The State and The National Bourgeoisie

Latin American Perspectives
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The State and the National Bourgeoisie in Postrevolutionary Mexico: 1920-1940

Nora Hamilton
Latin American Perspectives 1982 9: 31
DOI: 10.1177/0094582X8200900403
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THE STATE AND THE NATIONAL BOURGEOISIE IN
POSTREVOLUTIONARY MEXICO: 1920-1940
by
Nora Hamilton*
Studies of the private sector of contemporary Mexico generally go back

no further than the 1940s when the promotion of industrialization began to
take precedence in the policy of the Mexican government. Presumably
because the national bourgeoisie-economically weak and politically on the
defensive-had only a marginal role in the historic struggles of the immediate
postrevolutionary period, there have been very few systematic studies of the
Mexican bourgeoisie during the 1920s and 1930s.
Despite this neglect, an understanding of the development of the national
bourgeoisie and the role of the state in its formation in the two decades fol-
lowing the revolution is of critical importance. It was during this period that
many of the major institutions of contemporary Mexican capitalism-banks
and industrial firms, chambers of commerce and industry as well as other
business institutions-were established, and important patterns of collabora-
tion were developed between private capitalists and between them and the
state (or certain factions within the state). Thus an examination of the process
of capital accumulation in this early postrevolutionary period helps to explain
the model of development which has emerged in Mexico today. Among the
components of this model are a prominent role for the state in what is
essentially a capitalist economy; a strong injection of foreign capital and
technology, primarily in the form of multinational corporate investments but
also through loans, machinery imports, and other technology transfers; and a
tendency toward concentration of control in all sectors of the economy (and
toward monopolization in some sectors) by the state, foreign capital, and
dominant groups among the national private sector.
In Mexico, as in other third world countries, the state1 has had a
*The author is an Assistant Professor of Political Science at the University of Southern
California. For their comments on previous versions of this article, she would like to thank
Johanna Brenner, Edna Bonacich, Barbara Lasslet, Julia Wrigley, and the editors of Latin
American Perspective&
The
1 use of the term state to designate a group of institutions and actors (comprising the
government at various levels and the civil or military bureaucracy, or state apparatus) appears to
suggest a monolithic entity which in fact has rarely if ever existed. Ordinarily there are divisions
31

32
conspicuous role in the process of capital accumulation and the indirect or

even direct formation of a national bourgeoisie. While the state functions in
the interests of accumulation in all capitalist countries, it is particularly
important in Third World countries which have been integrated into the
world economy on the basis of the needs of the more advanced countries
(O’Connor, 1973: 6; Wallerstein, 1974). One of the consequences for &dquo;peripher-
al&dquo; states may be the weakness or absence of a capitalist class. And as &dquo;late
industrializing&dquo; countries, they confront the higher costs of investment
(particularly investment that is competitive on a world scale) of late
capitalism (Gerschenkron, 1962: 11-20). Historically, the integrated develop-
ment of these countries-to the extent it occurs at all-has taken place
through the active intervention of the state (Weaver, 1976: 45; Evans, 1979: 56;
Cardoso and Faletto, 1978: 132, 205). But the promotion of industrial
development and even the formation of an indigenous capitalist class has not
resulted in autonomous or internally directed development. Instead, these
economies have typically become more tightly integrated into the world
capitalist system in a manner which intensifies the contradictions and
dislocations characterizing capitalist development in general.
The case of contemporary Mexico exemplifies both the importance of
state intervention in the economic development of a peripheral country and
the distortions produced by dependent capitalist development. At the time of
the Mexican Revolution, foreign capital controlled Mexico’s major export
industries (chiefly minerals, but also petroleum and certain agricultural
products), utilities, most of the railroad lines, banks and finance, and
substantial agricultural property. A domestic class had emerged in commer-
cial farming, industry and commerce, and finance, linked in many cases to
foreign capital and having close ties to the government. One factor in the rev-
olution was opposition to the monopoly privileges enjoyed by this sector and
foreign capital. One of the effects of the revolution was to legitimate
substantial state intervention in order to establish conditions for autonomous
(national) economic development. This was in part achieved by the constitu-
tion of 1917, but was consolidated only through the struggles of those
revolutionary leaders who controlled the central government and established
their hegemony vis a vis regional generals (who instigated revolts against the
central government on several occasions during the 1920s) and state governors
and politicians. During the administrations of General Alvaro Obregon (1920-
1924), General Plutarco Elias Calles (1924-1928), and the three Presidents who
held office in the period 1928 to 1934 (during which Calles continued to
exercise indirect control over the Presidency), the centralization of state
power and the creation of instruments for state economic intervention were
and even contradictions within the state, reflecting intraclass contradictions and class conflict
within society. At the same time it is possible to make certain generalizations which apply to the
state as a whole. Thus it is possible to say that the state is constrained to actions within the exist-
ing capitalist structure, although it may not be accurate to say that the interests of the state coin-
cide with those of the dominant class. In the case of Mexico, there have been occasions when the
interests of groups within the state conflict with those of the dominant class, as well as with
those of other state factions more closely identified with dominant class interests. One of the
dominant factions within the Mexican state has been identified as the state financial sector,
including the Ministry of Finance, Nacional Financiera (the state development bank) and the
Banco de México (the central bank), which tends to reflect the interests of the dominant groups
of the national private sector.

33
accomplished. In the subsequent administration of General Lazaro Cardenas

(1934-1940), the state, in collaboration with organized sectors of the peasantry
and the working class, effectively eliminated many of the obstacles to
autonomous development, including a regressive agricultural structure and
foreign control of such vital sectors as railroads and petroleum, and
broadened the national market through wage increases and agrarian reform.
From 1940 to 1970 Mexico experienced one of the highest sustained
growth rates in the world (averaging 6 percent annually) and an increase in
per capita product from 3,372 (constant pesos) in 1950 to 6,054 in 1970. But
this dramatic growth has only aggravated the sharp disparities in wealth and
income in Mexico. In 1977 it is estimated that 20 percent of the population at
the lowest income level received 3.3 percent of the income while the top 5
percent received 25 percent (Eckstein, 1982). The result of capitalist expansion
was not autonomous development but the integration of the state with foreign
capital and the most powerful segment of national capital in a coalition which
dominates the Mexican economy. One of the effects of this domination is
concentration of industrial production by a relatively small number of capital-
intensive firms often using imported technology-a productive structure
unable to absorb Mexico’s large and growing labor force. This structure is an
important factor in Mexico’s regressive income distribution and the persistent
poverty of the Mexican people (an estimated 50 percent of the population un-
employed or underemployed).
How did such a structure emerge in a postrevolutionary context in which
the state apparently exercised considerable power to direct the economy
toward autonomous development? This study will focus on relations between
the state and the private sector in early postrevolutionary Mexico (1920-1940)
in an attempt to understand the conditions ultimately leading to the
emergence of the dominant coalition which has directly or indirectly helped
to shape Mexico’s pattern of dependent development.2
THE STATE AND ECONOMIC RECONSTRUCTION

The revolution of 1910-1917 distinguished Mexico from other countries of
Latin America in several respects among them its effect in legitimating an
-
It is
2 recognized that the structure of production which has emerged in Mexico is in fact the con-
sequence of conflict among opposing forces rather than a linear progression toward a specific
historical outcome. Thus the focus on capital formation as a process involving interaction
between the state, foreign capital, and the national capitalist class (or its dominant segment)
excludes those struggles and forces which not only might have produced a different result but
also had a part in producing the existing structure. Unfortunately, an analysis of these forces is
beyond the scope of this article. Here it will simply be noted that the struggles of subordinate
groups have had a significant effect in shaping the present structure, but this effect has rarely
been what these groups intended. An example is the agrarian reform in response to peasant de-
mands for land; its effect was to destroy certain obstacles to capitalist agriculture which in the
long run has resulted in a reconcentration of the land and the continued exclusion of a
substantial proportion of the rural population from land ownership. Another example is
government response to working class mobilization in the 1930s, which ultimately resulted in
state control of the labor movement — an important element in its ability to assure conditions for
capital accumulation in the postwar period. In general, after the 1930s classes and groups
(including factions within the state) which have promoted — or might have promoted — an
alternative structure and development pattern have been systematically disoriented, coopted,
and/or repressed.

