The Great Depression
The Great Depression brought Mexico a sharp drop in national income and internal demand after 1929, challenging the country's ability to fulfill its constitutional mandate to promote social equity. Still, Mexico did not feel the effects of the Great Depression as directly as some other countries did.
In the early 1930s, manufacturing and other sectors serving the domestic economy began a slow recovery. The upturn was facilitated by several key structural reforms, notably the railroad nationalization of 1929 and 1930, the nationalization of the petroleum industry in 1938, and the acceleration of land reform, first under President Emilio Portes Gil (1928-30) and then under President Lázaro Cárdenas (1934-40) in the late 1930s. To foster industrial expansion, the administration of Manuel Ávila Camacho (1940-46) in 1941 reorganized the National Finance Bank (Nacional Financiera--Nafinsa), which had originally been created in 1934 as an investment bank.
During the 1930s, agricultural production also rose steadily, and urban employment expanded in response to rising domestic demand. The government offered tax incentives for production directed toward the home market. Import-substitution industrialization (see Glossary) began to make a slow advance during the 1930s, although it was not yet official government policy.
Postwar Economic Growth
Mexico's inward-looking development strategy produced sustained economic growth of 3 to 4 percent and modest 3 percent inflation annually from the 1940s until the late 1960s. The government fostered the development of consumer goods industries directed toward domestic markets by imposing high protective tariffs and other barriers to imports. The share of imports subject to licensing requirements rose from 28 percent in 1956 to an average of more than 60 percent during the 1960s and about 70 percent in the 1970s. Industry accounted for 22 percent of total output in 1950, 24 percent in 1960, and 29 percent in 1970. The share of total output arising from agriculture and other primary activities declined during the same period, while services stayed constant. The government promoted industrial expansion through public investment in agricultural, energy, and transportation infrastructure. Cities grew rapidly during these years, reflecting the shift of employment from agriculture to industry and services. The urban population increased at a high rate after 1940 (see Urban Society, ch. 2). Growth of the urban labor force exceeded even the growth rate of industrial employment, with surplus workers taking low-paying service jobs.
In the years following World War II, President Miguel Alemán Valdés's (1946-52) full-scale import-substitution program stimulated output by boosting internal demand. The government raised import controls on consumer goods but relaxed them on capital goods, which it purchased with international reserves accumulated during the war. The government progressively undervalued the peso to reduce the costs of imported capital goods and expand productive capacity, and it spent heavily on infrastructure. By 1950 Mexico's road network had expanded to 21,000 kilometers, of which some 13,600 were paved.
Mexico's strong economic performance continued into the 1960s, when GDP growth averaged about 7 percent overall and about 3 percent per capita. Consumer price inflation averaged only 3 percent annually. Manufacturing remained the country's dominant growth sector, expanding 7 percent annually and attracting considerable foreign investment. Mining grew at an annual rate of nearly 4 percent, trade at 6 percent, and agriculture at 3 percent. By 1970 Mexico had diversified its export base and become largely self-sufficient in food crops, steel, and most consumer goods. Although its imports remained high, most were capital goods used to expand domestic production.
Data as of June 1996