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Manufacturing profits and strategies in Argentine industrial development, 1904–1930

2007; Taylor & Francis; Volume: 49; Issue: 2 Linguagem: Inglês

10.1080/00076790601170322

1743-7938

Yovanna Pineda,

Argentine historical studies

Abstract This study focuses on the management strategies and profitability of 59 manufacturing companies across ten sectors in Argentina between 1904 and 1930. The manufacturers under study developed strategies best to control their environment. Common methods were diversification, self-financing, merging and political lobbying. The overall intent of these strategies was to protect their investment and better manage their companies by concentrating their sector and eliminating competition. Keywords: EntrepreneurshipArgentine ManufacturingCompany ProfitabilityLatin American Business HistoryIndustry and PoliticsManagement Strategies Acknowledgements I would like to thank William Summerhill and José Sánchez Román. Both were kind enough to read early versions of this paper and provide valuable comments. I would also like to thank the anonymous referees of Business History, and scholars at the Harvard Economic History workshop and Business History Conference for copious feedback. All errors are, of course, my own. Notes 1 Leff, “Industrial Organisation”; Granovetter, “Coase Revisited: Business Groups in the Modern Economy”; Carrera et al., “Business Groups and their Corporate Strategies.” 2 Carrera et al., “Business Groups,” 33–34. 3 For Argentina, see Socolow, Merchants of Buenos Aires, 1778–1810. 4 Miller, “Business History in Latin America: An Introduction,” 14. 5 Leff, “Industrial Organisation.” 6 Dean, The Industrialization of São Paulo, 1880–1945; Quiroz, “Financial Leadership and the Formation of Peruvian Elite Groups, 1884–1930”; Barbero, “Mercados.” 7 Barbero, “Mercados,” 123. 8 Leff, “Industrial Organisation”; Haber et al., The Politics of Property Rights, chapter on “Finance.” 9 Quiroz, “Financial Leadership,” 55. 10 Ibid., 56 11 The law classified violations as either ‘per se’ or contrary to the ‘rule of reason’. ‘Per se’ violations were defined as certain acts of conduct that were deemed patently anti-competitive. In contrast, the ‘rule of reason’ applied to certain practices whose anti-competitive effects were questionable. These were judged on a case by case basis, but ‘rule of reason’ was somewhat of a grey area and in ‘per se’ it was difficult to catch explicit agreements between two competitors. Argentine Law number 11,210, passed 28 Aug. 1923. 12 The ten activities are textiles, metallurgy, paper, matches, cement, glass, beer, tobacco, soap and candles, and burlap sacks. The Boletín oficial de la república Argentina (hereafter BORA) published balance sheets and income statements beginning in 1910. The Boletín oficial de la bolsa de comercio de Buenos Aires (hereafter BOBCBA) began publishing balance sheets and income statements in 1905. The number of annual balances in my possession varies from 3 to 27 years per company. The variation is partly due to companies going bankrupt after only a few years in business. 13 They contain data on physical and working capital, short and long-term debt, owner's equity, sales, costs, retained earnings, profit and loss. I estimate profits, debt-to-equity and liquidity to assess firms' performance between 1904 and 1930. 14 Haber, Industry and Underdevelopment. Also see Arnold, “Innovation, Deskilling, and Profitability in the British Machine-tools Industry,” and Levenstein, Accounting for Growth. 15 This author created this data set from the sources identified in this section. It is organized as a spreadsheet in a common computer program. 16 ‘Memorias del directorio’ or annual directors' reports were located in BOBCBA beginning in the 1910s. I also located ‘Memorias’, companies' histories and records in numerous non-serial publications beginning in 1898 at the Biblioteca Tornquist, Buenos Aires. Memorias were also published in Anuario Pillado (1898–1900), Anuario Kraft (1895–1930), and Monitor de sociedades anónimas (hereafter MSA) (1899–1930). 17 Overall GDP grew at an average annual rate of 5.2 per cent between 1875 and 1914. Cortés Conde, La economía argentina, 19. 