34
active state role in the promotion and direction of economic development

several years prior to the implementation of &dquo;statist&dquo; solutions to the crisis of
capitalism in Europe, the United States, and other Latin American countries
(Leal, 1974: 176-177). Efforts of the postrevolutionary Mexican state to control
the direction of the economy began in the 1920s and were consolidated in the
1930s when they were reinforced by the effects of the depression and the ex-
ample of other advanced and dependent capitalist countries.
The new Mexican state sought to reconstruct Mexico’s economic base
within the context of constraints resulting from its peripheral position in the
world economy and its dependent relation with the United States. During the
prerevolutionary regime of Porfirio Diaz (1876-1911), foreign capital had
entered Mexico on a massive scale, and following the revolution it continued
to be dominant in key sectors. The Mexican government also inherited a
substantial foreign debt from the Porfiriato and the revolution, and in 1918 an
International Bankers’ Committee had been formed, headed by Thomas
Lamont of Morgan Guaranty Trust, to negotiate its repayment. The Porfirian
bourgeoisie commercial landowners, financial entrepreneurs, and industri-
-
alists -
had been considerably weakened by the revolution, particularly by
the destruction of agricultural infrastructure and land takeovers during the
revolution and the liquidation of the Porfirian financial system. The dilemma
confronting the new government was to reestablish conditions for capital
accumulation as rapidly as possible while preventing the Porfirian bourgeoi-
sie from returning to its former position of preeminence. The government
attempted-at least initially-to establish conditions of Mexican sovereignty
in the context of foreign economic hegemony.3
The Mexican state was also constrained by demands for reform on the
part of the peasantry and the working class-groups which had been brought
into the Mexican political system by the revolution and could no longer be ig-
nored. Nevertheless, the weakness of previously dominant groups within
Mexico and the initial reluctance of foreign capital to finance state expendi-
tures (because of Mexico’s political and economic instability) permitted a
stronger state role in directing Mexico’s economic reconstruction than would
otherwise have been the case. Elements of this reconstruction included the in-
stitution of state organizations for the expansion of key industries (electricity
and petroleum) and infrastructure (particularly road building); the reconstitu-
tion of the banking system under state control; the establishment of official
banks to meet needs neglected by private finance; and the promotion of
private industry.
3
T he economic domination of foreign capital, and especially the political and economic power of
the United States, constituted important constraints on the actions of the Mexican state
throughout this period. The vicissitudes of U.S. - Mexican relations over the twenty-year period
cannot be developed here, but in general three distinct periods can be identified: (1) a period of
mutual distrust and intermittent conflict as the Mexican government sought to establish national
control over natural resources and was opposed by U.S. companies in Mexico, supported by the
U.S. government (1920-1927); (2) a period of mutual accommodation, resulting from a more
conciliatory policy by the U.S. government on the one hand and changes in the orientation of the
Mexican government to an increasing dependence on U.S. capital, on the other (1927-1935), and
(3) a period of nationalism under President Lázaro Cárdenas, culminating in the expropriation of
the foreign-owned petroleum companies in 1938. Two important sources on U.S. - Mexican
relations during this period are Meyer (1972) and Smith (1973).

35
The State and Private Finance:

The Reconstruction of the Banking System
During the 1920s much of the institutional machinery for government
intervention in the economy was established although its potential could not
be realized for several decades. Several agencies were created to complement
existing private firms (especially foreign firms) in key sectors. A national
power commission was established in 1922, and in 1926 a national electrical
code was adopted calling for government regulation of electricity rates and
having the general purpose of expanding federal control over hydroelectric
sources (Wionczek, 1964: 37f.). The government also established a national
road commission and began to issue road bonds (to be repaid through a
gasoline tax) to finance the construction of roads and highways; it also
created an irrigation commission to construct hydraulic works (Garcia Diaz,
1953: 91).
It was during this period that the major business associations of
contemporary Mexico were established, in several cases at the instigation of
the government. Beginning in 1917 the government called for conferences of
commerce and
industry, resulting in the formation of chambers and confeder-
ations of and industry. In 1928 government financial officials and
commerce
private bankers cooperated in the establishment of the Asociaci6n de

Banqueros de Mexico (Association of Mexican Bankers-ABM). And at
approximately the same time private interests organized the employers’
confederation, Confederaci6n Patronal de la Republica Mexicana, oriented
explicitly to protecting employer interests in response to pending labor
legislation. Foreign interests in Mexico also formed business organizations:
the American Chamber of Commerce in Mexico was initiated in 1917, and
foreign companies in such industries as petroleum and mining formed their
own associations. For the most part, these associations functioned to provide
information for their membership and to pressure the government on issues
of importance and, in some cases, to enlist public support on their behalf.
Probably the most important economic achievement of the 1920s was the
reconstruction of the Mexican banking system. The revolution had considera-
bly weakened the prerevolutionary banking system, consolidated during the
regime of Porfirio Diaz (1876-1911); loans which the banks were forced to
make to counterrevolutionary and revolutionary governments had reduced
bank reserves. Furthermore, the bankers of the prerevolutionary period
symbolized Porfirian reaction to postrevolutionary governments, and in 1916
the banks were declared in liquidation. Even when their legitimacy was
restored in 1921, their assets were tied up in government debts which the gov-
ernment was unable to repay. This meant that they were unable to meet the
needs of their clients and therefore to attract deposits from the public (Lobato
Lopez, 1945: 274).
But many of the Porfirian bankers survived the liquidation of their banks
and collaborated with the government in the reconstitution of the banking
system. The major departure from the Porfirian system was the establishment
of a central issue bank controlled by the government. (Formerly many of the
private banks had issued their own banknotes.) State monopoly of note
issuance had been proposed as early as 1913 as a means of eliminating the
Latm Amencan Perspectives Issue 35, Fall 1982, Vd IX, No 4

