The implementation of liberal economic reforms after the collapse of the Mexican economy in 1982 has had tremendous negative effects on the development of the country. While the elite prosper from “free trade” policies, the majority suffer at the hands of the market. Elites in Mexico, and United States investors stand to gain from economic policies, devised to increase their profits, while undermining the rights of the majority of the population. In my research I will attempt to show the exploitative conditions that are created due to the application of neoliberalist policies and how, in essence, liberal economics is a new method of colonization that still haunts Mexico and most of Latin America to this day.
Economic Liberalism Revisited
Adherence to the principles of Adam Smith and the “invisible hand” of the market, is believed to bring greater economic prosperity, especially to a developing country like Mexico, but at what social cost? The underlying principles states that a country must concentrate on its comparative advantage, meaning that it should trade what its best at producing, and that all barriers to “free trade”, especially government intervention of any type, be lifted in order to allow the market to work magically. This is what is called economic liberalism. The resurgence of economic liberalism thus is called neoliberalism (Chasteen, 307).
The current state of Mexico is very similar to what it once was under the dictatorial rule of Porfirio Diaz at the turn of the nineteenth and beginning of the twentieth century. During this era the liberal economic model was followed religiously by many countries of Latin America. The Porfiriato was no exception, and the liberal economic model was implemented under the auspice of the cientificos, predecessors to the current technocrats of Mexico. The cientificos pushed for an export- based economy and deemed foreign investment a necessary tool to develop Mexico and create prosperity. The major factor though was that Mexico was not industrialized sufficiently and consequently the emergence of a dependency on the metropolis characterized the regime. The economy was characterized by its enslavement to ‘boom and bust’ cycles which unfortunately are common with economies that are dependent on the export of raw materials. In the end relatively few gained from the policies, and the end result was a country that was controlled by a handful of hacendados, and dominated by foreign investment and ownership of the means of production. The prosperity that the world saw was nothing more than a façade, for only the Mexican elite reaped the benefits. The economic historian Paul Bairoch states that the “third world’s compulsory economic liberalism in the 19th century is a major element in explaining the delay in its industrialization (Whiting, 142).” The liberal economic model experiment ended in Mexico in 1910 with the outbreak of the Revolution of 1910.
The Economic Debacle of 1982
The economic crisis of 1982 convinced many that state led development based on import substitution industrialization (ISI) had been a failure (Wise, 43). To alleviate the economic debacle, the state agreed to an international bailout in exchange for Mexico’s agreement to “restructure” the economy according to a “neoliberal” model of development. This new plan for the Mexican economy consisted of a strategy that stressed the importance of a “market-driven, private sector led, export based” solution that would, in the process, open the country to more foreign capital. Soon after, Mexico’s new economic planning culminated in GATT accession in 1986 and heavy tariff cuts in 1988 (Wise, 14). At this point it was clear that Mexico had rid itself of the protectionist policies of the past. One can argue that Mexico’s misfortunes which included the decline in oil prices and the increase in interest rates in conjunction with its domestic economic policy drove the free trade initiative, but that would exclude the influential role of the metropolis in its pursuit of more investment in Mexico (Lorey, 169).
IMF/World Bank
The economic policies of the World Bank and the International Monetary Fund (IMF), which are imposed on many Latin American countries, in exchange for loans, are aimed at undermining state sovereignty by their supervisory role of the economy of the debtor nation. Poor countries are forced to accept the terms that are attached to the loans, such as that of austerity programs. These programs dictate that the borrowing country cut social service programs such as healthcare and even school funding (A few years ago the Universidad Autonoma de Mexico (UNAM) was a victim of such guidelines, resulting in a student takeover of the university). These countries must also accept economic policies such as free- trade, and thus open their markets to countries like the United States which has a very influential position in both organizations. The argument can be made that both the IMF and World Bank are American entities (Ross, 237).
World Bank loans are devastating Mexico and Latin America. According to World Bank figures, in the 1970’s Latin American debt was $60 billion; by 1980 it was $200 billion; by 1990 the debt had increased to $433 billion and by the end of 1999 it is expected to be about $700 billion. The magnitude of this debt is reflected in the fact that from 1982 to 1996, about $740 billion had been sent back to the Northern banks and the international financial institutions in debt payment (Chomsky, 98). One has to ask “are these loans meant to help these countries or rather to exploit?”
NAFTA
The supposed culmination of neoliberal reforms was to be the North American Free Trade Agreement (NAFTA) which would finally push Mexico into the “first world.”