18 Díaz Alejandro, Essays, 3. 19 See Cortés Conde, La economía argentina; Sturzenegger and Moya, “Economic Cycles”; O'Connell, “Argentina into the Depression”; Di Tella and Zymelman, Las etapas. 20 Sturzenegger and Moya, “Economic Cycles,” 87. 21 O'Connell, “Argentina into the Depression,” 165. 22 A small standard deviation indicates there is little fluctuation in the annual profit data. A large value indicates that the profit rates are diverse and are spread wide around the mean. 23 Groups like Devoto have received a myriad of names from different authors. Barbero, “Mercados.” 24 Foreign capital was also invested in large-scale industries. Important groups include Bunge and Born, British investors and Portalis/Bracht. Barbero, “Mercados”; Jones, “The State and Business Practice in Argentina, 1862–1914.” 25 Two companies had leading political figures on their board of directors: Benito Villanueva (Fosforera Argentina) and Carlos Pelligrini (a descendant of Carlos Pelligrini), at LaMetal/Thyssen. 26 Elaboración had existing mercantile ties with two lead mining companies in Spain: the G. A. Figueroa mining company and the Minera Metalúrgica de Peñarroya. Elaboración General del Plomo, Directors' Report (1916); and BOBCBA, Elaboración General del Plomo, Directors' Reports (1924–1928). 27 Before 1900, this company had financial relationships with British investors, the Baring Brothers and J. P. Morgan. Biblioteca Tornquist, Guía descriptiva de las industrias. Buenos Aires, 1895. 28 Fábrica Argentina de Alpargatas, Company Report, MSA Vol. 31 (1921), 122. 29 “El auge de importaciones de posguerra.”Boletín de la Unión Industrial Argentina (hereafter BUIA) no. 664 (15 April 1924). 30 Falcoff, “Economic Dependency in a Conservative Mirror,” 64. 31 Díaz Alejandro, “The Argentine Tariff, 1906–40,” 84. 32 Ibid., 86–88. 33 Rocchi, Chimneys in the Desert, 204. 34 The Argentine tariff is a valuation tariff and not based on the actual value of the items imported. Frank Rutter, Department of Commerce, Tariff Systems of South American Countries, Tariff series no. 34. Washington, DC: Government Printing Office, 1916, 1–62: 47–50, 55. Also see custom and tariff laws: Law 2766 of 1891; Law 2923 of 1892; Law 3050 of 1894; Law 3672 of 1898; Law 3890 of 1900; Law 4933 of 20 Dec. 1905; Law 10,220 of 1917; Law 10,362 of 1918; Law 11,022 of 1920; Law 11,281 of 6 Dec. 1923, in effect 1924. 35 Another attribute complicating tariff duties was that there was a ‘tariff rate escalation from raw to finished goods’ between 1909 and 1927. Berlinski, “International Trade,” 203 and 207. 36 Díaz Alejandro, “The Argentine Tariff, 1906–1940,” 76. 37 See Dorfman Historia de la industria argentina, and Ferrer, La economía argentina. 38 Cornblit, “Inmigrantes y empresarios”; Schvarzer, Empresarios del pasado, 31–32. 39 Solberg, “The Tariff and Politics in Argentina,” 260. 40 Lewis, “Immigrant Entrepreneurs,” 83. 41 Ibid., 99–100. 42 Coatsworth and Williamson, “Always Protectionist?,” 205–232. 43 Hora, “Terratenientes, empresarios industriales,” 470–471. 44 Scobie, Revolution on the Pampas, 96. 45 Ibid. 46 Primitiva and Salinas, Balance Sheets, BOBCBA (1913). 47 Primitiva, Balance Sheets, BOBCBA (1918–1919). Moya and Sturzenegger calculated a GDP growth rate of 13.3 per cent in 1918. Sturzenegger and Moya, “Economic Cycles,” 97. 48 Between 1890 and 1925, Primitiva was reported to have paid 637 per cent in dividends, averaging 18.2 per cent per annum. T. R. Ainscough, “Growing Money in Argentina: A Concise Guide to Capital Investment for All Classes,”Review of the River Plate (hereafter RRP) 66 (15 June 1928), 19. 49 Profit rates estimated for Compañía de Productos Conen by the author. 50 Compañía de Productos Conen, Stockholder's Meeting, MSA 21 (27 April 1916), 95. 51 Díaz Alejandro, “The Argentine Tariff, 1906–1940,” 90. 