36
prerogatives enjoyed by private Porfirian banks, and the constitution of 1917

provided for the establishment of a central bank for this purpose as an
element of its general orientation toward an active state role in the economy
(Bennett, 1965: 39-40). Efforts were made to obtain foreign loans for the
establishment of the bank; these were unsuccessful, however, and the central
bank (Banco de Mexico) was established in 1925 with national funds. It was
also founded without direct foreign assistance, although based on studies of
the U.S. system, the Bank of France, and the Bank of England.4 Later,
however, the central bank received loans from the Morgan bank in the United
States, and when Morgan banker Dwight Morrow became the U.S. Ambassa-
dor to Mexico in 1927 he took direct charge of Mexico’s finances. The
Mexican peso was tied to the dollar, and the Banco de Mexico worked closely
with the U.S. Federal Reserve Bank, which on various occasions sent
representatives to advise officials of the Mexican central bank (J. Meyer, 1977:
35-38; Lockett, 1934).
Government direction of the banking system had two major purposes:
first, to restore public confidence in the monetary and banking system
through stringent liquidity requirements, and second, to channel financial
resources to productive investment (Moore, 1963: 47, 78-79, 81; SHCP, 1957:
26). Among government efforts to channel private bank funds to industry and
agriculture was the banking law of 1932 which in effect made banking
national by requiring that both foreign and national banks associate with the
Banco de Mexico and invest in businesses operating in Mexico. Private
industrialists urged legislation to free the capital and reserves of other
financial institutions, such as insurance companies, for investment in securi-
ties of Mexican firms (Rodrfguez, 1935). Legislation to regulate the insurance
industry, liberalizing stipulations with respect to the use of reserves and,
again, requiring companies to invest in Mexican firms, was passed in 1935.
Most of the foreign banks and insurance companies left the country, leaving
the field open for the establishment of domestic financial institutions which
proliferated in the 1930s.
In spite of the efforts of the state and certain industrialists, private banks
apparently had a very limited role in the process of capital formation in the
immediate postrevolutionary period. In part this can be attributed to the low
level of financial assets, which even 25 years after the revolution did not
reach their prerevolutionary level. Also the overriding concern of government
financial officials for liquidity limited the proportion of funds the banks could
invest or lend. But a major problem seems to have been an orientation toward
speculation and commercial loans on the part of the banks themselves
(Bennett, 1965: 45; Moore, 1963: 47, 72-74; CNB, 1928: 21). It was not for several
4
I n certain respects, establishment of a central bank followed precedent elsewhere: the Federal
Reserve Bank was established in the United States in 1913 (largely in response to the financial
crisis of 1907) and in 1920 the International Finance Conference, held under the auspices of the
League of Nations in Brussels, had recommended that central banks be established in all
countries. This was in part motivated by the anxiety of creditors having loans and investments in
Latin America and other regions to insure a mechanism for debt repayment and profit
repatriation (Tamagna, 1965: 39-90; Furtado, 1976: 96). In contrast to Mexico, central banks were
established in several Latin American countries through a U.S. commission which allegedly was
utilized by private New York banks to push unnecessary high cost loans on the governments of
these countries (Wood, 1961: 130).

37
decades-with the restoration of public confidence, skillful use of the central

bank’s reserve requirement, and the establishment of new instruments for
securing financial resources by investment banks-that the banks became
important agents in capital formation. But the eventual success of the state in
channeling private financial resources to productive investment has largely
favored the dominant economic groups who often control the major banks as
well as the most important industrial enterprises (G6mez Urrutia, 1975: 643).
The government also established official banks to fulfill needs the private
sector was unable or unwilling to meet. The first of these was the Banco Na-
cional de Credito Agricola, the agricultural credit bank, established in 1926.
Under pressure from the peasants the government was carrying out a limited
land distribution program; the purpose of the bank was to provide credit for
the new landowners. Almost immediately, however, the bank became
implicated in schemes to finance projects for large landowners; according to
one official, who resigned in indignation, during 1926 and 1927 the bank had
provided 17 million pesos (out of a total of 19 million) to one thousand large

landowners, while the remaining two million pesos went to credit societies
comprised of ten thousand small farmers (Villasefior, 1974: 215). Beneficiaries
of financing from the agricultural credit bank included ex-President Alvaro
Obreg6n and the Secretary of War, General Joaquin Amaro, the latter having
received 100,000 pesos for the purchase of a hacienda.
In the 1930s several other government banks were established, among
them Nacional Financiera (a development bank), the Banco Nacional Hipote-
cario Urbano y de Obras Publicas (the public works bank), the Banco
Nacional de Credito Ejidal or ejidal credit bank (to provide credit to ejido-
communal landholdings-established through an expanded agrarian reform
during the Cardenas administration), and the Banco Nacional de Comercio
Exterior (the foreign trade bank). In terms of capital accumulation, the most
important of these has been Nacional Financiera (NAFIN), which in the first
few years following its creation in 1933 undertook, on a relatively limited
basis, most of the functions it would subsequently develop: the purchase of
government and private securities, loan operations, intervention in stock
issues for the establishment of new enterprises, and purchase of enterprises
for the government. However, the limited resources of all of the state banks
restricted their effectiveness in directing investment and credit prior to the
1940s.
Despite differences and conflicts between private bankers and the
government financial sector, the reconstruction of the banking system
involved considerable cooperation between the two. As indicated above, they
collaborated in the development of banking legislation as well as subsequent
laws and regulations; private bankers sat on the boards of government banks
and government bank directors became board members of private banks. This
last situation was the result of government loans and investments to private
financial institutions. In the interests of restoring agricultural production to its
prerevolutionary levels, the government provided generous loans and invest-
ments to those banks formed to finance commodities, such as the Banco
Azucarero (sugar bank), formed in 1932 with investments from private
producers and the government, Banco Nacional de Credito Agricola, and the
Banco Algodonero Refaccionario (the cotton bank) for which the Banco de
Lahn American Perspectives lswe 35, Fall 1982, Vol IX, No 4

38
Mexico provided a loan of $1.5 million-one half of the initial social capital
(Banco Algodonero Refaccionario, 1932). During the 1930s and 1940s, govern-
ment banks helped to finance several financieras, investment banks which
had been introduced in the banking legislation of 1932 and were oriented to
the development of a capital market. By 1940, a total of 29 financieras had
been established, in many cases with state support. In the late 1930s, in an ef-
fort to supplement government credit to agriculture, the government also
supported the establishment of private provincial banks, under the auspices
of the Banco de Mexico, which subscribed up to 15 percent of their capital.
It was several years before the investment banks and the provincial banks
began to provide substantial credit to industry and agriculture, but govern-
ment support to private banks is indicative of the government’s importance in
capital formation and of the linkages between the government and private
financial sectors. In fact, it was not uncommon for government financial
officials upon their retirement to become involved with private banks, as did
Luis Montes de Oca (who held the positions of secretary of finance and
director of the Banco de Mexico during part of this period and established the
Banco Internacional-until recently one of the largest private commercial
banks in Mexico-upon his retirement from the public sector in 1940), and
Eduardo Suarez (who was secretary of finance between 1935 and 1946 and
subsequently became president of the Banco Comercial Mexicano, another
major private bank).
The Banco Nacional de México
Within this general context, relations between the government and one
private bank, the Banco Nacional de Mexico (hereafter referred to as the
Banco Nacional) were particularly close. The Banco Nacional was one of the
few Porfirian banks to survive the revolution, and in the postrevolutionary
period it was by far the most important private bank in Mexico. It had been
formed in 1884 by the fusion of two existing banks and given special
prerogatives as the bank of the government. The majority of its capital was
French; it was controlled by the Banque de Paris et des Pays Bas and had a
governing board in Paris as well as Mexico. During the Porfiriato it had a role
somewhat analogous to the Morgan banks in the United States, channeling
European capital to Mexico and acting as an intermediary between foreign
capital and the Mexican government (Rosenzweig, 1965: 806-807; BNM, 1934:
9, 16, 93).
With the revolution, the Banco Nacional suffered a considerable reduc-
tion in its assets. But despite the animosity of postrevolutionary governments
toward the Porfirian banks, the Legorreta family (which has managed the
bank since the 1920s and still constitutes a major shareholder) was able to uti-
lize its international connections to reestablish the bank’s favored position
with the Mexican government. Its U.S. contacts included Morgan Guaranty
Trust as well as the New York investment house of Kuhn, Loeb which with
other financial institutions of New York and Germany had helped to finance
the reorganization and consolidation of the railroads during the Porfiriato. In
the early 1920s, the Legorretas took part in negotiations between the Mexican
government and the International Bankers Committee and were involved in

