With hundreds of thousands of impoverished Mexicans coming over the southern border every year to escape the constant state of poverty that their home country is trapped in, many ask why Mexico is incapable of better providing for its citizens. It has become fashionable in some circles to blame the miserable state of affairs on corruption and leave it at that. We gave them access to our markets through NAFTA, it is often argued, so any further struggles are just the Mexicans' own fault. What this version of the story leaves out is the numerous ways aggreements such as NAFTA are actually a part of the problem and not the solution.
In this diary I will document the numerous ways that neoliberal economic elites, acting mostly through the International Monetary Fund (IMF), has helped to pillage the Mexican economy for the sake of foreign investors and a small class of domestic oligarchs.
Prior to the Mexican state's acceptance of the neoliberal doctrine, it was a corporatist state under the Partido Revolucionario Institucional (PRI) which maintained power from 1929 to 2000. It utilized a state-led modernization program based on import substitution industrialization (ISI) and exports to the US. State-owned monopolies controlled basic infrastructure, energy, utilities, and certain key industries. It imposed tight controls over foreign capital. Investments from the US mostly went towards the maquila factories near the border zone which profited from cheap labor. Economic development was somewhat successful in the 50s and 60s, but the benefits did not flow equally to all members of society. Movements made up of peasants, workers, and the middle class rose up on occassion, which the state met with either compromise or violent repression. In short, the system was imperfect, but much preferable to many things a third world country could go through.
The global economic crisis in the 70s hit Mexico hard and was met with increasingly large nationalizations of failing private firms as a way of pacifying the working class. These state-owned companies were funded with loans from New York investment banks and often lost money. Mexico's foreign debt skyrocketed from $6.8 billion to $58 billion between 1972 and 1982. It has been argued by many on the left that Mexico's reluctance to intrude on the private sector's pursuit of profit limited its ability to gain revenue and maintain a sustainable degree of development.
The shocks that enabled the Washington Consensus to be imposed on Mexico included Federal Reserve Chairman Paul Volcker's policy of increasing the interest rate to astronomical levels in the late 70s and early 80s, a US recession that decreased demand for Mexican products, and a lowering of oil prices. Forced into a corner, Mexico devalued the peso by 78 percent in February 1982 and declared bankruptcy in August while asking the US for emergency aid. It would soon devalue the peso again, this time by 60 percent. In an effort to fight capital outflow, President Lopez Portillo, in his last address to the nation on September 1, 1982, announced the nationalization of Mexican banks. The business class disapproved of this action. In a few months De La Madrid was put into the office of the Mexican presidency, where he would implement the desired policies of the business class both in Mexico and around the world.
The very first policy recommendation was the slashing of the public budget. This meant recessions in 1982, 1983, and 1986. In 1984, the Mexican government received a loan from the IMF. The loan was a first of its kind for the IMF in that it mandated that Mexico launch a massive structural adjustment programm for the economy. This meant the privatization of public assets, budgetary restraint, financial liberalization, the reduction of trade barriers, and other like-minded reforms. Needless to say, the immediate impact on the average Mexican was nothing short of devestating. In the period between 1983 and 1988, per capita income fell at a rate of about 5 percent per year and the value of workers' real wages fell between 40 to 50 percent. Public spending in Mexico City on basic services such as water, transportation, health, and garbage collection fell drastically as the crime rate increased to levels unheard of.
In 1982, the Mexican government owned about 1,100 firms. By 2000, this had been reduced to around 200. The process of privatization entailed a painful process of restructuring labor contracts that resulted in several union-led uprisings. These were put down forcefully by President Carlos Salinas, who entered office in 1988. Several times, troops were used to put down strikes. In 1989, foreign investment was liberalized, allowing for majority foreign ownership; and in 1990, the banks were re-privatized. By 2000, 24 out of thrity banks would be owned by foreigners. Additionally, 1993 brought about the liberalization of financial services. The effects of this are documented by Oxfam:
When Mexico liberalised financial services in 1993 in preparation for the North American Free Trade Agreement (NAFTA), for example, foreign ownership of the banking system increased to 85 per cent in seven years, but lending to Mexican businesses dropped from 10 per cent of gross domestic product (GDP) to 0.3 per cent, depriving poor people living in rural areas of vital sources of credit.
