1 Basch, Antonin, El mercado de capital en México (México, D.F.: Centro de Estudios Monetarios Latinoamericanos, 1968), pp. 77–86 Google Scholar.

2 A self-contained process is one that takes a raw material and through a relatively simple procedure turns it into a finished product without the need for large inputs of supplies of a manufactured nature.

3 For a more complete discussion of the industrialization process, see Hagen, Everett E., The Economics of Development (Homewood, Illinois: Richard D. Irwin, Inc., 1968), chapter VGoogle Scholar.

4 Ibid., p. 103.

5 For a discussion of the sociological aspects of the family firm and its relationship to economic development, see Burton Benedict, “Family Firms and Economic Development,” Southwestern Journal of Anthropology, Spring 1968.

6 Benedict, in his study of family firms in East Africa, gives several illustrations of how family relationships can be used as a means of obtaining funds; see Benedict, , “Family Firms and Economic Development,” pp. 11–12 Google Scholar.

7 It has often been argued that the strong family ties are detrimental to development and that in those economies where the family firm is the predominant type of enterprise industrialization is hindered. The validity of this is certainly open to question. For one example of the argument that the family orientation of the Latin American culture works to slow down economic development, see Cochran, Thomas C., “Cultural Factors in Economic Growth,” The Journal of Economic History 20, no. 4 (December 1960): 515–530 CrossRefGoogle Scholar. For the opposite view of the effect of family-dominated enterprise, see Samir Khalap and Emilie Shwayri, “Family Firms and Industrial Development: The Lebanese Case,” Economic Development and Culture Change, October 1966, and Benedict, “Family Firms and Economic Development.“

8 Hagen, Everett E., “The Process of Economic Development,” Economic Development and Cultural Change 5, no. 3 (April 1957): 198 Google Scholar.

9 Ministerio de Economía, Inspección de Sociedades Mercantiles y Sindicatos, Registro de Sociendades, San Salvador, El Salvador.

10 For a more complete discussion and description of the structure of family ownership of business firms in El Salvador, see Aubey, Robert T., “Entrepreneurial Formation in El Salvador,” Explorations in Entrepreneurial History, vol. 6, no. 3 (Spring 1969)Google Scholar.

11 Parker, Franklin D., The Central American Republics (London: Oxford University Press, 1965), pp. 150–151 Google Scholar.

12 This is, of course, with the exception of Costa Rica, where the banks have been nationalized. There are also Central American branches of some large foreign banks such as the Banco de Londres y Montreal Ltdo. and the First National City Bank. However, even the foreign branches are often established as joint ventures with local interests such as the First National City Bank and Banco de Honduras.

In each of the Central American countries financieras (investment companies) have been established with the assistance of the Agency for International Development. These institutions have the primary purpose of promoting industries for the five countries. In each case the financieras were initiated with a sizable loan on very favorable terms from AID and are operated by local people who are generally the leading businessmen of the country.

13 Although this paper concentrates on Latin America, there is evidence that a somewhat similar development exists in other areas. Howard S. Ellis in his study of Greece noted the existence of groups that closely resemble the investment group in Latin America. See his Industrial Capital in Greek Development (Athens, Greece: Center of Economic Research, 1964), p. 197.

14 The transition from the family to the investment group, as described here, is not simply a one-step process. There is probably at least one (if not more) intermediate phase where individual investors get together on an informal basis for the purpose of financing various enterprises. These groups may include members of prominent first stage families but will be distinguished from the first stage in that they will include investors that are not related by family ties. It seems logical to assume that as the transition period progresses these nonfamilial groupings will tend to form more formal structures such as the investment groups.

15 It is, of course, possible that an individual family could establish a financiera to provide capital for a number of family enterprises and, thus, have the institutional appearance of an investment group. However, it would still be a family with all the shortcomings that are described as restrictive for the family.

16 Brandenburg, Frank R., “A Contribution to the Theory of Entrepreneurship of the Developing Areas: The Case of Mexico,” Inter-American Economic Affairs 16, no. 3 (Winter 1962): 3–23 Google Scholar. See also Brandenburg, , The Development of Latin American Private Enterprise (Washington, D. C.: National Planning Association, 1964)Google Scholar, The Making of Modern Mexico (Englewood Cliffs, New Jersey: Prentice-Hall, Inc., 1964), and Aubey, Robert T., Nacional Financiera and Mexican Industry (Los Angeles: UCLA, Latin American Center, 1966), pp. 74–78 Google Scholar.

17 Lagos, Richard, La concentración del poder económico: su teoría, realidad chilena (Santiago, Chile: Editorial del Pacífico, 1962), p. 165 Google Scholar.

18 Fillol, Tomás Roberto, Social Factors in Economic Development: The Argentine Case (Cambridge: M.I.T. Press, 1961)Google Scholar.

19 Aubey, , Nacional Financiera and Mexican Industry, p. 76 Google Scholar.

20 Brandenburg, , “A Contribution to the Theory of Entrepreneurship,” p. 22 Google Scholar.

21 Jameson, Manuel Gonzales, “La banca de deposito y la concentración bancaria en Mexico,” unpublished thesis (Universidad Nacional Autónoma de México, 1966), p. 86 Google Scholar. The six banks are Banco Nacional de México, Banco de Comercio, Banco Internacional, Banco Mexicano, Banco de Londres y México, and Banco Comercial Mexicano.

