Mexicans Seek Alternatives To Socio-economic Rot

‘We are becoming critical again,’ said a delighted Maria de los Angeles of El Colegio de Mexico midway through an October seminar at this Mexico City university. ‘Academic economists used to stop at analysis of causality. Now we are ready to propose policies. Especially after Argentina’s fight against the International Monetary Fund, we can say the emperor is naked.’

The critique is long-standing and increasingly bitter, because Mexico was a guinea pig for what became known as the Washington Consensus: free-market economic policies. This partly stemmed from the high-profile 1994 North American Free Trade Agreement (NAFTA), but really dates to early 1980s pressure from the World Bank, International Monetary Fund, and manipulative donor agencies (especially the US Agency for International Development).

If, as the Bush regime says, next month’s Free Trade Agreement of the Americas (FTAA) summit in Miami heralds ‘NAFTA for the hemisphere,’ then visiting officials from tumultuous Latin American countries will get no joy from reciting the Mexican experience. (More likely is that due to unbridgeable gaps, the FTAA will deliver a merely symbolic statement of organizational intent.)

The World Bank and IMF insisted to Mexican officials that abolishing controls on finance, liberalizing imports and exports, and shrinking the state would bring massive trade opportunities and foreign direct investment in manufacturing.

In Mexico, unlike other countries–all of Africa, for instance–this pledge was kept. After Mexico’s 1982 debt crisis, and especially after presidents Carlos Salinas and Ernesto Zedillo unquestioningly adopted Washington’s mandates during the 1990s, the export/output ratio soared by 250% and tens of billions of dollars of foreign capital were attracted into new manufacturing.

But here arises the main question: were trade and investment sustained, and did they trickle down, drawing the mass of impoverished Mexicans into the productive economy? That was the premise accepted by US president Bill Clinton in December 1994, when he welcomed Mexico to the Organisation for Economic Cooperation and Development, as a new member of the First World.

To answer, consider information gathered by the Tufts University Global Development and Environment Institute, where three researchers–Tim Wise, Hilda Salazar and Laura Carlsen–have produced an excellent new book, Confronting Globalization: Economic Integration and Popular Resistance in Mexico (Kumarian Press), summarized in an article by Wise for the Interhemispheric Research Center (http://www.irc-online.org/).

While I was not so impressed by the mild-mannered tone and the content of Wise’s ‘NAFTA’s lessons’ policy recommendations (such as adding labor and environmental clauses to free-trade deals), the information provides a damning case against Washington.

Until the era of neoliberalism began, Mexico’s elites had constructed a protected manufacturing sector and diverse agricultural economy that benefitted from 1930s-40s land reform and the consequent balancing of income distribution. For half a century, from 1933 to 1982, Mexico grew by just over 6% a year on average. Exports were only 10% of total annual economic output (GDP) during this period. From 1982 to the present, growth was only 2.3%, although exports grew to 26% of GDP.

One reason for stagnant economic development since 1982 was, ironically, class war against lower-income workers, which reduced consumer purchasing power. Since 1980, the minimum wage has fallen 76% and the contract wage is down 51%. With labor productivity up 45% since 1995, corporations downsized their workforce. Indeed, Mexico has suffered a net job loss during NAFTA. And the quality and benefits of new jobs in the manufacturing sector are far lower than in the rest of industry.

Sweatshop-style ‘maquiladore’ plants were set up on the US-Mexico border and near Mexico City during the 1990s. But wages are low, having dropped 35% in 1995 (the year total output fell 6.2%), and 60% of workers still do not receive benefits. In the Matamoros zone, more than half the workers have experienced injury or occupational health problems.

As a result, three quarters of Mexicans now live below the poverty line. The share of household income that goes to the poorest 10% is 1.5% (down from 1.7% in 1984), compared to a massive 38.7% of national income enjoyed by the richest tenth of the society (up from 49.5% in 1984).

Says Wise, ‘In many ways, Mexico got what NAFTA promised: trade and investment. Unfortunately, these have not been translated into benefits for the Mexican population as a whole or into improvements in the country’s fragile environment.’

On the ecological front, even the Mexican government admits that since 1985, rural soil erosion worsened by 89% and air pollution by 97%. But thanks to fiscal squeeze, the government spent 45% less by 2000 than it did fifteen years earlier.

In addition to violations of labor rights and environmental damage, gender violence has become a national issue in part because of the appalling rapes and murders of more than 300 maquila workers–all women–in Ciudad Juarez over the past few years.

The maquila’s defenders have always pointed to the employment and skills transfer to Mexico, but now it is more evident that the foreign plants are footloose and that they have few linkages backwards and forwards within Mexico’s skewed economy. In spite of nearly $55 billion of foreign investment in Mexican manufacturing from 1994-2002, the total investment rate has fluctuated between a very low 16% and a mediocre 22% during the period, reflecting the lack of organic investment by Mexican capitalists.

Perhaps they knew better than the foreigners how volatile the export sector would become. Maquilas are today suffering huge job losses–25% in some border cities–due to even more exploitative Chinese competitors that have stolen Mexican market share. From 1998 to 2002, Mexico’s rank in the World Competitiveness Yearbook fell from 34th to 41st.