From 1990 to 1993, about $91 billion flowed into the country. Despite this, growth slowed down in 1992 as some questioned the viability of such a dependence on foreign funds. In 1994, a rise in US interest rates combined with political instability convinced foreign investors to start pulling out their money. This resulted in the 1995 peso crisis which reduced GDP by 6.2 percent and wages by 25 percent. In the face of this crisis, Mexican-owned businesses and banks were compelled to sell off their operations to foreign (often US) investors.
US capital eventually came to dominate Mexico's increasingly export-oriented economy. The percentage of exports by multinationals increased from 56.5 in 1993 to 64.2 in 1998, meaning that foreign investors, not Mexicans, profited from Mexican labor.
The effects on Mexican workers was even more detrimental:
From 1991–1998, the percentage of urban workers employed for wages fell from 73.9 to 61.2. Over the same period, the percentage of unpaid workers rose from 4.6 to 12, and the percentage of self-employed increased from 16.6 to 22.8. Moreover, over the same period, wage workers and self-employed workers suffered massive declines in average hourly income, 26.6 percent and 49.6 percent respectively. While wages did rise in 1999 and 2000, average earnings still remained below 1994 levels.
The implementation of NAFTA aggravated a lot of these factors. The flooding of subsidized corn from the US into Mexican markets reduced the price of corn by 70 percent. This had the effect of putting of livelihoods of some 15 million Mexicans who depend on the crop for income into jeopardy. Perhaps even worse, the price of the basic goods such as the tortilla, which is made from corn, has increased drastically. This is because the liberalization of the food market under NAFTA allowed private monopolies such as Maseca, Minsa, and Cargill to hoard food supplies and jack up the price. The result has been this:
Since NAFTA went into effect in January of 1994, the price of the tortilla has risen 738 percent. As a result, per capita consumption has decreased. In addition, its quality has diminished.
In 2003, a report by the Carnegie Endowment for International Peace was released on the tenth anniversary of NAFTA. It found that:
- 30 percent of all jobs that have been created in the maquiladora sector (export assembly plants) have been lost as company operations have since moved to lower wage countries such as China.
- Despite growth in productivity, real wages in Mexico are lower than they were when NAFTA first took effect. It is also noted that wages in Mexico are "diverging from, rather than converging with, US wages."
- Income disparity has grown drastically, with the top 10 percent of households having increased its share of the national income while the remaining 90 percent has lost its share or has seen no change at all.
While the neoliberal era in Mexico has created hell for the average Mexican, it has been a gilded age for the super-rich. The privatization programs are estimated to have created 24 billionaires. Among these are Carlos Slim, Mexico's richest man who controlled 4 of Mexico's largest firms in 1994. By 2005, Mexico ranked in 9th place for its number of billionaires, surpassing even Saudi Arabia.
Ultimately, neoliberalism has resulted in many of Mexico's problems that today result in much of our illegal immigrant problems. If we are to address to "root causes" of illegal immigration we must look beyond Mexico itself and realize how the international neoliberal establishment pillages much of the world and the name of "free markets" and "free trade".
As A. Sivananadan once said to the white racists in the UK about non-white immigrants supposedly coming to Europe to steal its wealth:
We are here because you were there.
It is the imperialism of the capitalist establishment that has resulted in much of the immigration to the first world. This irony should not be lost on us.
Sources:
Fajul, Gonzalo, and Arabella Fraser. Dumping Without Borders: How US agricultural policies are destroying the livelihoods of Mexican corn farmers. Oxfam, 2003: page 2.
How the IMF and World Bank Undermine Democracy and Erode Human Rights: Five Case Studies. Global Exchange, 2001: pages 3-5.
Hart-Landsberg, Martin. "Challenging Neoliberal Myths: A Critical Look at the Mexican Experience." Monthly Review 54.7(2002).
Harvey, David. A Brief History of Neoliberalism. New York: Oxford Univesity Press, 2005: pages 98-104.