MEXICO

Political Economy

As noted earlier, the leaders of the Mexican Revolution had a complex and often contradictory set of goals. Some of the revolutionaries were middle-class landowners who sought greater political democracy, others sought major socioeconomic (especially land) reform, and others were mostly interested in restoring political order while eliminating the D’az dictatorship.

Between 1917 and 1980, PRI leaders did agree on some main features of the Mexican economy. First, Mexico's industrialization would be encouraged through import policies, which employed high tariff protection for Mexican industries and agriculture. Government policies provided Mexican entrepreneurs with subsidized credit and energy, and very low taxes. The PRI's ability to control labor and therefore labor costs also benefited Mexico's entrepreneurs. Second, Mexico was to have a capitalist economy, but the Mexican state played an important role in key sectors of the economy, though far less than in socialist economies.

Despite this general consensus, economic policies of PRI presidents between 1917 and 2000 fluctuated a great deal. The reformers, usually associated with the left wing of the PRI, placed more emphasis on redistribution of income, plenty of heavy state social spending, and a strong state presence in the economy. Their economic policies tended to be strongly nationalistic and they sought greater economic independence from the United States.

President L‡zaro C‡rdenas (1934-40) was the most important reformer. C‡rdenas was a mestizo revolutionary general who became governor of the state of Michoac‡n. He used the PRI to organize and mobilize Mexico's workers and peasantry, and he was the first president to implement the Constitution's call for land reform. C‡rdenas gave 180,000 peasant-communities grants of land called ejidos, providing land to three quarters of a million landless Mexicans. He integrated peasants and workers into state-controlled unions. He strengthened the Mexican state by nationalizing the foreign-dominated oil industry and creating a state oil monopoly (PEMEX). More than any other Mexican president, C‡rdenas embodied the socialist aspects of the Mexican Revolution. At the same time, C‡rdenas's policies won the PRI the enduring political loyalty from Mexico's workers and peasants. Future Mexican presidents never addressed the socioeconomic aspirations of the Mexican Constitution as much as C‡rdenas had, but the presidencies of Alberto L—pez Mateos (1958-64), Luis Echeverrêa (1970-76), and JosŽ L—pez Portillo (1976-82) followed policies that mirrored the views of the PRI nationalist left.

The conservatives, including Miguel Alem‡n (1946-52), Gustavo D’az Ordaz (1964-70), Miguel de la Madrid (1982-88) and Carlos Salinas de Gortari (1988-95) favored economic growth over redistribution. They tended to favor freer trade, increased foreign investment in the Mexican economy, and better relations with the United States. President D’az Ordaz strongly favored economic growth over distribution, and his policies favored big business and agricultural exporters. De la Madrid and Salinas undertook a major change in Mexico's political economic policies by liberalizing Mexico's statist economy, abandoning long-entrenched social commitments (like land reform), and entering the General Agreement on Tariffs and Trade (GATT) in 1986 and the North American Free Trade Agreement (NAFTA) with the United States and Canada in 1994. Fox has generally continued these conservative economic policies.

The Dimensions of the Economy

In terms of its aggregate wealth, Mexico is a relatively prosperous developing country and, compared to other developing countries, is fairly industrialized. It is currently the world's eighth largest exporter. Industry accounts for about a quarter of its GDP, while agriculture now accounts for only 8 percent. The country is also rich in natural resources, especially oil, which is Mexico's chief economic asset. Since the presidency of L‡zaro C‡rdenas (see above), Mexican oil has been controlled by the state monopoly known as PEMEX.

From the 1940s to about 1980 the Mexican economy grew spectacularly, in what has often been called the "Mexican Miracle." Bolstered by the peace and stability of the PRI regime, and benefiting from a steady increase in U.S. investment, Mexico became more industrialized, urban, and educated. Mexico's economy also became more heavily dependent on the United States. By 1962 the U.S. accounted for 85 percent of all foreign investment in Mexico. Mexico sent two-thirds of its exports to the United States, while the same percentage of its imports came from the United States. The U.S.-Mexican economic relationship was (and remains) asymmetrical: The U.S. economy is far more vital to Mexico than vice-versa.

Economic Crises of the 1970s and '80s

In the 1970s Mexican presidents used the country's vast oil wealth to support massive government spending in an attempt to alleviate Mexico's chronic inequality and poverty. The spending fueled inflation and began to erode the value of the peso, Mexico's currency. Mexico incurred vast debts from foreign lenders, who viewed oil-rich Mexico as a trustworthy borrower. By the 1980s oil accounted for over two-thirds of the value of Mexico's exports. A major drop in world oil prices in 1981 exposed the shaky foundation of Mexico's economy, and Mexico came close to defaulting on its international debt in August 1982.

The response by presidents de La Madrid and Salinas to the economic crisis was to abandon the decades-old mercantilist model of protectionism and state interventionism. De la Madrid and Salinas embraced neo-liberal economics and began to reverse Mexico's political economy. By terminating the Constitution's promise of land reform, and by opening up Mexico to a flood of cheap agricultural imports, many of Mexico's poorest peasants were devastated. Mexico's steady economic recovery in the late 1980s and early 1990s was upset in 1994 and 1995 by Mexico's most severe economic depression since the 1930s. In December 1994 the value of the Mexican peso collapsed, and the Mexican economy was saved only by the International Monetary Fund's largest bailout ever. Between 1994 and 1996 real wages dropped 27 percent, and an estimated 75 percent of Mexicans fell below the official poverty line. ¹ Mexico had embraced free trade and globalization as a response to the economic crisis of the early 1980s, but its response had made it even more vulnerable to economic instability.