39
efforts (ultimately unsuccessful) to secure foreign loans for the establishment

of the central bank. They also worked closely with U.S. interests in Mexico;
according to a U.S. consular report, the Banco Nacional instructed its
branches to provide U.S. government officials in Mexico with confidential
information regarding Mexican firms, trade conditions, and investment
possibilities (Hillyer, 1929).
The creation of the central bankprevented the Banco Nacional from
resuming its
prerevolutionary position as banker of the government, but it
continued to be favored by the postrevolutionary state. When the central
bank-which initially operated as a commercial bank as well as a central
issue bank-terminated its commercial operations in 1932, it turned over the
business of its branch banks to the Banco Nacional (BNM, Informe, 1934).
In keeping with their close association to the revolutionary government,
officials of the Banco Nacional developed a progressive philosophy, stressing
the need for banks to have a &dquo;social conscience&dquo; and condemning the
&dquo;individualistic&dquo; pursuit of profit. It is not evident that the bank actually
followed these principles in its own operations, which were clearly profit-
oriented, but even the statement of such an orientation set it apart from other
banks of the country (see Boletin Financiera y Minero, 1934: 169-199, 512-513).
They apparently also shared with government officials a broad concern for
Mexican development; the Banco Nacional published a monthly bulletin
providing a generally positive analysis of the economic situation in Mexico
and of government initiatives, which in the 1930s began to appear in English
in an apparent attempt to attract foreign capital into the country.
At the same time the Legorretas used their position to defend the interests
of private capital, sometimes in opposition to certain government programs.
On one occasion, when questioned by President Calles (1924-1928) regarding
economic problems of the country, Agustin Legorreta attributed them to
political unrest and advocated a slowdown of reforms in order to restore
business confidence. By this time such advice coincided with the inclinations
of Calles and other members of his government who were directly involved in
private capital accumulation. The regime of Lazaro Cardenas, (1934-1940),
however, was characterized by an accute conflict between the government
and the private sector, which resulted in certain contradictions in the position
of Banco Nacional officials. On the one hand, consistent with their principles
of broad support to economic development, the Legorretas (in contrast to
other bankers) cooperated with the government in providing loans for specific
projects, and their bulletin continued to support government reforms, includ-
ing labor organization and wage increases which would enlarge the national
market. On the other hand, they opposed efforts by &dquo;outside agitators&dquo; to
organize personnel of their own banks into unions and joined other bankers
in successfully promoting legislation which would prohibit strikes by bank
employees. The pages of the monthly bulletin also carried occasional defenses
of Mexican capitalism, which was felt to be threatened by government
encouragement of labor &dquo;agitation&dquo; (Suarez, 1976; BNM, Examen, 1934-1940
passim).
In general, while the Banco Nacional utilized its close relations with the
government to enhance its position of leadership among private bankers, this
relationship was not unrepresentative of a community of interests which was
Latin Amencan Perspectives Issue 35, Fall 1982, Vol IX, No 4

40
developing between private bankers and certain sectors of the state, particu-
larly the state financial sector. Indicative of this relationship was the pro-
banker orientation of Luis Montes de Oca, director of the Banco de Mexico
throughout most of the Cardenas regime. Despite the animosity of most
bankers toward the Cardenas government, they maintained good relations
with Montes de Oca, who engineered the 1937 legislation which defined the
relationship between the banks and their employees in paternalistic terms,
excluding the possibility of strikes against the banks, and placing banking
employees in a marginal position in relation to the Mexican labor movement.
The Banco Nacional, which was able to take advantage of its relationship
with the Mexican government and its U.S. connections, was one of the first
Mexican firms to systematically pursue the pattern of joint investments
which today characterizes the relations between foreign capital and certain
segments of domestic capital. With the elimination of European markets and
imports as a consequence of the Second World War, the Banco Nacional
advocated a policy orientation to a continental American economy, reinforc-
ing the trend of increasing economic dependence on the United States. In
1944 an investment society, Inversiones Latinas, was formed with 51 percent
Mexican capital (chiefly the Banco Nacional, but also including other private
financial institutions and the Banco de Mexico) and 49 percent U.S. capital
(chiefly Kuhn, Loeb, with smaller investments by Chase Bank and others).
Another example of joint investments was the establishment of Celanese
Mexicana, through the collaboration of Mexican private interests, including
groups associated with the Banco Nacional, and Celanese Corporation of
America, with a substantial loan from the government development bank,
Nacional Financiera (Busser, 1943; Suarez, 1977: 128-130).
In summary, during the postrevolutionary period the state established the
institutions and instruments which would facilitate its future direction of the
economy, including the orientation of financial resources to productive
investment. At the same time, collaboration between the private and state
financial sectors in drawing up banking legislation, investments, and loans by
official banks in private financial institutions, and the interlocking director-
ships between private and state banks, undoubtedly fostered a community of
interest between the state and private financial sectors. Such a community of
interest was exemplified by the relation between the Banco Nacional and
postrevolutionary governments, which also included foreign, especially U.S.
interests. This collaboration was further indicated by the support of state
financial officials, especially Luis Montes de Oca, for legislation favoring
bankers, as well as the recruitment of these officials to the private financial
sector upon their retirement from government.
THE STATE AND CLASS FORMATION:

THE CASE OF SAENZ AND THE SUGAR INDUSTRY
As indicated above, the postrevolutionary Mexican state not only estab-

lished conditions for capital accumulation but in certain respects it also
contributed directly to the creation of the new capitalist class. In part this
was due to the political and military insecurity of the new state-in-formation
in the decade following the revolution. Revolutionary generals continued to

41
control their own armies in various zones of the country, from where they
could easily lead them in revolt against the central government, as happened
on several occasions. One means utilized
by the government to control the
military was to provide high level officers with the incentive and material
means to go into business, with the hope that their
political ambitions might
be diverted to entrepreneurial channels. Government officials also took
advantage of these opportunities, and recruitment from the government into
the private sector became an accepted means of replenishing the ranks of the
capitalist class (Cordova, 1973: 30, 379).
A classic example of this process was the rapid transformation of Aaron
Saenz from revolutionary to government official to capitalist entrepreneur.
Saenz had served as a member of the general staff within the Constitutional-
ist Army during the revolution; subsequently he held a series of subcabinet
and cabinet posts in the governments of the 1920s and early 1930s. He was
considered a potential candidate for the Presidency in 1929 and had himself
apparently assumed that he would be chosen by the new Partido Nacional
Revolucionario (which he had helped to create); however his close association
with and open respect for the conservative businessmen of Monterrey (while
serving as governor of Nuevo Leon) precluded his consideration for candidate
of a &dquo;revolutionary&dquo; party (Hefley, 1970: 53, 60-70; Portes Gil, 1954: 150, 155-
157).
Saenz’ wealth apparently originated during his government career with
the establishment of a construction firm (in association with President Calles)
which benefited from government contracts. He and Calles (to whom he was
related by marriage-his sister having married Calles’ son) were also
associated in the construction of a major sugar refinery at El Mante, in the
state of Tamaulipas. Saenz, Calles, and other government officials obtained
the lands after a dam and irrigation system had been constructed at
government expense, and a modern sugar refinery was built with the
assistance of a substantial loan from the Banco de Mexico (Cordova, 1973:
376-377; Trevino Sillar, 1944: 22-23; Hefley, 1970: 85, 93).
Saenz also benefited directly and indirectly from government promotion
of the sugar industry. During the early postrevolutionary years the restoration
of prerevolutionary production levels in order to avoid sugar imports was a
major government preoccupation. The incorporation of a provision in the
agrarian code exempting property devoted to the production and processing
of sugar cane from agrarian reform was a factor in the resurgence of the sug-
ar industry.
The restoration of the sugar industry benefited some of the plantation and
refinery owners who survived the revolution, including the United Sugar
Companies, a U.S. company which controlled most of the arable land of
Sinaloa. New capitalists such as Saenz were also able to take advantage of
postrevolutionary conditions to enter the field; another who profited was
William Jenkins, a former U.S. consul who allegedly masterminded his own
kidnapping, obtaining a sizeable fortune in ransom money. Whether or not
this was the real source of his wealth, in the aftermath of the revolution Jen-
kins was in a position to provide loans to sugar plantation owners in Puebla
who confronted the expensive task of reconstructing sugar refineries and
other equipment destroyed or damaged by the revolution. When many
Lann AmerKan Perspechves Issue 35, Fall 1982, Vol IX, No 4

42
defaulted on their loans, Jenkins took over their properties, thus becoming the
owner of eleven haciendas containing the best crop lands of Matamoras
valley (Ronfeldt, 1973: 9-10).

