector and Its Control”) surveys the evolution of financial institutions since the Revolution of 1910; then it describes private and government financial intermediaries. Two sections dealing with federal control of financial intermediaries explain how “the entire Mexican financial sector can be made responsive to the financial needs of Mexico’s economic development program” (p. 59). The third chapter (“Financial Intermediary Sources and the Use of Funds 1945-1959”) offers evidence that, through intelligent use of such control, the government has succeeded “in minimizing inflationary pressures while promoting developmental investment” (p. 92).
Again, economists rather than practitioners of other disciplines will derive the most from Chapter IV (“A Comparison of the Financial Sector with the Nonfinancial Sectors”), since it deals in a somewhat technical manner with the flow of funds in various sectors of the Mexican economy. Parts of Chapter V (“Financial Intermediaries and Economic Development in Mexico”) are less specialized. Government financial intermediaries, which usually considered social costs and benefits before market prices and interest rates, were able “to act as the source of financing for new firms, for investment in social overhead capital, and for investments in basic industries—in short, for risky and privately unprofitable projects” (p. 117).
Bennett observes in his sixth and final chapter (“Conclusions”) that “in Mexico the government and government-owned financial intermediaries were apparently the financial innovators; the other sectors acted more as followers in this respect” (p. 136). Why? One might logically inquire as to what finally lured capital from the private sector and abroad into long-term innovation financing. Was it greater confidence in the Mexican peso after the devaluations of 1948-1949 and 1954? Was it a generally more favorable climate for foreign investments, the government’s improved international credit rating, the apparent stability of Mexico’s political institutions, or some other combination of elements present in the postwar period? Indeed, this is one of the book’s chief drawbacks for most readers. The scope is so limited, and the approach so minutely descriptive, as almost to preclude analysis or even mention of underlying causal relationships.
According to the author the trend to heavy commitments of funds by the private sector and foreign capitalists to long-term innovation financing has had most beneficial results for the Mexican economy. He considers it “a primary determinant of Mexico’s success during this period in maintaining a 2 percent per year increase in the level of per capita output while restraining the rate of inflation to slightly under 10 percent per year” (p. 126).
Whether, as Bennett seems to imply, other Latin American countries can profit from “a theory of finance which fits the Mexican experience” and “follow Mexico’s example” (p. 1) is open to dispute. Some developing nations may profit from studying the Mexican experience, but to suggest that they might trace the same path overlooks a unique set of circumstances. For example, in their struggle toward self-sustained economic growth, how many Latin American republics enjoy an advantage such as Mexico’s special relationship to the U. S. economy, which furnishes more than half a billion dollars annually from tourism? It is misleading to generalize from Mexican evolution, an error frequently made in singling out Puerto Rico as a model for Latin American development.
