Slavery and Economic Development in Brazil

Roughly half of all the slaves who made the trans-Atlantic passage from Africa to the New World from the 1500s to the 1800s disembarked in Brazil, where slavery was not abolished until 1888. How did slavery affect the economic development of Brazil? Nuno Palma, Andrea Papadia, Thales Pereira, and Leonardo Weller discuss the evidence and research, with occasional contrasts to the US experience of slavery, in “Slavery and Development in Nineteenth Century Brazil” (Capitalism: A Journal of History and Economics, Summer 2021, 2:2, pp. 372-426, subscription or library access needed). They write:

Prior to abolition in 1888, slavery was a pronounced and pervasive feature of Brazil’s economy. More African captives arrived on Brazilian shores than anywhere else in the Americas. From the sixteenth to the nineteenth century, 4.9 million Africans landed in what was a Portuguese colony in the Americas until 1808, an independent joint kingdom with Portugal from 1808 to 1822, and then the Brazilian Empire from 1822 until
the Republic was proclaimed in 1889, the year after emancipation. The total number of
Africans transported to Brazil corresponds to 46 percent of all the enslaved arrivals in the New World and double the number who arrived in the whole of the British Caribbean.
In comparison, the slave trade to the United States was much smaller: only 388,746 slaves disembarked there …

The Brazilian slave trade started in the Northeast of the country during the 1560s. Africans were put to work in the first large-scale sugar plantations of the Americas, … Brazil’s Southeast caught up as a major destination for slaves in the eighteenth century,
during the gold rush in Minas Gerais and other regions. Most Africans entered that region through Rio de Janeiro, which became the largest slave port in the world … A large share of the captives who arrived during the nineteenth century were forced to work in the booming coffee sector, which began in the hinterland of Rio de Janeiro state and subsequently expanded across the plains of São Paulo. The coffee plantations in Rio depended more on slave labor than those in São Paulo, which also employed European migrants, especially
from the 1880s on. An inter-regional slave market grew following the end of the trade with Africa in 1850, after which enslaved people were moved in large numbers from the declining Northeast to the booming Southeast.

Slavery in Brazil was distinctive in a number of ways. For example, it was common for common for slaveowners to have a relatively small number of slaves, like 5-10, rather than slavery being solely focused on large plantations. In addition, slaves were often forced to work in domestic industries, not just in producing a good for export. The authors write of slavery in Brazil:

All sectors depended on slaves. They made up half the sailors in the domestic maritime industry and were also put to work in foreign trade, including in the slave trade itself. Slaves were the backbone of the jerk beef processing industry in the southern state of Rio Grande do Sul. They also worked in whale fishing and processing, mainly in Santa Catarina, Bahia, and Rio de Janeiro. In Minas Gerais, in which the largest slave population in the country was concentrated, most captives produced goods for domestic consumption, such as foods and textiles. … The human capital of slaves is well documented in Minas Gerais, where up
to 30 percent of the captives who worked in construction and textile manufacturing
were specialized laborers such as carpenters or overseers.

In comparing Brazilian slavery in the 19th century to US slavery, one central difference is that even after the United States banned the importation of slaves in 1808, the US slave population increased substantially in the following decades, because the children of slaves were born into slavery themselves. Conversely, Brazil’s slave population decreased during the 19th century. One difference was that the possibilities for slaves to become free were higher in certain areas of Brazil.

Additionally, the [Brazilian] slave population shrank because many were able to gain freedom. Some did so through self-purchase or government programs designed to buy people out of slavery in the decades that preceded emancipation; furthermore, children of free men and slaves were not automatically free but had a good chance of becoming so. As a result, most Brazilians were free but not white: according to the 1872 census, 4.2 million non-white free
people, 1.5 million slaves, and 3.8 million whites lived in the country.

Not only was slavery more prevalent in Brazil than in the United States; it was also a more fluid institution that allowed the enslaved to gain freedom on a larger scale. However, though they were free, former slaves were still at the bottom of society, suffering from persecution and racism. As in the US South, landowners and other local oligarchs actively limited
the outside options of former slaves in order to keep extracting cheap labor from them, often through the use of vagrancy laws. Additionally, poor whites saw free Afro-Brazilians
as competitors for jobs, and elites pushed for racial whitening through immigration from Europe. Often, former slaves performed the same jobs that slaves did, with the benefit of some mobility across the country and without the obligation to pay rents to their masters.