By the early 1930s, the sugar industry was facing a crisis of overproduc-
tion, resulting in efforts to establish a sugar cartel. The Ministry of Commerce
and Industry, headed by Saenz, worked with other major producers,
including Jenkins, Garcia Mora of San Cristobal in Veracruz, and the United
Sugar Companies in this effort, and after initial difficulties Azucar, S.A.
(Sugar, Inc.) began operations in January 1932; it soon included all the sugar
mills in the country. Financing was to be orchestrated through the Banco de
Mexico. Previously the industry had been financed through loans from
California and Arizona banks, but with the crisis of overproduction they had
been stuck with surplus sugar stocks provided as collateral. This debt was
eventually repaid, but given Mexico’s foreign exchange problems, these banks
were apparently unwilling to provide further loans. A new private sugar
bank, the Banco Azucarero, was established in 1932 with the major mill
owners as well as the government agricultural credit bank as shareholders.
Additional financing for sugar production was provided through private
banks, the national railroads, the manufacturers of bags for sugar, and the pe-
troleum companies (Gomez Morin, 1932).
The new cartel was temporarily successful in stabilizing sugar production
and sales-so much so that Saenz projected it as a model for similar
arrangements in other industries (Saenz, 1932). But its success was apparently
short-lived, and overproduction was again a problem in the second half of the
1930s. At the instigation of the secretary of finance, Azucar S.A. was
reorganized as a semiofficial auxiliary credit organization, Union Nacional de
Productores de Azucar, S.A., in 1938. The government did not participate in
the capital of the new organization, but was represented on its board by the
secretaries of the economy, of agriculture, and of finance. However, the
directors have mainly been major refinery owners such as Saenz.
The close association between private refinery owners and the govern-
ment has continued to characterize the sugar industry, and until recently has
generally favored the private sector although the government has also
attempted to maintain relatively low prices. While Saenz himself expanded
his sugar holdings (with the assistance of loans from Nacional Financiera)
and diversified into other industries (airlines, hotels) he also gained control-
ling interest in the Banco Azucarero, now the Banco de Industria y Comercio.
Jenkins also expanded into other areas, including finance; at une point he
controlled the Banco de Comercio, one of the major banks of the country,
which continues to be 51 percent owned by one of his close associates.
The careers of Saenz and Jenkins were by no means unique. In the
chaotic period following the revolution fortunes were quickly made. An
example is provided by Ernesto Espinosa Porset, an official of the govern-
ment financial sector (Banco de Mexico) who made profits of 60 percent
through the purchase and resale of houses in the immediate postrevolutionary
period (Espinosa Porset, 1958: 41-42). Although on a small scale, these
operations illustrate the inherent possibilities of speculation in real estate
which, with the subsequent rapid growth of Mexico City (and of other urban,
suburban and resort areas), has continued to constitute a preferred invest-

43
ment. A more spectacular example is that of Abelardo Rodriguez, President

of Mexico from 1932 to 1934, whose position as division general in the frontier
zone of Baja California during the revolution apparently provided numerous
opportunities for the accumulation of wealth through racetracks and gambling

casinos. Subsequently Rodriguez continued to invest in casinos and luxury
hotels in the frontier zones and in the city of Cuernavaca, and later
diversified his holdings into real estate, vineyards, and various banks and
industries (Naranjo, 1948: July 31). Tourism, promoted by all governments in
the postrevolutionary period in an effort to draw funds into Mexico, also
provided opportunities for enrichment through construction and real estate,
and in 1937 a semiofficial bank, Credito Hotelero, was established to finance
private hotel construction.
Thus the state had a predominant role in class formation in postrevolu-
tionary Mexico: indirectly, through the promotion of specific industries (such
as sugar and tourism), directly, through opportunities (including direct
subsidies) enabling military and government officials to become &dquo;revolution-

ary capitalists.&dquo; The career of Saenz, who benefited from cartelization of the
sugar industry under state auspices, government promotion of tourism, the
orchestration of financing for the sugar industry by the central bank, and
direct state financing of the irrigation system and refinery of El Mante,
constitutes an outstanding example of this pattern. The transformation of
officers of the revolutionary army and government officials into commercial
landowners, real estate speculators, bankers and ultimately industrialists
obviously weakened their interest in substantial reforms which might threat-
en the private sector.
THE PRIVATE SECTOR AND &dquo;GROUP&dquo; FORMATION
A widely recognized phenomenon in contemporary Mexico is the domi-

nation of the private sector by economic groups--each consisting of a group
of firms (generally including industrial and financial firms and sometimes
commercial houses, real estate interests, transport systems, and agricultural
holdings) controlled by a single family or a small group of investors-or
investment groups.5 These groups have constituted an important element in
capital accumulation in Mexico. In conjunction with foreign corporations,
they control the most important industries, banks, and commercial houses of
the country outside of the public sector. Access to foreign capital and
technology, state funding, and their own financial institutions gives them a
clear advantage over other private interests in Mexico (Cordero and Santin,
1977; Aguilar and Carmona, 1967).
The economic groups has precedents of sorts in the prerevolutionary
period. A major example is the Barcelonnette group, originating with
individuals and families who emigrated from the French province of Barce-
lonnette to Mexico in the second half of the nineteenth century. In 1900, the
French Banque de Paris et des Pays Bas and a consortium of Swiss banks, in
collaboration with the Barcelonnette group, formed the Societe Financiere
pour l’Industrie au Mexique, an investment association with the objective of
The
5 phenomenon of the economic groups is also characteristic of other Third World countries
(see Leff, 1978).

44
undertaking commercial, financial, and real estate operations in Mexico.