52 Nearly all machinery, fuel, and replacement parts were imported from Great Britain, the United States, Germany and France. It is possible to obtain an approximate value of machine investment in Argentina by following exports of machines from these four countries to Argentina. Data for the United Kingdom and United States trade series came from the serial publications Annual Statement of the Trade of the United Kingdom with Commonwealth Countries (1894–1930) and The Foreign Commerce and Navigation of the United States (1890–1930). Data for Germany and France came from Statistik des Deutschen Reichs, 1890–1929, and the French trade series Tableau general du commerce et navigation, 1890–1928. All data values were converted to nominal British pounds, then into real pounds using a capital goods price index for plant and machinery from 1890 to 1930. The index came from Feinstein, Statistical Tables, T136–T138. 53 This author, unpublished manuscript, chapter 3, “Argentine Investment in Imported Manufacturing Machinery.” 54 Oligopoly tendencies were common among other groups in Latin America as well. Quiroz, “Financial Leadership,” 59–60. 55 Haber, Industry and Underdevelopment. 56 Several organizations estimated the population size based on city censuses, population density, and immigration statistics between censuses of 1914 and 1935. Bunge, Población total de la Argentina. Also see Anon. “Argentina's Population.”RRP 67 (5 July 1929), 51. 57 Argentina, Anuario de la Dirección General de Estadística (Buenos Aires: Compañía Sud-americana de Billetes de Banco, 1892–1914); [here after as] Argentina, Dirección General de Estadística y Censos, Anuario del comercio exterior de la República Argentina (Buenos Aires: Dirección General de Estadística de la Nación), 1915–1930. 58 Biblioteca Tornquist, Honorio Pueyrredón, Ministry of Agriculture, “La industria cervecera,” Letter, Buenos Aires, 15 May 1917. 59 Cervecería Palermo, Argentine Yearbook (1903), 448; Balance Sheet, 30 June 1902; Stockholders' Meeting, MSA (1918), 134. 60 Cantábrica, Memoria del directorio, BOBCBA (10 Oct. 1927), 838–839. 61 Solberg, Oil and Nationalism. 62 Unión Industrial Argentina, “Memorial Advocating Tariff Reform Addressed to President Irigoyen,”RRP 67 (1 March 1929), 13. 63 Biblioteca Nacional, H. Foster Bain, C. E. Williams and E. B. Swanson, Las posibilidades de la manufactura de hierro y acero en la Argentina (Buenos Aires, 1925). 64 Bain et al., Las posibilidades, 33–34. 65 Solberg, Oil and Nationalism. 66 Archivo general de la Nación de Argentina, “La Unión Sociedad Anónima Cooperativa de Fósforos limitada,” Manuscript, Departamento comerciales tribunales, 1906–1912, Buenos Aires, Argentina (hereafter AGN, Unión Fósforos). 67 James, Used Machinery and Economic Development. 68 Barbero, “Mercados.” 69 Miller, “Business History in Latin America: An Introduction,” 13. 70 These estimates were based on a cross-section of companies between 1921 and 1923. These companies were: Compañía General de Fósforos, Cristalerías Rigolleau, Fosforera Argentina, Compañía General de Envases, Cristalerías Papini, El Eje, Ferrum, Cervecería Río Segundo, Cervecería Palermo, Introductora, Piccardo Tabacos, Elaboración General del Plomo, and Campomar y Soulas. Some companies offered large dividends of up to 40 per cent. Monthly data reported in “Crónica de asambleas,”MSA (1921–1923). 71 Economist, 1900–1930 for government bond yields. Bank data came from the following banks: Banco Escolar Argentina, Banco el Hogar Propio, Banco Popular Argentino, Banco de Italia y Río de la Plata, Nuevo Banco Italiano, Banco de Galicia y Buenos Aires. Monthly data reported in “Crónica de asambleas,”MSA (1921–1923). 72 Guidelines recommended 5 per cent to a reserve fund, 10 per cent to contingent liability fund, 10 per cent to the directorial board, 2 per cent to the auditors, and any remainder to be distributed to shareholders. Ministerio de Justicia, Inspección General de Justicia, Nueva fórmula obligatoria para balances de sociedades anónimas, nacionales y extranjeras. Decreto aprobatorio del Ministerio de Justicia e Instrucción Pública, “Edición especial del Monitor de sociedades anónimas y patentes de invención” (Buenos Aires, 1925). 73 The Argentine Commercial Code declared that a reserve fund shall be formed by at least two per cent of realized net profits each year until such fund amounted to a minimum of ten per cent of the capital stock of the company. Argentine Commercial Code, Article 369. 74 “Manuel Chueco versus Hilanderías Argentinas de Algodón, 1906,”MSA 7 (1909), 126–129. 