In an American context, one sometimes hears claims that US economic growth of the 19th century was fundamentally based on slavery, and in particular on the interrelationship between slavery and cotton production. Most US economic historians are unpersuaded by these claims. But if the combination of slavery and cotton production was so fundamental to development of the US economy, why didn’t it do more to help 19th-century economic development in Brazil?

As the authors discuss, large-scale cotton production and cotton exports to Great Britain were already firmly established in the late 1700s–well before cotton became a staple crop of the American South. The story of cotton market in the early 19th century is more complex than I can address. But around 1820, Brazil was the one global cotton producer whose exports stagnated, while cotton exports from the US, Egypt, and countries of South Asia increased substantially. One reason seemed to be that Brazil has been growing “long-staple” cotton, and producers of that kind of cotton enlisted Brazil’s government to block increased production of the “short-staple” cotton that became preferred over time. The authors write:

Either way, slavery certainly did not turn Brazil into an industrial power like the United States. Although Brazil does not represent the ideal control for assessing a counterfactual for a more industrialized state like the United States, we can draw some conclusions regarding the impact of slavery on industrialization from the Brazilian experience. After all, if slavery affected the trajectory of capitalism and growth, as the new history of capitalism claims, we should be able to detect these mechanisms in the country that imported most slaves.

Instead, as the authors discuss at some length, Brazilian cotton farms that depended on slave labor competed with farms that relied on free labor. The Brazilian coffee industry did not grow to global prominence in the 1880s and 1890s until the period in which slavery was diminishing, and when most of the coffee plantation workers were recent European immigrants rather than slaves.

In general, the regions of Brazil where slavery was greatest were slowest to mature economically, as was also true in the United States. The presence of slavery tended to discourage free labor–which after all, preferred not to find itself competing with slave labor. Areas of Brazil with more slavery also tended to a lower investment in education and human capital. The authors write:

[T]he abolition of slavery allowed municipalities to exploit their potential to become manufacturing centers. … This result also highlights the presence of potential distortions in the Brazilian economy brought about by slavery: locations with high potential for industrialization, as evidenced by post-abolition developments, were actually disadvantaged earlier on due to a continued focus on cash crops fueled by the prevalence of slave-based production. If we consider the fact that slavery discouraged free migrants from settling, slavery might have also been harmful through this additional indirect channel. …

There is no evidence that slavery benefited the societies that relied largely on it. Not only is slavery abhorrent from a modern normative perspective, but it also mostly had negative development consequences: while slave-owners and a few narrow sectors profited from it, overall society lost out. … The case of Brazil lends credibility to the view that slavery benefited a small elite but delayed overall economic development in the societies where it existed, as has been argued for the US South.

World Wealth: Human, Physical, and Natural

The wealth of a society is so much more than the value of houses, or the stock market, or retirement accounts. Wealth broadly understood should also include endowments of nature, ranging from wilderness to oil wells, as well as the human capital embodied in the education and skills of its people. Every few years, the World Bank takes on the task of measuring the world’s wealth in these broader ways. The most recent set of estimates appear in The Changing Wealth of Nations 2021 : Managing Assets for the Future.

Just to be clear, wealth represents an accumulation over time. This is different from GDP, which is the amount produced in a given year. Thus, world GDP in 2018 was about $86 trillion, but world wealth as estimated in this report was 13 times bigger at $1,152 trillion. Here are some estimates from “Chapter 3: Global and Regional Trends in
Wealth, 1995–2018,” by Glenn-Marie Lange, Diego Herrera, and Esther Naikal.

Here is how wealth was distributed around the world between countries of different income levels (I have left out some intermediate years in the table):

High-income countries like the US have about four times the per capita wealth of upper-middle income countries like Brazil, China, and India; about eight times the per capita wealth of lower middle-income countries like Nigeria, Indonesia, and Egypt; and 18 times the per capita wealth of lower-income countries like Uganda, Syria, and Ethiopia.

Again, the wealth being discussed here is not just financial or in the form of machinery and buildings, but includes the value embodied in natural and human resources.

