In the late 16th century Brazil was the world's leading producer of sugar. During the 18th century it was one of the world's centers of gold production. During both periods, Brazil was under the direct colonial rule of Portugal, which was intent on extracting the maximum value out of its holdings humanly possible.
An intriguing paper by Brazilian economists Joana Naritomi, Rodrigo R. Soares, and Juliano J. AssunC'C#o argues that the different structures of colonial rule that characterized the "century of sugar" and the Brazilian gold rush era had lasting influence on the strength (or, more accurately, weakness) of institutions and social inequities perceivable in present-day Brazil. (Thanks to Tyler Cowen at Marginal Revolution for the tip.)
Particularly, municipalities with origins linked to the socially polarized and oligarchic economy of the sugar-cane cycle are characterized today by higher concentration of land. Municipalities with origins connected to the gold cycle -- with its suffocating and over-bureaucratic and controlling state -- have today worse governance practices and less access to justice. In both the sugar-cane and gold episodes, the negative consequences of the colonial cycles are significantly worse the closer the municipalities are to Portugal, highlighting the negative influence of the interference of the metropolis, particularly when associated with rent-seeking activities.
The colonial influence on institutional strength in developing nations is a factor often ignored by Washington Consensus acolytes prescribing deregulation and privatization as the answers to all a country's ills. Previously, How the World Works examined the case of Botswana, where British indifference left local tribal institutions and power structures practically intact, allowing the lucky country to become, economically speaking, one of Africa's rare success stories (if one ignores the devastation wrought by AIDS.) But the opposite is usually true. The normal standard operating procedure was for the colonial powers to destroy whatever local institutions existed, or if, as in the case of Brazil, there was a relative paucity of preexisting complex structures, put into place new, and ultimately debilitating, power relationships that endure to this day.
A fluke of history gave the authors a rare natural experiment on which they could they could apply their analytical number-crunching abilities. Brazil's peak sugar and gold production periods were grounded specifically in time and place -- the vast sugar plantations were in the northeast, the gold rush took place in the center-south. But conveniently, present-day Brazil is characterized by what the authors call "macro-institutional" conformity, by which they mean that there is little difference in the high-level structure of how states and municipalities are governed, which allows for easy comparison of more subtle local variations.
So, first, the historical summary:
In the sugar-cane cycle, production technologies led to an extremely polarized society, with economic and political power concentrated in the hands of local leaders who suffered very little interference from any type of central power, and were subject to almost no constraint from external sources..
The social and political structures associated with the gold cycle were very different. Though slavery and inequality were common factors, the social structure was less rigid, and the distribution of endowments and political power across the civil population was more equal. But particularly striking was the presence of an over-controlling and bureaucratically suffocating central power. The desperate efforts of the Portuguese crown to monitor every single step of the production and trade of precious metals led to an overgrown and extremely inefficient government apparatus, involved in a constant struggle against civil society itself. Quite possibly, these were also associated with the ineffective functioning of the government in other areas, and with the development of a culture of detachment between population and state. Therefore, the implications of the gold cycle are likely to be related to the effectiveness of government and to the relation between local population and state power.
Then the conclusion, supported by scores of tables and regression analysis.
Areas associated with the sugar-cane cycle display higher concentration of land, which can be related to higher concentration of economic power in a historical perspective. This result can be thought of as a long-term consequence of the polarized society created by the plantation system, with its large rural properties and extensive use of slave labor. Areas historically associated with the gold cycle, on their turn, are particularly distinct today in terms of the poor quality of their governments. These areas are characterized by inefficient governments and lack of provision of access to justice. Again, both these dimensions can be understood as heritages from the oppressive and over-bureaucratic state apparatus created by the Portuguese crown during the mining period.
All of which leads one to wonder. Today, Brazil is still the largest world producer of sugar, although it has recently become more famous for the ethanol manufactured from its sugar cane, rather than the sugar itself. Two weeks ago, How the World Works discussed the theory that a new "Great Game" is emerging in which the rest of the world is rushing to Brazil to get a piece of the ethanol action. Which poses the question: What new long-term processes are being set in motion, institutionally speaking, as the powers that be rush to extract a new resource -- biofuels -- from the very same nations that once they ransacked for gold and sugar? Have we learned anything?