NAFTA and Globalization

The North American Free Trade Agreement has drastically reduced (and will soon eliminate) most tariffs on agricultural goods traded among Mexico, Canada, and the United States. As a result, Mexico has been flooded by U.S. products (such as corn and pork) that cost one-fifth as much to produce. NAFTA has doubled the amount of Mexican food imports from the U.S., lowering Mexican food prices but creating a massive crisis for millions of Mexico's farmers. About a fifth of Mexicans work in agriculture, and the vast majority are poor, subsistence farmers who will be hurt the most by NAFTA competition. As a result, Mexico will lose millions of jobs in agriculture. NAFTA has also exacerbated the gap between the wealthy north and impoverished south. ²

In many ways NAFTA benefits Mexico. Manufacturing exports to the U.S. have skyrocketed, growing at an average rate of 75 percent annually since NAFTA went into effect. ³ Greater access to U.S. markets has been a boon to Mexico's fruit and vegetable producers, who now supply much of the U.S. winter market, although exports of agricultural goods have grown very modestly compared to manufactured goods. Cheaper imports have benefited a wide variety of Mexican producers and consumers.

Mexico's embrace of NAFTA has clearly created a more diversified economy. In the 1980s oil made up about two-thirds of Mexico's exports. Mexico now exports a wider variety of goods, but it is extremely dependent on the U.S. market, to which it sends 90 percent of all its exports.

Mexico's entry into NAFTA has attracted increased direct U.S. foreign investment. Much of the investment has gravitated toward Maquiladoras, factories that import materials or parts to make goods for reexport. These factories, concentrated along the Mexican-U.S. border, account for about half of all of Mexico's exports, and they now generate more foreign exchange for Mexico than any other sector, including oil. ⁴ The Maquiladoras have added half a million jobs to Mexico's north, but some critics argue that these operations add relatively little to the Mexican economy, since most materials and technology are imported. Average Maquiladora wages are above Mexico's minimum wage, but far below the average wage in the manufacturing sector. The concentration of Maquiladoras in Mexico's wealthier north has exacerbated the country's severe north-south gap.

Whether NAFTA has created more winners than losers is a hot topic of debate within Mexico. ⁵ The Fox government has been reluctant to increase social spending that might mitigate the impacts of NAFTA. One result of the new pressures created by NAFTA has been the previously discussed increased flow of Mexicans to the United States in search of employment. What is clear, however, is that NAFTA has dislocated millions of Mexicans and will create new political and economic challenges for a Fox administration that is committed to freer trade.

Economic Policies and Issues

Despite the Mexican Revolution's commitment to greater equality and the efforts of some reformist presidents to help the poor, Mexico was and is a country of massive inequality. The famous Mexican novelist Carlos Fuentes has called Mexico a country "where 25 people earn the same as 25 million." ⁶ The pre-1980s mercantilist policies were unable to address the persistence of massive poverty in Mexico, and the more recent shift to neo-liberal policies has only increased the gap between Mexico's rich and poor. In 2000 the poorest 40 percent of the population earned about 12 percent of Mexico's income, while the wealthiest 10 percent earned about 40 percent of all income, and these gaps have widened since 1984. ⁷ Forbes magazine listed twenty four Mexicans in its 1994 annual report on the "swelling roster of global billionaires." Only the United States, Germany, and Japan had more billionaires at the time. A year earlier there had been thirteen, and only one in 1987 when the magazine first began compiling its list. ⁸ These huge inequalities in income are mirrored in a variety of social indicators. For example, in 1998 infant mortality was four times higher among the poorest 20 percent of Mexicans, compared with the richest 20 percent. The poorest 10 percent of Mexicans average only 2.1 years of education, while the richest 10 percent average over 12 years of education. ⁹

The Mexican government has estimated that about one-fourth of Mexicans lack enough money for food and clothing. A third of all workers earn less than Mexico's minimum wage (about $4 per day). Poverty in Mexico is most pronounced in rural areas, still home to some twenty three million people. Despite the legacy of land reform, most rural Mexicans cannot support themselves on their tiny plots of land. and many are forced to seek work as migrant laborers. Millions have migrated to already over-crowded urban areas, seeking employment and a better life, and millions more have emigrated to the United States for the same reasons.

Mexico's wealth is also geographically unequal. Northern Mexico is far wealthier than central and southern regions. While the north is characterized by large-scale export agriculture (benefiting from proximity to the U.S. market), land is much more fragmented in the south. Southern Mexico has far poorer infrastructure, lower levels of education, and more poverty.

Another indicator of the degree of inequality in Mexico is the tremendous size and importance of the informal sector. A conservative estimate is that over nine million Mexicans (perhaps as much as one-third of the total workforce) are employed in the underground economy as informal vendors of goods and services. Mexican cities are full of ambulantes (street vendors), which local governments have fought unsuccessfully to regulate. These workers pay no taxes on their earnings but enjoy few protections and benefits.