However, countries with different income levels also tend to differ on the form of their wealth. The low-income countries in the top row have 23% of their wealth in the form of natural capital. The high-income non-OECD countries, who tend to be big oil producers and exporters, have almost one-third of their wealth in the form of nonrenewable natural capital. The high-income and upper-middle income countries (this second category driven largely by China) has about two-thirds of its wealth in human capital.

There are of course roughly a jillion ways to quarrel with these kinds of calculations: for those who wish to do so, I commend the detailed discussion of the World Bank volume and the underlying working papers to your attention. Here, I’ll just emphasize a few points.

  1. A nation’s wealth does not gain by using up nonrenewable natural resources. It’s like spending money from a savings account. Thus, a goal for countries rich in natural resources should be to make sure the renewable resources (say, forests) do actually get renewed, and to move the economy gradually away from depending on production of nonrenewable resources.
  2. For every group of countries, the wealth embodied in the education and skills (and health) of people is much more important than the wealth from produced capital–which includes everything physical from houses to business equipment. I sometimes think that from an economic point of view, pretty much everything cycles back to human capital sooner or later.
  3. In an important way, the wealth calculations here are likely to understate the wealth difference across countries, broadly understood. Economic production is heavily influenced by knowledge capital, by which I mean to include not just technology from research but all the ways in which private firms and public institutions support the functioning of an economy. These kinds of knowledge and institutional capital are probably just as important in considering a broad definition of wealth than “produced capital”–but much harder to estimate.

The Case for Putting a Lid on Downtown Freeways

Major freeways offer substantial economic benefits to an urban area or region. If you doubt it, try to name a major US economic center that is disconnected from the interstate highway system. But major freeways are not a win-win for everyone within an urban area. Often, they are a win for the suburban residential areas that have better connections to central downtown business districts, and for the central business districts that have access to a wider pool of workers. However, freeways often represent a loss for residential areas within cities. These areas already had fairly easy access to downtown, so they benefit little from the additional freeway access; indeed, the addition of freeways can make it harder for them to get downtown. Living beside a major highway is widely viewed as a negative. Moreover, major highways divide up and segment urban neighborhoods, in a way that makes walking, driving, or shopping more difficult, and in some cases will cut neighborhoods off from amenities like parks or access to waterfront.

Some cities are wondering if new construction projects might mitigate some of these costs. Boston’s “Big Dig” project, as one example, took the main highway running through downtown, buried it in a 1.5-mile long tunnel, and put a “greenway” through the city on top. In San Francisco, after the Loma Prieta earthquake in 1989 damaged the Embarcadaro freeway that had cut across the city, a decision was made to eliminate that freeway rather than rebuilding it. Dallas built a public park over the top of a freeway in 2012. In Atlanta, Philadelphia, and my own metro area of Minneapolis-St. Paul, there are speculative proposals about whether it might be worth putting a “lid” over a major freeway in a way that would reconnect neighborhoods and provide space for additional housing.

Jeffrey Brinkman and Jeffrey Lin of the Philadelphia Fed discuss the issues in “The Costs and Benefits of Fixing Downtown Freeways,” subtitled “Urban freeways spurred our suburban boom. Can burying them do the same for the urban core?” (Economic Insights, Winter 2022, 7:1, pp. 17-22). They write:

Using fine geographic data covering 1950 to 2010, we studied long-run changes in neighborhoods before and after the interstate highway system was built (Figure 1). We find that in the group of central- city neighborhoods closest to freeways, population declined by 32 percent, while in the group of central neighborhoods more than 2 miles from freeways, population actually grew by 56 percent.

To explore the potential costs and benefits of capping a stretch of freeway, Brinkman and Lin consider a large-scale project that would involve burying a 4.5-mile stretch of I-95, a major freeway that runs through downtown Philadelphia. As they point out, when I-95 was built 60 years ago, the area along the Delaware River was a declining industrial zone. Now, it would be possible to reshape that area into a waterfront park–if it wasn’t effectively cut off from much of the downtown by the freeway.

Of course, estimates of costs and benefits of this kind of project need to be taken with a dose of skepticism, but in rough numbers, it looks like this. The costs of these freeway-capping projects seem to vary from $300 million to $700 million per mile. Take a mid-range value of $500 million per mile, and capping the 4.5-mile stretch would cost $2.25 billion. Their simulations suggest that the project would dramatically increase population density and land values in the area: “The first result of the experiment is that population near the freeway increases drastically, with population densities of employed individuals in neighborhoods near the freeway increasing by as much as 2,840 people per square mile after the intervention. Overall, for neighborhoods within one mile of the freeway project, population increases by 7 percent in this scenario. Land prices in these same neighborhoods increase by 2.4 percent.” They estimate the total benefits at $3.5 billion.

