Under what conditions can members of poor disenfranchised communities survive and even foster entrepreneurship in environments where violence is cheap? How do such conditions alter ethnic identities and political institutions? In this paper, we examine the fortunes of indigenous communities following the Conquest of Mexico. Producers of cochineal dye – New Spain's most valuable processed good- provided a complementary service that was both hard to replicate and to expropriate, due to its fragility and human capital embedded in its production. We exploit micro-climatic variation in cochineal suitability to trace the effects of cochineal production on pre-Columbian communities. We show that cochineal producing settlements not only were more likely to survive the Conquest and colonial era, but exhibited greater capital accumulation on the eve of the Revolution (1910), less support for the hegemonic party thereafter, and more small firm creation, greater benefits for women and the indigenous, its main producers in 2010. However, cochineal producing municipios show greater evidence of cultural assimilation as early as 1790, were more unequal in 2010, and were less likely to adopt highly redistributive indigenous political institutions (usos). We contrast the performance of these municipios with others producing valuable goods that were easy to expropriate, such as gold or silver, and or easy to replicate elsewhere, like cacao. We interpret the effects as reflecting how robust inter-ethnic complementarity permitted the development of indigenous entrepreneurs despite the threat of violent expropriation.
