Peru

The Peruvian Andes have a dramatic commercial history—from self-contained pre-Columbian empire, to world center of Spanish imperial trade, to nineteenth-century dissolution and export booms and busts, and to chronic trade crises in the twentieth century. Peru is often typed as a classic "export economy," though not a very successful one.

By 1450 the entire Andean region (today's Peru, Bolivia, Ecuador, and beyond) was dominated by Tahuantinsuyo, today known as the Incan Empire. The Incas achieved a sophisticated material culture and remarkable feats of economic organization and integration. Exchange, however, was managed by the state or by local pacts of reciprocity, which sent highland products (e.g., potatoes, wool) for lowland ones such as maize and cotton. Redistributing political gifts, the Incas moved large amounts of goods (such as fine Alpaca textiles or tropical coca-leaf, a ritual stimulant) across a vast empire linked by imperial roads and warehouses. Few markets or merchants functioned here, largely in northern Quito, and trade contacts to the outer world (via balsa rafts or jungle missions) were intermittent. Tahuantinsuyo was immense but isolated.

The Spanish Conquest (1532), which was motivated by the zeal for precious metals, brutally incorporated this region into the West and into a Mediterranean commercial civilization. After a brief era of pillage and forced tribute that led to demographic losses and demolished Incan economies, the Andes was at the center of a rising world mercantile circuit. The discovery of unheard-of silver deposits in Potosí (in today's highland Bolivia) made the Viceroyalty of Peru by 1580 the world's dominant supplier of bullion. Output peaked around 1600 with 30 to 50 million pesos a year. Over the next century, Peru's silver financed Spain's empire and fueled Europe's continuing trade expansion with Asia. It was a highly regulated trade, based on forced drafts of Indian labor (mita), tightly controlled taxation of merchants (quintos–Royal Fifths), and limited shipping (the fleet and fair system). Political and extractive, it also stimulated interregional trade activities throughout the Andean region—inputs such as mercury from Huancavelica (for processing silver), textiles from Ecuador, leather from northern Argentina, and wheat, wine, and sugar from irrigated coastal plantations (often using imported African slave labor). Commercial opulence contributed to the rise of dynamic commercial class in Lima, and its port Callao, stratified in a guild-like consulado.

This silver empire decayed in the next century, with Spain's financial and military decline, the exhaustion of Potosí, and the mining boom in New Spain (Mexico). After 1750 Spain's Bourbon reforms adversely affected Peru with their stress on competitive new foreign trade ports (e.g., Buenos Aires on the southern Atlantic), new trading rules, reduced subsidies, and greater taxation. The commercial decline of Lima, however, has been overstated. Peruvian trade and finances diversified. New silver deposits were developed in central Peru and in northern Hualgayoc; plantations specialized in sugar, which was traded for Chilean wheat; and new exportable items were eagerly sought, including Amazonian "Peru bark," the source of antimalarial quinine.

Peruvian nationhood (1824) marked the breakup of the central Andes into three politically unstable states and the rise of a new commercial order overseen by Britain and featuring freer world trade. The early national period (1821–1845) was marred by internecine strive, "nationalist" (protective) trade policies, and the collapse of colonial export patterns. In 1845 Peru's "age of guano" began, dominating trade (and much else in Peru) until the 1870s. Guano is dried excrement of seabirds; it covers the islands off Peru's coast and was coveted after 1840 as a valuable fertilizer in Europe. Shoveled into waiting ships, the guano trade became one of history's largest commodity booms (11 million tons worth more than $750 million), and a state monopoly managed by contract European shippers and bankers, who were later paired off with a national merchant class. With free trade and easy foreign loans, Peru went on an import-buying spree during the 1850s and 1860s. Historians have long debated guano's ultimate benefits to Peru. Recent studies find that a high proportion of guano revenue was captured by the state, helping to stabilize it politically and to fund development projects such as costly railways up the Andes. However, the country was not ready for guano's exhaustion in the early 1870s; Peru was left debt-laden, then bankrupt. There had been little diversification, besides the revival of coastal plantations and the rush to exploit desert nitrates (another exportable fertilizer) in the far south. Chile's crushing defeat of Peru (1879–1881) in a war fought over nitrates capped Peru's catastrophic nineteenth century.