There are of course all sorts of other issues here. Reasonable skeptics will note that if the costs of capping the freeway come in closer to $700 million per mile or above, the balance of gains over costs becomes much smaller. The results also turn on estimates of how much people would value the gain in amenities from living in neighborhoods not disrupted by a freeway and with easy access to a riverfront park. They write: “If we use values at the high end of existing estimates, the benefits of mitigation can increase by 100 percent, whereas low-parameter estimates can reduce the benefits by about 30 percent.” There’s also the practical question of who will pay for the project. The authors point out that since the benefits are concentrated in certain areas of Philadelphia, one can imagine that a substantial share of the costs would and should could be covered by a targeted property tax assessment.

It’s impossible to make some blanket statement about whether putting a lid over highways or burying them in tunnels will be worthwhile. But it’s not a crazy idea. In some cases, it may be well worth the costs–and a key to resuscitating urban neighborhoods have long suffered from their proximity to freeways.

What Do K-12 Schools Really Need?

What if US public schools were given a huge chunk of money that they could spend on pretty much whatever they wanted? What would they do? We are in the process of finding out. As Marguerite Roza and Katherine Silberstein discuss “A year ago, school districts got a windfall of pandemic aid. How’s that going?” (Brookings Institution, March 31, 2022). They begin: “T]his month marks one year since Congress approved the largest-ever one-time investment in public education: ESSER III, as it’s known, averaged $2,400 per student. This latest round of money left the federal treasury at warp speed, with $80 billion out the door in less than two weeks. From there, the aid went to state education agencies, where it sat. And sat. And nearly all of it still sits today.” 

A bit of background is probably useful here. ESSER stands for Elementary and Secondary School Emergency Relief (ESSER) Fund. The National Council on State Legislatures explains:

The Coronavirus Aid, Relief and Economic Security (CARES) Act, passed on March 27, 2020, provided $13.5 billion to the ESSER Fund. The Coronavirus Response and Relief Supplemental Appropriations Act, 2021 (CRRSA), passed on Dec. 27, 2020, provided $54.3 billion in supplemental ESSER funding, known as the ESSER II fund. The American Rescue Plan Act, passed on March 11, 2021, provided $122.7 billion in supplemental ESSER funding, known as the ESSER III fund.

There is a federal webpage that tracks not whether states have received the money (they have) or whether plans have been made to spend the money, but whether the money has actually been spent. There is a use-it-or-lose-it date of September 2024 for these funds, and Roza and Silberstein point out that at the current pace, the funds will not actually be spent. Of the funds that have been spent, how was the money used?

The law gives districts wide latitude and few restrictions, and thus choices are all over the map. One district awards sizable staff bonuses, another remodels a building, and another hires an army of counselors, nurses, and social workers. Some are launching tutoring efforts, while others are investing in professional development or refreshing their curriculum and technology. Atlanta added 30 minutes to the school day and Boston is running summer recovery courses for teens. Some are doing a bit of everything.

In many regions, the flurry of spending has triggered a corresponding flurry of hiring. Districts are competing for a limited labor pool, and using signing bonuses, retention pay, and other strategies to expand labor rolls to a new and higher level than ever before.

In contrast, some big, urban districts, including those in Minneapolis, Sacramento, San Francisco, and Los Angeles, are using funds to backfill budget gaps (some caused by pre-pandemic overspending or enrollment losses). Instead of launching new programs and hiring new staff, the funds are paying the salaries of staff who’ve been in these districts for years.

In the end, there simply is no “typical” spending profile.

It is perhaps worth noting that these ESSER funds are clearly not effective at providing a quick stimulus for the economy–they would have to be spent to do that. But K-12 schools do face an enormous challenge. The pandemic has left behind an enormous and nationwide pattern of “learning loss”–that is, students who have aged a couple of calendar years but have not gained the learning that would otherwise have been expected. Roza and Silberstein are blunt about the prospects that the ESSER funding will address the learning loss problem:

All told, this means we’re counting on leaders in thousands of districts to figure this out on the fly—and fast. And they’re expected to do so with no established data systems that could point the way. Some district investments will put student learning back on track and others won’t. Only in a few years will we have any indication of which districts did what and whether it worked. In that sense, the American Rescue Plan’s strategy might be best described as: fund and pray.