22 Ibid., p. 79.

23 There are, of course, exceptions to this. Brandenburg refers to the Banco de Comercio, Banco Comercial Mexicano, and Banco Nacional de México groups. However, the latter, Banco de México is frequently referred to as the Legorreta group since Luis G. and Agustín Legorreta are considered to be the dominant force in both the bank and its associated financiera, Crédito Bursátil, S. A. In contrast, the Carlos Trouyet, the Raúl Bailleres, and the Garza Sada groups are rarely, if ever, referred to in any other manner than by using the individual or family names. (But as noted later in this article, the manner in which these groups are referred to is changing to some degree.)

24 It is interesting to note that recently two banks in Mexico have referred to themselves publicly as groups. The first was the Banco Mexicano in an advertisement carried in the 16 August 1968 edition of Novedades, a Mexico City newspaper. The second was the Banco Nacional de México in a recent article published by the bank in which it not only referred to itself as a group and explained that it was closely related to several financial institutions, but went to the extent of declaring that the names of the related institutions had been changed to reflect this group concept. The past and present names of the related institutions are as follows:

“The Banamex Group Defines its Scope,” Review of the Economic Situation of Mexico, published by the Banco Nacional de México, vol. 45, nos. 519-520, p. 3.

25 Jr.Sloan, Alfred P., My Years with General Motors (New York: Mac-Fadden-Bartell Corporation, 1965).Google Scholar

28 Dougall, Herbert E., Capital Markets and Institutions (Englewood Cliffs, New Jersey: Prentice-Hall, Inc., 1965), p. 8 Google Scholar.

27 Ibid., p. 5.

28 The hypothesis that the third stage of the evolution of capital mobilizing units will be as described in this paper is based on three factors: (1) the experience of the developed countries, (2) the present structure of financial institutions in Latin America, and (3) the existence of efforts to promote security exchanges in Latin America. There is no reason, however, that some other method of linking the separate capital markets could not be developed and utilized. One method that could conceivably be used would be to establish relationships among the various investment groups through overlapping directorships. To be sure, there are some cases of overlapping directorships among groups now. For example, both Carlos Trouyet and Raul Bailleres are on the board of directors of the Banco Comercial Mexicano. How significant these present connections are in terms of providing for a flow of capital among the groups is impossible to determine. Nevertheless, even if some method were found for increasing the flow of capital among groups, there would still be a need for a mechanism such as security exchanges to provide an impersonal means (arm's-length transactions) of determining value and allocation.

29 In some countries there are several exchanges. Chile, Colombia, and Venezuela each have two; Mexico has three; there are four in Argentina and twenty-two in Brazil. In most of these countries, however, the vast majority of the transactions are effected through the exchanges located in the capital cities. Brazil is somewhat of an exception to this in that two exchanges, Rio and São Paulo, are important and together account for a majority of transactions. See Los Mercados de Capitales en America Latina (Mexico City: Centro de Estudios Monetarios Latinoamericanos, 1966), p. 159.

30 Brothers, Dwight S. and Leopoldo, Solís M, Mexican Financial Development (Austin, Texas: University of Texas Press, 1966), p. 42 Google Scholar.

31 Ibid.

38 Certainly ADD did not have as its intention the formation of investment groups. AID felt that, since there was a general shortage of funds and few if any sources of medium- and long-term funds, it might help by providing the incentive for the establishment of financieras. The lending activities of these financieras have varied, some providing capital to businesses that did not have access to established sources: others have tended to concentrate their lending activities. Since most of these financieras have now reached their lending capacity, they are less active than previously. It will be interesting to see the final direction of their activities.

33 For a more comprehensive examination of the attitudes that influence business behavior in Latin America see Lauterbach, Albert, Enterprise in Latin America: Business Attitudes in a Developing Economy (Ithaca, New York: Cornell University Press, 1966), particularly chapter 1Google Scholar.

34 Latin American banking laws generally restrict, in varying degrees, commercial bank lending to the short-term field. There are, of course, ways that banks can and have used to get around this restriction, such as continuous renewal of short-term loans, which by its very nature, is available to only the “best” customers. For some comments about the short-term nature of commercial banking and the general reluctance of the banking system to provide funds for new ventures in Mexico, see Meyers, Margaret G., “Mexico” in Benjamin H. Beckhart, ed., Banking Systems (New York: Columbia University Press, 1954), pp. 591–596 Google Scholar.

35 Brandenburg in his study of Mexican entrepreneurial groups comments on group financing as follows: “Each of the nine [here referring to the nine groups that he has identified] which together control financial institutions possessing a majority of the nation's private bank capital, by and large finances its own industrial and commercial promotions. Inasmuch as the big nine utilize their banking capital to become owners of new promotions, other entrepreneurs can acquire credit from them only at relatively high interest rates.” See Brandenburg, , “A Contribution to the Theory of Entrepreneurship,” p. 22 Google Scholar.

36 For a discussion of how some family firms have tried to meet the challenge and the effects of the introduction of nonfamily members, see Benedict, , “Family Firms and Economic Development,” especially pp. 13–16 Google Scholar.

37 Benedict has argued that the extremely close relationship which is established among members of the family firm is one of its strong points and that this relationship is formed over a relatively long period of time through what he calls “transactions.” There is no reason, of course, why transactional relationships could not be formed with nonfamily employees as well. However, it also is obvious that in those societies which are still family-oriented, relationships with outsiders would never be as strong as those with family members.