Several major firms that still exist today were established during that period
under the control of members of the Barcelonnette group and/or the Societe:
the Moctezuma brewery, the Cia. de Fabricas de Papel de San Rafael y
Anexas (a major paper company), the CIDOSA textile complex (consisting of
the Cia. Industrial de Orizaba, S.A., and several other textile firms), and
several major department stores, among them the Puerto de Liverpool and the
Palacio de Hierro (Archivo MGM, Estudios Diversos; Salazar, 1971: 38-39;
D’Olwer, 1965:1123-1124).
Although the contemporary economic groups are generally regarded as a
relatively recent phenomenon, there is evidence that processes of group
formation were taking place in the early postrevolutionary years, involving a
certain degree of continuity with prerevolutionary Mexico. By 1940, two of
the most important economic groups of contemporary Mexico had been
formed: the Cuauhtemoc (brewery) and Vidriera (glass) groups, both con-
trolled by the Garza Sada family of Monterrey, today one of the most
important industrial families in Mexico.
The Garza Sada Groups
During the nineteenth century the northern city of Monterrey had been
an important commercial center. With the decline of its commercial impor-
tance at the end of the century, commercial capital was diverted to other sec-
tors, including industry, which was also promoted by the state government
through tax exemptions and protectionist policies. Among the industries
established during this period was the Cuauhtemoc brewery (Cerveceria
Cuauhtemoc), chiefly with capital from the commercial house Casa Calderon
y Cia.; its founders included two generations of three interrelated Mexican
families: Francisco G. Sada Muguerza of a landowning family in the state of
Coahuila; his brother-in-law Isaac Garza, a member of the Casa Calderon; an
uncle, Jose A. Muguerza; and a cousin, Jose Calder6n Muguerza; as well as a
German technician, Jose M. Schneider (Vellinga, 1975: 149-150; Contreras
Mendez, 1976: 39, 33). Subsequently in 1901, Cerveceria Central was estab-
lished by the shareholders of Cuauhtemoc to supply Mexico City and the
surrounding states, and in 1911 a separate glass factory, Vidriera Monterrey,
began operations to provide glass bottles for the brewery.
Monterrey’s industrial expansion and that of the Garza Sada family were
temporarily halted during the revolution. But during the 1920s, several
departments were established within Cerveceria Cuauhtemoc to manufacture
inputs for the beer industry. A crown top was developed to replace the corks
previously used for beer bottles; this function was subsequently given to an
independent enterprise, Fabricas Monterrey (FAMOSA), established in 1929
by Francisco G. Sada, Isaac Garza, Roberto Garza Sada (his son) and related
families - Jose Calderon, Jose F. Muguerza, and Antonio Muguerza. It
subsequently diversified into other products, including metal containers. A
department to produce cardboard boxes was also included in FAMOSA. Also
in 1929, Malta, S.A., was established to produce malt for the Cuauhtemoc
breweries, and during this period a branch of Vidriera Monterrey was
established in Mexico City (Vidriera Mexico).

45
The Garza and Sada families were also instrumental in the establishment
of the Confederacion Patronal de la Republica Mexicana (COPARMEX), the
employer association specifically created to defend the class interests of the
bourgeoisie. In general, they were in the forefront of efforts by conservative
businessmen of Monterrey to control the labor movement. In their own firms,
they attempted to exercise this control through repression of independent
labor organizations on the one hand and a paternalistic private welfare
system on the other.
By 1936 the holdings of the Garza Sada families and their associates had
been divided into two groups: the Cuauhtemoc (brewery) group and the
Vidriera (glass) group. While both sides of the family (descendents of Isaac
Garza of Francisco Sada) continued to hold shares within each group,
management of the Cuauhtemoc enterprises was largely the responsibility of
the Garza Sada family, particularly Eugenio Garza Sada and Roberto Garza
Sada (sons of Isaac Garza), while their cousins, the Sada brothers, Roberto G.
Sada and Andres G. Sada (sons of Francisco Sada), were in charge of the Vi-
driera group (Archivo MGM, Memo 21 September 1959, #105, Cuauhtemoc).
Until this time, the principal firms of both groups (Cerveceria Cuautemoc and
Vidriera Monterrey) had also constituted holding companies for other firms
of their groups. But this arrangement entailed certain problems. First, the
extent and expansion of family control was highly visible, exposing the firms
to accusations of concentration and monopoly. Second, problems of the
central firm in each group tended to spread to other firms. In the case of the
Cuauhtemoc group, the Garza Sada family had attempted with little success
to form a cartel with the two other major breweries of the country to
maintain price levels; it was now engaged in negotiations - also ultimately
unsuccessful to purchase the Moctezuma brewery, the second largest in
-
Mexico, which would have given it control over 70 percent of the beer
produced in the country. There was concern that the problems of the brewery
industry would have repercussions on the other firms of the group. At the
same time, Vidriera Monterrey had been the nucleus of an intensive labor
conflict (which had resulted in a one-day lockout by Monterrey businessmen
and a confrontation between them and President Cardenas in 1936). Its
owners were anxious to prevent labor militance from spreading to other firms
of this group (Gomez Morin, 1935b and 1935c; Good, 1972: 20-21). These
factors led to a reorganization of ownership structure by both groups.
With the Cuauhtemoc group reorganization, former departments of the
brewery and of FAMOSA - including the former packaging department -
became autonomous companies, and Valores Industriales (VISA) was created
as a holding company to hold the majority of shares of the firms formerly
held by Cuauhtemoc. VISA, in turn, was controlled by the group of
Cuauhtemoc shareholders and had the function of maintaining unified
direction of &dquo;autonomous&dquo; firms. &dquo;External&dquo; elements not directly linked with
the group would not participate in VISA but would simply continue to hold
shares of the individual companies (G6mez Morin, 1935a, 1936a). In 1938, two
years after the reorganization, the VISA group consisted of twelve companies,
including VISA itself, the holding company; FAMOSA; four breweries; a malt
company; a packaging company; a technical services firm; a distribution firm;
and two financial agencies (Cerveceria Cuauhtemoc, 1938).
Lohn Amencm Perspectives Issue 35, Fall 1982, Vol IX, No 4

46
The plan for the reorganization of the Vidriera group called for the
existing Vidriera Monterrey to become a holding company - Fomento de
Industria y Comercio (FIC) and its assets and name to be taken over by a
-
new organization. The holdings of FIC included the new Vidriera Monterrey,
Vidriera Mexico, and Vidrio Plano, another new company which began
operations in May 1936 to manufacture plate glass, with Andres G. Sada as
general manager (Sada, 1935). In August of that year, Cristaleria was
established as part of the Vidriera group to manufacture crystal.
The Garza Sada groups also began to expand their financial network. In
1932, investors linked with the Cuauhtemoc brewery formed the Banco
Industrial de Monterrey to finance their operations (Contreras Mendez, 1976:
26). The Cia. General de Aceptaciones was established in 1936 as part of the
reorganization of the Cuauhtemoc group to facilitate financial transactions
among its various firms by enabling companies having surpluses to transfer
their balances to companies having deficits and to facilitate or guarantee
credit operations of the Cuauhtemoc firms with other financial institutions or
in the market (G6mez Morin, 1936b). Subsequently, Aceptaciones expanded
its activities to members of the Vidriera group. In 1939, in conjunction with
other Monterrey interests and a group of associates in Mexico City, they
formed the Union Financiera, another holding company, for the purpose of
broadening Monterrey’s financial network; within the next two years four
new companies were established under its control: a life insurance company
(Monterrey, Cia. de Seguros sobre la Vida, today one of the largest life
insurance companies in Mexico), a capitalization bank (Banco Capitalizador
de Monterrey), a mortgage bank (Credito Provincial Hipotecario) and a
construction company (Construcciones, S.A.). They also bought controlling
interest in other financial institutions.
Today, the Garza Sada interests comprise four major groups-the

brewery, glass, steel, and chemical groups, each with 20 to 30 firms (including
industries, banks, commercial outlets, mines, technical firms)-and several
minor groups. The steel group is vertically integrated, comprising enterprises
that mine iron ore, smelters, and steel processing firms. The glass group,
which controls most glass production in Mexico, manufactures its own
machinery. At least two of the groups have extensive foreign loans and,
especially in the case of the latter, foreign technical assistance; the chemical
group also has several joint ventures with U.S. and other foreign firms.
Management has now passed to the third generation, with the grandchildren
of the original founders holding key positions within the industrial firms,
banks, and holding companies.
The Banco de Londres y México: An Associated Group