Peru's foreign debt, railways, and other resources were not reordered until the Grace Contract of 1889. The next era (1895–1929) saw the rebirth of Peru's export economy—it grew about 10 percent a year in the late 1890s—its diversification, and the first major roles for direct foreign investment, mainly in mining. New sectors arose: petroleum (in Lobitos field), industrial mining (copper and zinc in Cerro de Pasco), Andean wool exports, coastal cotton and sugar again, and even medicinal cocaine (a by-product of the coca leaf). Trade shifted towards the United States, the country's main trading partner by the 1920s. The benefits of commerce filtered through Peru in road building, new infrastructure, and migration, but the new wealth stayed largely in the hands of a liberal elite often decried as an aristocracy. Incipient industrialization began, but soon Peru's government reaffirmed outward-oriented growth and exchange policies. The Leguía regime of the 1920s faced unstable commodity prices and mounting foreign loans.

The Great Depression hit Peru hard because much of its "modern" state and society was built on an open and vigorous world economy. Exports earnings fell 68 percent between 1928 and 1932, and recovered slowly. Foreign investment and loans fell off. But in the postwar era, Peru returned to its liberal export regime, with a growing service, urban, and public sector. Export quantity tripled between 1945 and 1974, yet some observers note a creeping crisis of export constraint. Agriculture decayed and metal mining (dominated by multinationals) rose. A few dramatic commercial ventures took off—for example, fishmeal exports in the 1960s and state-promoted (Amazonian) petroleum in the 1970s—but both quickly repeated guano's boom-and-bust pattern. Peru's post-1968 Velasco military reformism attempted to address this faltering export dependence by nationalizing key industries such as oil and copper, and its agrarian reform disrupted long-time coastal pursuits such as sugar. Deeply indebted, by 1980 Peru (like much of Latin America) was bankrupt again and endured fifteen years of profound economic, social, and political crisis. A few new exports emerged, including, tellingly, the illicit cocaine bonanza in the Huallaga Valley (now displaced to Colombia), tourism (dampened by the faded guerrilla war of Sendero Luminoso), and, more recently, nontraditional items such as asparagus, cotton textiles and high-yield gold mining. Peru clings firmly to the post-1989 "neo-liberal" model of globalization, and despite occasional growth spurts, the record so far remains unstable, adding to the ongoing impoverishment of its people and the unpopularity of its governments.

SEE ALSO Argentina; Barcelona; Bullion (Specie); CÁdiz; Chile; Columbus, Christopher; Conquistadors; Empire, Spanish; Encomienda and Repartimiento; Gold and Silver; Imperialism; Import Substitution;Laborers, Aztec and Inca;Laborers, Coerced;Lisbon;Magellan, Ferdinand;Mercantilism;New Spain;Philippines;PotosÍ;Seville;Slavery and the African Slave Trade;Smuggling;Tobacco.

BIBLIOGRAPHY

Assoudurian, Carlos Sempat. El sistema de la economía colonial (The Economics of the Colonial System). Lima: Instituto de Estudios Peruanos, 1982.

Gootenberg, Paul. Between Silver and Guano: Commercial Policy and the State in Post-Independence Peru. Princeton, NJ: Princeton University Press, 1989.

Hunt, Shane J. "Growth and Guano in Nineteenth-Century Peru." The Latin American Economies: Growth and the Export Sector, 1830–1930, ed. Roberto Cortés-Conde and Shane Hunt. New York: Holmes and Meier, 1985.

Levin, Jonathan V. The Export Economies: Their Pattern of Development in Historical Perspective. Cambridge, MA: Harvard University Press, 1960.

Thorp, Rosemary, and Bertram, Geoffrey. Peru, 1890–1977: Growth and Policy in an Open Economy. London: Macmillan, 1978.

Paul Gootenberg