Conclusion

None of the changes experienced by the Salvadoran economy during the second half of the century took place overnight. Events of great significance, like the opening of the Panama Railroad, gave clues to the economy, but the lack of resources slowed down growth. The importance of the opening of the Panama Railroad epitomizes two changes in the world economy that greatly affected El Salvador, but which were completely outside the sphere of influence of any Salvadoran individual or institution: (1) the transportation revolution and (2) the explosion of trade activity along the coast of the Pacific ocean. Conceivably this is a metaphor for one of the main characteristics of the modern Salvadoran economy, its helpless openness. When economists talk about the small-country hypothesis, countries unable to achieve any impact on international prices, the example of El Salvador comes to mind.

The incorporation of California to the territory of the United States

(to use a neutral description of the events), the Gold Rush, the increased trade of Chile and Peru, the opening of the Panama railroad, and the generalized use of steamboats in transcontinental navigation, all encouraged a competitive environment in the shipping industry which gave new signals to the Salvadoran economy. Although changes in transportation costs did not by themselves bring great growth, they made exports more profitable and helped to reorient the economy toward export activities that favored only a few.

When the American Civil War disrupted the activities of the textile industry El Salvador received a powerful lesson on the implications of a more open economy. Indigo prices went down, and it was necessary to learn how to produce cotton to compensate for some of the losses. This was only a temporary adjustment, however. A more permanent change in the Salvadoran economy was the shift from indigo to coffee. Again, changes in the shipping industry played an important role since they benefited coffee profits more than indigo profits. There was a strong incentive to increase exports, and within the exportables coffee received the strongest incentive.

There is no question about the importance of changes in the international markets, but this does not mean that the economic history of El Salvador is reduced to the study of those changes. The country had very specific characteristics that shaped its responses. First of all, it was a country where traditional agriculture had predominated for centuries and where few had the education necessary to function under the ever-changing environment of a very open economy demanding the learning of new agricultural technologies. Second, a government of indigo planters was delighted with the opportunity of expanding exports and did what it could to reinforce the trends. It subsidized the steamers of the Panama Railroad Company and improved the ports and the roads leading to them, encouraged coffee production, and rewarded it with land. Per-capita exports rose throughout the period but never reached the levels observed in other countries of Latin America. In 1880 Argentina, Uruguay, and Cuba, the most export-oriented countries in the region, "matched or exceeded the seventeen-dollar per-capita exports of the United States that year."^[80] El Salvador's per-capita exports that same year were around seven dollars. Even if the figure was relatively small, exports were the main source of income for a ruling elite that was eager for new sources of income.

Coffee cultivation had specific demands that rewarded capital (both human and physical) and entreprenurial talent; its triumph was also the triumph of the elite, the only group in Salvadoran society with the key to both factors of production. As long as other groups had access to land they could defend themselves; they had more bargaining power in the

labor market and could produce their own food. But the demands of the export crops soon put pressure on the land market. The country was very small, and the government ran out of terrenos baldíos to distribute. Moreover, coffee cultivation had very specific ecological needs that limited the amount of land that could be devoted to it and determined its geographical location. In the past, capital and entreprenurial talent had been the scarcest factors of production and they were duly remunerated; in the 1870s land, mainly land suited for coffee production, was becoming scarce. The pressures of the international market had introduced a new element in the economic picture and the country reacted accordingly: ejidos and communal lands were privatized. It was a political reaction to an economic stimulus. The early expansion of coffee went together with a strengthening of the coercive apparatus of the state, which gave the elite a greater flexibility to act. Instead of remunerating a scarce factor of production, the ruling elite chose to change the rules of the game.