What should be done with the money? American K-12 school districts are wildly heterogenous, both across and within states, so it’s not easy to stay. Evidence from before the pandemic suggests that a combination of summer school and intense tutoring can help.

The Aspen Economic Strategy group recently published a book with eight essays appearing on Rebuilding the Post-Pandemic Economy (November 2021). Nora Gordon and Sarah Reber contribute an essay on “Addressing Inequities in the US K-12 Education System.” They provide an overview of the US K-12 education system, and offer a reminder that many students and schools were already facing substantial issues before the pandemic. I was struck by this figure showing cross-state differences in K-12 education. In particular, the middle column shows revenue per student across US states, while the final columns shows the differences in how states depend on local, state, and federal revenue.

They also point out:

Discussions of school funding equity—and considerable legal action—focus on inequality of funding across school districts within the same state. While people often assume districts serving disadvantaged students spend less per pupil than wealthier districts within a state, per-pupil spending and the child poverty rate are nearly always uncorrelated or positively correlated, with higher-poverty districts spending more on average. Typically, disadvantaged districts receive more state and federal funding, offsetting differences in funding from local sources.

They discuss evidence on a variety of possible K-12 school reforms, with an emphasis on the importance of the basics: high quality teachers and principals focused on a core curriculum. I was struck by this comment:

Quick fixes are few and far between, but improvements to school infrastructure stand out as low-hanging fruit. … Research shows that spending on capital improvements or to build new schools improves test scores and other outcomes (Jackson and Mackevicius 2021). Though the CDC notes there is no safe level of lead exposure for children, 37% of schools that test for lead reported elevated lead levels; fewer than half of districts even tested (GAO 2018b). Evidence that poor indoor air quality and exposure to lead and other toxins impedes learning and can have long-term effects is now conclusive (Aizer et al. 2018; Stafford 2015). Approximately one-third of schools require HVAC updates (GAO 2020). Studies also show that heat impacts learning adversely, especially when schools do not have air-conditioning (Park et al. 2020; Park, Behrer, and Goodman 2021). Schools serving low-income students and students of color are more likely to lack air conditioning conditional on other factors, and Park et al. (2020) estimate that heat accounts for 1 to 13% of U.S. racial achievement gaps. Installing air conditioning could plausibly help shrink achievement gaps.

America’s K-12 schools have an opportunity to show what they can do with a substantial infusion of public funds. The schools also face ongoing risks to their reputation and public support if they do not rise to the moment.

Interview with Arvind Subramanian: India’s Economy

Noah Smith serves as interlocutor in “Interview: Arvind Subramanian, former Chief Economic Advisor to the Government of India” (Noahopinion, April 1, 2022). The interview is subtitled “Everything you wanted to know about India’s economy,” and it makes a strong bid to fulfill that promise. I was of course very pleased that Subramanian refers to the papers published in the Winter 2020 issue of the Journal of Economic Perspectives (where I work as Managing Editor) in a “Symposium on the Economics of India”:

Here are some tidbits from Smith’s interview with Subramanian, but the interview itself goes into greater depth. I’ll start with Subramanian’s overview of India’s economic development in recent decades.

India had more than 3 decades of really rapid growth beginning, late 1970s-early 1980s. Per capita GDP growth averaged close to 4.5 percent and as I wrote in a JEP paper (co-authored with Rohit Lamba:, India’s dynamism was quite remarkable by cross-country standards. Poverty rates declined, access to goods and services increased sharply, public infrastructure improved. And dynamism was especially marked for close to a decade between 2003 and 2012 when India may have grown even faster than China. NPR had a even coined a catchphrase—“the world’s fastest growing, free-market democracy”—as its way of encapsulating the world’s admiration, even astonishment, as India seemed to vault effortlessly from a nation mired in poverty into a modern high-tech, car-owning middle-class society. China was the world’s factory but India was going to be its back-office. That was the expectation.