In 1936 Manuel G6mez Morin, a Mexican lawyer and businessman, wrote
enthusiastically to a French banker about new systems of collaboration and
cooperation whichwere developing among Mexican business groups. G6mez
Morin wasvery much involved in these systems of collaboration, one of
which he himself helped to form through the Banco de Londres y Mexico
(hereafter referred to as the Banco de Londres). The Banco de Londres was

47
the oldest existing private bank in Mexico, having been established in the
1860s; by the end of the Porfiriato it had become linked with members of the
Barcelonnette group and a substantial proportion of its shares were controlled
by the French Banque de Paris. Following the revolution, its capital had been
reduced from 21.5 million pesos to 2.15 million. Furthermore it suffered a
severe internal crisis in 1934 when a shareholder sold a substantial number of
shares at one-third of their value, resulting in a massive withdrawal of
deposits, which would have resulted in bankruptcy had the Banco de Mexico
not intervened and, with the help of other government and private banks,
bought up shares on a temporary basis (Banco de Londres, 1964: 109-110, 114-
115).
In response to these crises and in an effort to secure Mexican control over
the bank, a group of shareholders was formed who jointly held a majority of
shares (Gomez Morin, 1933a and 1936b). Within this majority block, the Cia.
General de Aceptaciones held 28.09 percent and Enrique Sada Muguerza of
the Central Brewery held 1.87 percent, totalling just under 30 percent for the
Cuauhtemoc group. Other major shareholders included Maximino Michel of
the old Barcelonnette group, who was associated with the Puerto de Liverpool
(an important commercial house, established during the Porfiriato), and Angel
Urraza of Hulera Euzkadi, a major tire company in which B.F. Goodrich had
substantial interest. Following the insurance legislation of 1935, which had
resulted in the exodus of most foreign insurance companies, groups associat-
ed with the Banco de Londres joined with British insurance interests located
in Mexico to form a life insurance company, La Provincial, and an investment
bank, Sociedad Financiera Mexicana, or Sofimex, which became members of
the dominant shareholding group of the Banco de Londres (Woodrow 1936;
G6mez Morin, 1937). These groups were also involved in the unsuccessful
efforts of the Cuauhtemoc group to purchase the Moctezuma brewery as well
as more successful subsequent ventures, including the establishment of
Alcomex in association with Alcoa (Aluminum Company of America) in the
1950s. They also participated in the formation of the financial holding
company, Uni6n Financiera.
The relationship among interests associated through the Banco de
Londres network continued to be important at least for several decades. The
investment portfolio of the Puerto de Liverpool in 1952 included a significant
amount in mortgage obligations of companies associated with the Garza Sada
group. The major shareholders of Sofimex at the time of its founding in
1937-including the Williams family (associated with La Provincial), the
Puerto de Liverpool (M. Michel), the Urraza trust (Hulera Euzkadi) and the
Garza Sada interests (VISA)-continued to be important in the list of 1959
shareholders (Archivo MGM).
In contrast to the Garza Sada economic groups both predominantly -
controlled by a single investment group, the Banco de Londres group

constituted a looser confederation of different groups and interests associated
through the ownership of the dominant block of shares of the Banco de
Londres. No one group or institution had controlling interest in the others al-
though they were all related through stockholdings, joint investments, and
various financial transactions. This may have been one of the more dynamic
forms of cooperation during the postrevolutionary period when Mexico was
Lahn Amtncon Perspechves Issue 35, Fall 1982, Vol IX, No 4

48
suffering from capital shortage, in that it permitted a relatively stable

association of interests and groups over a period of time and at the same time
drew resources for new investments from different groups and institutions.6
This looser confederation resembled the association of interests in the Societe
Financiere and the Barcelonnette group, which as noted had been linked to
the Banco de Londres during the Porfiriato. Maximino Michel of the Puerto
de Liverpool constituted a link with the Barcelonnette group.
A third level of cooperation was the formation of syndicates by different
and less directly related groups to place securities issued by one of the
participating firms. Thus the Banco Nacional and other financial institutions
participated in a syndicate in 1937 to place mortgage securities issued by
Cerveceria Cuauhtemoc. Government banks, especially Nacional Financiera
(NAFIN) also participated in these issues, including an issue of securities for
Cerveceria Central during the 1930s. In 1946 NAFIN took 6.5 million pesos
worth of securities (of a total issue of 14 million) in mortgage bonds to finance
construction of a gas pipeline from the U.S.-Mexican border to meet the
growing fuel needs of Monterrey industries. The purpose of the syndicates
was to obtain financing for the formation or expansion of firms which was
beyond the resources of any one group, presumably again reflecting (at least
during this period) the shortage of available resources. The formation of
syndicates as well as the relationship within &dquo;associated groups&dquo; as that of
the Banco de Londres thus constituted a means of creating an informal capital
market among networks of individuals and institutions to provide financing
for firms within these networks.
Other Groups
Although the
two economic groups associated with the Garza Sada
investment group were undoubtedly among the most cohesive groups in
Mexico by the 1930s, other groups were also forming. The sugar companies,
bank, and other firms controlled by the Aaron Saenz family constitute a
major economic group today. During the 1930s, an investment bank and
insurance company were established which became part of the Banco
Nacional financial group. After 1940 the Banco Nacional and its associated fi-
nancial institutions contributed to the establishment of new industries, which
were often subsidiaries of U.S. companies.
Another example of a financial group which began to be formed in the

1930s was the BUDA group, named for the four bankers who comprised its
major members: Raui Bailleres, Salvador Ugarte, Mario Dominguez, and

Ernesto Amescua. These men established a number of financial institutions in
the wake of the banking and insurance legislation of the 1930s. The most im-
portant were the Banco de Comercio and the Credito Minero y Mercantil,
which subsequently became the financial nuclei of two contemporary groups.
The Banco de Comercio began modestly in 1932 with a capital of 500,000 pe-
sos (a little less than U.S. $150,000); by 1940, after several capital increases, its
capital was 10 million pesos. It expanded rapidly through the establishment

It
6 is clear that this form of collaboration still exists; for example, the Banco de Londres is
not
now part of
a financial group, Serfin, dominated by the Financiera Acceptaciones (the former
Cia. General de Aceptaciones); Serfin is in turn controlled by the brewery and steel groups of the
Garza-Sada family interests.

49
or purchase of affiliated banks in which the Banco de Comercio held

controlling interest (51 percent) and local capital the remaining 49 percent.
Within four years of its establishment, the Banco de Comercio was providing
dividends of 18-20 percent on invested capital (Banco de Comercio, 1942). In
the 1950s the bank came under the control of William Jenkins, the sugar
magnate, and his associate Manuel Espinosa Iglesias. Today it is one of the
two largest commercial banks of Mexico, the other being the Banco Nacional;
between them the financial institutions associated with these two banks
control approximately 45 percent of the private banking system in Mexico
(Gomez Urrutia, 1975: 645).
The Credito Minero became the nucleus of the second group, the Bailleres
group (sometimes referred to as the Cremi group). Bailleres was a Mexican
banker of French descent who had formerly been associated with Chase
Manhattan and Equitable Trust in Mexico City. In addition to its own
financial institutions, the Cremi group today includes several major industries
(among them the Moctezuma brewery, the second largest in Mexico) and
commercial firms, as well as mining companies.
What is the significance of these groups and associations? As indicated
above, the economic groups have constituted an important element in capital
concentration in Mexico. Most of the contemporary economic groups did not
develop until after the Second World War, and other factors - increasing
access to foreign capital and technology, state policies which directly or
indirectly facilitated capital concentration, and the development of more