The ability of Mexicans to invest in their own land is hampered by high interest rates, which succeeding in bringing inflation down from 42% in 1996 to 4% today, but also left millions in default on the consumer and small business debt.

Moreover, manufacturing job growth is not nearly as impressive as proponents claim. According to a major study of Mexican foreign investment by two other Tufts researchers, Kevin Gallagher and Lubya Zarsky, the average annual number of manufacturing jobs created from 1994-2002 was 82,500 (virtually all in the maquila sector). This is better than most countries, but pales next to the annual entrance of 730,000 new job seekers. The informal sector may, as a result, be responsible for the survival of 60% of economically active Mexicans.

Crucial to understanding the maquila sector’s poor performance in lifting Mexico from poverty is the lack of locally sourced inputs. In 1990, these represented 4.7% of total value added, and in 2002 only 3.7%. Only food, beverages, furniture and wood products have increased the local content of production, with most other major manufacturing subsectors–such as machinery, chemical products and footwear–requiring ever fewer Mexican inputs.

The deluge of foreign investment also appears to be blocking local innovation, with residents recording 1% of total patent applications from 1995-2002, compared to 51% in South Korea. As a percentage of total output, Mexico invests only 0.4% in research and development, compared to 2.6% in South Korea.

A completely different strategy to NAFTA is required, focusing on a renewal of once successful inward-oriented policies, even if that requires a new round of subsidies and protection from imports, but minus the clientelism and elite market orientation of the past.

Given massive unemployment outside the 1990s-era maquiladores, millions of poor people either migrated to the US or returned to the land, growing record amounts of maize. Thanks to the first option, wage remittances are now $10 billion per year, outpacing even petroleum exports as a national income earner.

For those taking the second option, a formidable opponent has emerged: US agro-exporters who dump cheap corn in Mexico. The US government has subsidized 25-35% of the value of the crop since 1998. The cost of production in Mexico is the equivalent of $110/tonne, and the export price has steadily declined to $70/tonne.

‘Meanwhile, other crop prices fell to even lower levels,’ says El Colegio de Mexico economist Alejandro Nadal, host of the seminar and one of Mexico’s most critical thinkers: ‘Sesame, beans, cotton and soybean show strong price variations, but significant overall drops.’ That fact, as well as Mexican taste for local–not imported–maize explains the rise in output notwithstanding falling prices. Regardless, many progressive Mexicans insist, the only responsible strategy given this conflict is to remove agriculture from NAFTA.

With maize the main source of income for 8% of Mexico’s 100 million people, and with 40% of the procuers working on a subsistence basis (by which is meant the bulk of their crop is for own consumption), this is an absolutely crucial component of daily life, requiring both decommodification and fair prices for peasants. Women are, obviously, the most affected by state policies, in part because in spite of falling prices paid to maize growers, the price of corn flour and tortillas went up radically during the 1990s, as a reflection of the monopolistic power of two major intermediary firms.

According to Nadal, ‘The fundamental flaw in the official pre-NAFTA studies was the assumption that only one variable, market price, would determine changes in the behavior of Mexican corn producers. However, producers’ wage decisions are made in the light of many other factors, such as market prices for alternative crops, wage costs, and interest rates.’

In addition to watching the industrial and agricultural sectors, Nadal along with Frank Ackerman of Tufts are publishing their deep-seated criticisms of ‘general equilibrium theory,’ which remains at the core of bourgeois economics, in a forthcoming book, *Flawed Foundations* (Routledge Press).

One conclusion Nadal draws about Mexico’s future is that until exchange controls are reinstalled, capital flight will intensify as the peso continues falling to record lows against the US dollar, itself an increasingly risky currency.

Exchange controls? Not likely under the neoliberal regime of Vicente Fox. Indeed, Mexican’s free-market bureaucrats were lent short-term resources during the early 1995 disaster so as to negate that option. According to St.Louis-based economist David Felix of Washington University, the Mexican bailout of $57 billion arranged by US officials Robert Rubin and Larry Summers was not only fast-tracked so that New York financiers would avoid a massive write-down, but also to prevent Mexico from imposing capital controls.

Major protest movements–the Zapatista insurgency and ‘El Barzon’ (yoke) debtor-cartel movement in the mid-1990s, and other indigenous people, students and workers more recently–are one result. But with the Zapatistas in retreat under local pressures such as land squabbles with former civil society allies, synthesizing the geographically-specific or sector-based kinds of anti-neoliberal activism may now require a major effort. This would also logically include a search for an alternative economic strategy aimed at generating social justice.

However, here’s a depressing conclusion, perhaps, from left-Keynesian Marcos Chavez of Colegio de Mexico: ‘Given the disaster in this country, turning it around will take a very long time.’ Nevertheless, at least a core of economists now appear ready to join their comrades in the social movements and unions in search of policies that conflict with those responsible for Mexico’s ongoing impoverishment. Whether the emerging availability of technical alternatives, as witnessed at El Colegio, helps to change the political terrain is—as ever–a matter for coming ideological struggle.

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