In the decade after the global financial crisis (GFC), especially after 2011, growth slowed considerably. Of course, there were exogenous factors as the world economy slowed down and globalization went into retreat. But India’s growth slowdown was sharper than for other countries, reflecting India-specific factors.  

Initially (2011-2014), it reflected macro-economic mismanagement, corruption and decision-making paralysis which led to the near-crisis of the 2013 Taper tantrum. Later (post-2014) it reflected the inability of the government and central bank to address India’s Twin Balance Sheet challenge: over-indebtedness of corporates and the counterpart rising NPAs in the banking system which had financed much of the infrastructure boom of the oughties. This was a classic Japan-style problem that India did not really solve (and truth be told, did not even really embrace as diagnosis). Private investment and credit growth have been virtually flat in the last decade. And export growth was weak too. … As India emerges from the pandemic, the big challenge is: how do you revive private investment and trade (the long-run engines of growth) and in a manner that creates jobs?

India has become internationally known as a supplier and competitor in information technology markets. However, an ongoing concern has been that this emphasis doesn’t do much to offer jobs for low-skilled workers, and thus is an unbalanced strategy for economic development. Here’s Subramanian:

Great strides have not just been made in physical but digital infrastructure. In 2015, I coined a term JAM which represented the coming together of financial inclusion (the J from the Hindi “Jan Dhan”), biometric identity (the A for “Aadhaar”) and telecommunications (the M for mobile). The government has used this trinity for a variety of purposes, including making direct cash transfers to the poor. In addition, a public-private partnership has created a digital, non-proprietary platform called the Unified Payment Interface (UPI) which is driving a lot of private dynamism and innovation in a number of sectors–finance, tourism, e-commerce, software solutions etc. I like to joke that India is creating unicorns roughly at the rate that it is creating chess grandmasters. While cause for cheer, this dynamism, based on skill- and technology-intensive factors of production, cannot drive structural transformation because that requires creating jobs for India’s vast, relatively less skilled labor force. And India’s job situation, especially after the pandemic, is sobering.

Which leads to your question about why India has not really managed to achieve scale in its manufacturing operations and why Indian capital is reticent in doing so. I suspect, although I am not sure, that there is again a lot of path-dependence here.  For a long time under the license Raj [a term for India’s heavy-handed economic regulations in the decades before the 1980s], domestic entrepreneurship was penalized. And there was a particular aversion to size, fearing the economic and political power that large firms could wield. … So, paradoxically, labour feels vulnerable to the power exercised by large firms but equally capital does not feel protected by the state either. So, we are in a bad equilibrium that favors small over big.    

How does the Russian invasion of Ukraine affect or offer opportunities for India?

The Russian invasion of Ukraine has, of course, thrown up new challenges.  One would expect the Indian government and business to scent significant opportunities here. One expects that responses (sanctions) to the Russian invasion will increasingly force investors to be more sensitive to the nature of political regimes where they operate, intensifying already-existing pressures to shift production out of Russia today and possibly China tomorrow. Similarly, access to foreign markets for goods exported from such regimes has also become more uncertain. 

Against this background, a democratic India should be, and see itself as, more attractive to the fleeing investors. Surprisingly though, there is growing concern that India itself might be targeted in the future for similar actions by the West. The argument is that if the US can act against Iran or Venezuela or Russia for geo-strategic reasons, pretexts can always be found for freezing Indian assets in the future or raising barriers to Indian goods and services. Talk has therefore begun about indigenizing payments systems to reduce reliance on the dollar-based system, diversifying foreign exchange reserves and negotiating barter trade agreements. 

Such costly deglobalizing actions would be in keeping with and even re-inforce the government’s inward turn. In the  last few years, India has raised tariff barriers, implemented selective industrial policy and stayed out of integration agreements, especially in dynamic Asia. Freer trade and more intensive economic engagement with the world now risk becoming serious casualties of recent developments. …

Since sanctions against Russia are raising concerns that India could be targeted in the future, the US must work toward convincing India that there is more opportunity than threat here, and that the US will help India become the hedge against the increasing unreliability of China and the Asian value chain. For example, Devesh Kapur suggests that the US could nudge/incentivize American firms to make India the next Taiwan in terms of chip/semi-conductor production capability. Of course, the Indian government will have to do its bit–quite a bit–to create the appropriate regulatory environment and assure investors that the playing field will be level.