sophisticated financial mechanisms to channel funds to specific groups or
industries - were important in this process. But the formation of the
Cuauhtemoc and Vidriera groups by the Garza Sada family as well as the be-
ginnings of other groups suggests that the process of group formation was al-
ready underway in the early postrevolutionary years. The looser association
of groups connected with the Banco de Londres or linked on a temporary ba-
sis through investment syndicates were perhaps more important during this
period and may have been necessary to concentrate sufficient investment
capital for investment in specific enterprises.
In contrast to policies and practices which expanded the private sector
through recruitment of government personnel, the role of the state in the
formation of groups was indirect. Of particular importance was the banking
legislation of 1932 and the insurance legislation of 1935 which required that fi-
nancial resources be invested in Mexico and resulted in the removal of
foreign competition, thus facilitating the formation of national financial
institutions. The government development bank, NAFIN, also placed securi-
ties of firms associated with the Cuauhtemoc group as well as other private
firms during this period. On the one hand, the channeling of private financial
resources to industry was limited during much of the early postrevolutionary
period; on the other, the ability of the incipient economic groups to form their
own financial institutions enabled them to take disproportionate advantage of
state policies aiming to channel banking resources to industry. At the same
time the informal capital markets constituted through &dquo;associated groups&dquo;
and syndicates may have constituted an additional element in the concentra-
tion of financial resources to the extent that these were focused on a narrow
range of firms, excluding those outside of these markets.
lahn American Perspectives Issue 35, Fall 1982, Vol IX, No 4

50
CONCLUSIONS
By 1940 elements which would influence the future direction of the
Mexican economy were already evident. First, despite various internal and
external constraints, the role of the state in capital formation had been firmly
established, including legislation to provide tax incentives and tariff protec-
tion to industry, provision of infrastructure, and regulation of money and
banking - functions common to the state role in accumulation in all
capitalist societies as well as the formation of institutions permitting more
-
direct state intervention in the economy. Among the most important of these
were the government financial institutions through which private industries
and banks as well as government investments were financed. The govern-
ment had also established commissions for electric power, hydraulic works,
irrigation, mining and petroleum, and (with the expropriation of foreign
owned petroleum companies in 1938 and their incorporation in Petroleos
Mexicanos -
PEMEX) had established the pattern of state control of basic

industries.
Second, measures to facilitate the development of the private sector and
to promote domestic capitalism had directly or indirectly fostered the
concentration of capital within the national bourgeoisie. Banking legislation,
government loans or investments in private banks, and the financing of
private enterprises by government banks tended to disproportionately benefit
a relatively privileged, if still weak, segment of the dominant class. This was
also the case with the promotion of specific industries, as indicated in support
for cartelization of the sugar industry and the formation of a special bank to
finance hotel construction in the interests of promoting tourism. Despite some
government efforts to aid small businesses and industries, especially in the
1930s, by 1940 a privileged group was emerging, based on ties with the state
(Saenz, the Banco Nacional), the formation of tightly controlled, integrated
groups (Garza Sada interests), the establishment of financial institutions
(BUDA), the institution of informal capital markets (the Banco de Londres
group), and the formation of investment syndicates.
Third, the links between the state and the private sector were reinforced
during this period. A significant element in the emergence of a dominant class
segment was the process of &dquo;recruitment&dquo; from the state to the private
sector -
a process demonstrated in the career of Aar6n Saenz. Another
important element of this relationship was banking and finance. Private and
government financial officials were brought together by the reconstruction of
the banking system as well as investment by government banks in private fi-
nancial institutions, private bank investments (generally obligatory and/or
limited) in government banks, and consequent interlocking directorates. Top
officials in the state banking system often found positions in private banking
upon retirement from government, as did Eduardo Suarez and Luis Montes de
Oca.
Fourth, during this period both private groups and government officials
looked to foreign capital and technology as a means of accelerating Mexico’s
development. While the predominance of multinational corporations in
strategic sectors of Mexican industry has become evident only in recent
decades, even in the early postrevolutionary period some U.S. manufacturing
companies opened subsidiaries or (as in the case of B.F. Goodrich) undertook

51
joint investments with Mexican capital. And with the postwar expansion of
U.S. industry on the one hand, and the growth of the tariff-protected Mexican
market as well as Mexico’s increased political and economic stability (due
largely to state intervention) on the other, U.S. capital, and eventually that of
other countries, was increasingly attracted to Mexico. Already in the 1930s
negotiations were underway for investment projects combining foreign, state
and private national capital, a pattern which characterizes much of Mexican
investment today.
Thus while the strengthening of the state’s role in the economy apparent-
ly established conditions for state-directed autonomous development in
postrevolutionary Mexico, other trends identified during this period had the
opposite effect. The incipient emergence of a dominant fraction within the
national capitalist class, the development of various linkages between this
fraction and sectors within the state, and the encouragement given to foreign
capital, particularly in manufacturing, were trends which eventually contrib-
uted to capital concentration and the integration of the state in a development
project which disproportionately benefits dominant fractions of foreign and
domestic capital.
The emergence of these trends is not a sufficient explanation for Mexico’s
model of development: it does not take into account the struggles of
subordinate classes; nor the fact that the above-mentioned patterns were
strengthened while other, including contradictory, tendencies were weakened
in the post-1940 period. What the above analysis does show is that the
development of the national bourgeoisie in the immediate postrevolutionary
period and the state’s role in this process must be taken into account for an
understanding of class relations and productive structures characteristic of
Mexico today.
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The State and The National Bourgeoisie

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The State and The National Bourgeoisie

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Latin American Perspectives

The State and the National Bourgeoisie in Postrevolutionary Mexico: 1920-1940

The online version of this article can be found at:

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>> Version of Record - Oct 1, 1982

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Studies of the private sector of contemporary Mexico generally go back

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conspicuous role in the process of capital accumulation and the indirect or

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accomplished. In the subsequent administration of General Lazaro Cardenas

THE STATE AND ECONOMIC RECONSTRUCTION

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active state role in the promotion and direction of economic development

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The State and Private Finance:

private bankers cooperated in the establishment of the Asociaci6n de

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prerogatives enjoyed by private Porfirian banks, and the constitution of 1917

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decades-with the restoration of public confidence, skillful use of the central

provided 17 million pesos (out of a total of 19 million) to one thousand large

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efforts (ultimately unsuccessful) to secure foreign loans for the establishment

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THE STATE AND CLASS FORMATION:

As indicated above, the postrevolutionary Mexican state not only estab-

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valley (Ronfeldt, 1973: 9-10).

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ment. A more spectacular example is that of Abelardo Rodriguez, President

opportunities for the accumulation of wealth through racetracks and gambling

subsidies) enabling military and government officials to become &dquo;revolution-

THE PRIVATE SECTOR AND &dquo;GROUP&dquo; FORMATION

A widely recognized phenomenon in contemporary Mexico is the domi-

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undertaking commercial, financial, and real estate operations in Mexico.

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Today, the Garza Sada interests comprise four major groups-the

The Banco de Londres y México: An Associated Group

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controlled by a single investment group, the Banco de Londres group

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suffering from capital shortage, in that it permitted a relatively stable

Another example of a financial group which began to be formed in the

major members: Raui Bailleres, Salvador Ugarte, Mario Dominguez, and

capital was 10 million pesos. It expanded rapidly through the establishment

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or purchase of affiliated banks in which the Banco de Comercio held

indirectly facilitated capital concentration, and the development of more

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PEMEX) had established the pattern of state control of basic

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G&oacute;mez Urrutia, Napole&oacute;n

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Salazar, Roberto 1971

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