75 Fosforera Argentina, Stockholders' Meeting, 27 Dec. 1909, MSA (1910). 76 Ibid. 77 Compañía General de Fósforos, Balance Sheets and Income Statements, BOBCBA (1918–1929). 78 I used paid-in capital as deposits since this is money that is deposited and paid for by the investors and cannot be quickly liquidated under normal circumstances. 79 Cristalerías Papini, Memoria del directorio, BOBCBA (15 April 1929), 854–855. 80 Cristalerías Papini, Memoria del directorio, BOBCBA (2 June 1930), 1496; Income Statement (1929); Memoria del directorio, BOBCBA (8 June 1931), 706. 81 Cristalerías Papini (2 June 1930), 1496; ibid. (8 June 1931), 706. 82 AGN, Unión Fósforos. 83 Archivo del Instituto Ravignani, Universidad de Buenos Aires, “Memoria y balance general, Cervecería Palermo, 30 de Junio de 1900,” Box 17, Buenos Aires, Argentina. 84 Bieckert was primarily owned by British investors, and Quilmes stock was listed on the Parisian stock exchange. 85 Cervecería Buenos Aires, Stockholders' Meeting, MSA 8 (1909), 264–265. 86 Cerveza, MSA 22 (1916), 69. 87 “Annual General Meeting of Shareholders of the Bieckert Brewery Company,”RRP (19 Nov. 1920), 1363. 88 Rava, “Historia y estado actual de la industria del papel en la Argentina.” 89 Papelera Argentina, Memoria del directorio, BOBCBA (31 Oct. 1927), 1005. 90 Ibid. 91 Papelera Argentina, Memoria del directorio, BOBCBA (31 Oct. 1927), 1005–1006. 92 Ibid., 11 Nov. 1929), 1371. 93 “Derechos al papel,”Diario de sesiones de la Cámara de diputados, Sesiones extraordinarias 7 (13 Jan. 1915), 437–444; “Derechos de importación de papel, Proyecto de Ley,”Diario de sesiones de la Cámara de Diputados, Sesiones ordinarias 2 (5 Sept. 1916), 1779–1781. 94 Source for import duties, see note 58. 95 Schvarzer, Empresarios del Pasado, 43. 96 Rocchi, Chimneys in the Desert, 205. 97 UIA, Texto del memorial, 1–62. 98 Padilla, La Unión Industrial Argentina, 1–20; UIA, Texto del memorial, 6. 99 Bulmer-Thomas, The Economic History of Latin America, 98. 100 Regalsky, “Banking, Trade and the Rise of Capitalism,” 370–375; Adelman, “Agricultural Credit,” 73–74. 101 Hanley, Native Capital, 21. 102 “El crédito industrial,”BUIA 33, No. 620 (15 Aug. 1920), 5. 103 Leff, “Industrial Organization,” 671. 104 Ibid., 670–671. 105 Fábrica Argentina de Alpargatas, Directorial report, BOBCBA (1929). 106 Ibid. (7 April 1930), 919. 107 Leff, “‘Monopoly Capitalism’ and Public Policy,” 7. 108 Haber, “Political Economy of Industrialization.” 109 The number of annual balances in my possession varies from 3 to 27 years' worth per company. The variation is in part due to some companies going bankrupt after only a few years in business. I have less than five years of financial statements for three companies. These three companies are the cement manufacturer Cemento Argentina, the match firm Unión Fósforos Cooperativa, and the metallurgy company Unión Herradores. I included these companies because part of the goal of this article is to compare the performance of both failed and successful companies. 110 Decreto aprobatorio del Ministerio de Justicia e Instrucción Pública, “Edición especial del Monitor de sociedades anónimas y patentes de invención” (Buenos Aires: Imprenta y casa editora ‘Coni’, 1925), pp.7–9; Mueller, Accounting Practices in Argentina. 111 Also published in Boletín oficial de la bolsa de comercio de Buenos Aires, Anuario Pillado 1898–1900, Anuario Kraft 1895–1930, and Boletín oficial de la Bolsa de Comercio de Buenos Aires, 1899–1930. 112 If written off as debt, it was reported on the liabilities side of the accounting balance sheet. If written off as loss, it was reported on costs side of the income statement. 113 Equity is calculated as the sum of paid-in capital and reserves. Debts are current liabilities or short-term debt like accounts payable, notes payable, salaries, income and taxes payable, and long-term liabilities like bonds, mortgages and bank loans. 114 Technically, all firms have at least short-term debt, such as accounts payable, wages payable, etc. Additional informationNotes on contributorsYovanna Pineda Yovanna Pineda is Assistant Professor of Latin American history at St. Michael's College in Colchester, Vermont, USA.