Studies in Macroeconomic History Experiments in Financial Democracy: Corporate Governance and Financial Development in Brazil, 1882-1950

'Aldo Musacchio has drawn upon a sophisticated analysis of numerous archival sources and many firm records to provide an interesting history of Brazilian banking over the course of seven decades. This study is used to deal with important issues relating to legal and institutional factors influencing management structure and performance. Given our current discussions of the role of institutions on the desired form of bank behavior, this study has a much broader significance for understanding economic considerations in other parts of the world.' Stanley L. Engerman, University of Rochester 'Many scholars have theorized about the links between law and economics. In this marvellous book, Aldo Musacchio uses meticulous historical research to reveal how these links actually operated in practice. He shows how, in Brazil a century ago, corporate governance was ahead of national law when it came to offering protection to investors in both bonds and stocks. This monograph is a major contribution not just to the field of Brazilian history but to the much larger social science literature on institutions and economic growth.' Niall Ferguson, Harvard University and author of The House of Rothschild, The Cash Nexus, and The Ascent of Money 'This thought-provoking book convincingly demonstrates the value of historical case studies for our understanding of the processes of economic development. More than any work I know it shows how misleading inferences from cross-country growth regressions can be. Musacchio challenges in one fell swoop both the law-and-finance and the colonial-origins theories of economic development by showing that Brazil's economic problems have their roots in its response to the world wars and macroeconomic shocks of the twentieth century.' Naomi Lamoreaux, University of California, Los Angeles 'Aldo Musacchio has written an insightful study of Brazilian financial history. Disconcerting perhaps to a law professor, and to others who see legal institutions as primary and determinative, Musacchio shows that the ups and downs of finance in Brazil over nearly a century do not tie in nicely to legal change. Rather, he argues, they tie more closely to broad-based change in the economic demands on business enterprise, such as changes in cross-border capital flows or inflationary shocks. Moreover, within a single nation's legal system, the legal modes - from legislation to contract to regulation - change over time. Musacchio's book, although focused on Brazilian financial history, is not just for Brazilianists.' Mark J. Roe, Harvard Law School 'If you thought that the dismal state of corporate governance in Latin America is a direct product of its colonial or civil law heritage, Experiments in Financial Democracy will make you think again. Based on painstaking archival work, Aldo Musacchio demonstrates that in the late nineteenth century, investors in Brazilian corporations were better protected than they were in the late twentieth century. The law secured the claims of bondholders while many firms protected minority shareholders in their corporate charters. The work convincingly demonstrates that even poor countries can create and implement institutions favorable to capital markets. This optimistic historical finding is fully relevant to our troubled financial times.' Jean-Laurent Rosenthal, California Institute of Technology Aldo Musacchio has drawn upon a sophisticated analysis of numerous archival sources and many firm records to provide an interesting history of Brazilian banking over the course of seven decades. This study is used to deal with important issues relating to legal and institutional factors influencing management structure and performance. Given our current discussions of the role of institutions on the desired form of bank behavior, this study has a much broader significance for understanding economic considerations in other parts of the world. - Stanley L. Engerman, University of Rochester Many scholars have theorized about the links between law and economics. In this marvelous book, Aldo Musacchio uses meticulous historical research to reveal how these links actually operated in practice. He shows how, in Brazil a century ago, corporate governance was ahead of national law when it came to offering protection to investors in both bonds and stocks. This monograph is a major contribution not just to the field of Brazilian history but to the much larger social science literature on institutions and economic growth. - Niall Ferguson, Harvard University and author of The House of Rothschild, The Cash Nexus, and The Ascent of Money This thought-provoking book convincingly demonstrates the value of historical case studies for our understanding of the processes of economic development. More than any work I know it shows how misleading inferences from cross-country growth regressions can be. Musacchio challenges in one fell swoop both the law-and-finance and the colonial-origins theories of economic development by showing that Brazil's economic problems have their roots in its response to the world wars and macroeconomic shocks of the twentieth century. - Naomi Lamoreaux, University of California, Los Angeles Aldo Musacchio has written an insightful study of Brazilian financial history. Disconcerting perhaps to a law professor, and to others who see legal institutions as primary and determinative, Musacchio shows that the ups and downs of finance in Brazil over nearly a century do not tie in nicely to legal change. Rather, he argues, they tie more closely to broad-based change in the economic demands on business enterprise, such as changes in cross-border capital flows or inflationary shocks. Moreover, within a single nation's legal system, the legal modes - from legislation to contract to regulation - change over time. Musacchio's book, although focused on Brazilian financial history, is not just for Brazilianists. - Mark J. Roe, Harvard Law School If you thought that the dismal state of corporate governance in Latin America is a direct product of its colonial or civil law heritage, Experiments in Financial Democracy will make you think again. Based on painstaking archival work, Aldo Musacchio demonstrates that in the late nineteenth century, investors in Brazilian corporations were better protected than they were in the late twentieth century. The law secured the claims of bondholders while many firms protected minority shareholders in their corporate charters. The work convincingly demonstrates that even poor countries can create and implement institutions favorable to capital markets. This optimistic historical finding is fully relevant to our troubled financial times. - Jean-Laurent Rosenthal, California Institute of Technology This carefully and intelligently constructed book is the latest installment in detailed archival research by Brazilian economic historians that challenge conventional wisdom on the determinants of economic growth and development...With this book, Musacchio adds a rich new layer to our understanding of the forces behind both Brazilian dynamism and malaise. EH.net, Anne Hanley, Northern Illinois University