A strategy workshop that was part of a pre-NAFTA meeting was held in 1990 at the Pentagon. U.S. strategists concluded that relations between the U.S. and the Mexican dictatorship were fine, but that there was a “potential problem” of “a ‘democracy opening’ in Mexico that could test the special relationship by bringing into office a government more interested in challenging the U.S. on economic and nationalist grounds.” To the U.S. strategists NAFTA was the solution. The point of NAFTA was to lock Mexico in to some trade agreement by treaty therefore if a democratic government came to power they would have no choice but to abide with the setup (Chomsky, 100).
The secretly negotiated NAFTA was sponsored by the most powerful business organizations of Mexico, Canada, and the U.S., including the U.S. Business Round Table and its Mexican equivalent, the CCE. Interestingly, the 37 members that make up the CCE reportedly hold assets equal to one- quarter of Mexico’s GDP (Cockcroft, 310). These individuals stand to profit from such economic policies and therefore overwhelmingly supported the passage of NAFTA.
With the passage of NAFTA, free-trade would dominate and over the next fifteen years after its initial implementation trade barriers would be completely eliminated (Cockcroft, 310).
Carlos Salinas de Gortari played a crucial role in convincing the Mexican public of the benefits that the passage of NAFTA would bring. According to Salinas’s rhetoric NAFTA was just another aspect of Mexico’s revolutionary process. The passage of the treaty would culminate in Mexico joining the “First World (Wise, 15).”
The shift towards integration commenced years before the passage of NAFTA. For example Wal-Mart and a Mexican counterpart CIFRA, S.A., opened the first Club Aurrera, a Mexican version of the American Sam’s Wholesale Club. This warehouse market in Mexico City is able to sell goods in bulk for about one-fifth of the average Mexico City prices (MacLachlan, 478). Other notable acquisitions included the American corporation PepsiCo, Inc. acquiring an 80 percent interest in Gamesa, the parent company of Mexico’s largest cookie maker. In other business sectors the same process was underway. For example Triton USA, a Houston, Texas oil company, was granted drilling leases, the first of its kind since the presidency of Lazaro Cardenas, and the nationalist oil expropriation of 1938. Not to mention the infiltration of fast-food companies throughout Mexico. In major cities you can see the presence of McDonalds, Kentucky Fried Chicken, Pizza Hut, Domino’s, Subway, Burger King and even Taco Bell (Ross, 219). Some see this as the Americanization of Mexico, others view it as the economic subordination of Mexico to the United States. The influx of American products of all types has really undermined the profitability of Mexican industries because they are unable to compete with their American counterparts.
Maquiladora Boom
Maquiladora plants have become synonymous with the border region economy, and although they create employment for Mexicans, their main objective is exploitation of labor for profit. The program originated in the 1960’s but did not increase significantly until the late 1980’s through the early 1990’s, but specifically from 1994 to 1998. At this time the number of maquila plants in Mexico quintupled to nearly 4000. The “benefits” of maquilas and what attracted foreign industries were specifically declining wages, the lack of unionism, and the country’s lax enforcement of environmental standards (Cockcroft, 248).
The maquila industry in Mexico has had tremendous negative effects, other than labor exploitation, beginning with the environment. David Lorey estimates that in the mid 1980’s maquilas which had had toxic discharge problems, were unable to account for 44 tons of hazardous waste per day. Lorey goes on to say that the problem persisted into the 1990’ and during this period only twelve percent of maquilas were able to comply with the already low hazardous material regulations of Mexico (Lorey, 159).
Another severe case of contamination of the environment is the Salton Sea, a lake located in the Imperial Valley, just a short drive from Mexicali. The lake is a prime example of the environmental issues that affect Mexico and the U.S. The lake is without drainage to the sea and consequently is affected with high levels of contaminants from pollution in the border area. The New River which originates in Mexicali adds human waste to the Salton Sea making it a toxic reservoir (Lorey, 158).
The health of residents on the border is also affected. Unfortunately the border doesn’t prevent contamination from Mexico to make its way north. Cases of disease epidemics such as spina- bifida and anencephaly, both of which are neural-tube defects, were frequent in Texas counties along the border between 1988 and 1992 and were attributed to the contamination by border industries (Lorey, 159). The lack of corporate accountability has resulted in the degradation of the environment. Environmental issues are not relegated to Mexico, as is apparent with the cases mentioned above. Other issues that affect the border region, north and south, is water contamination, air pollution, among many other problems that affect cities such as San Diego, and other cities in Texas.
Sweatshops
The use of sweatshops by American garment industries has steadily increased in recent years. Although sweatshops are also present in the U.S., the majority exist abroad, in countries such as Guatemala, Honduras, El Salvador, Saipan, and Mexico. Many famous American designers such as Nike, Gap, Inc., Tommy Hilfiger, to name a few, readily use sweatshop labor. These companies exploit workers paying them a misery in wages and providing awful working conditions. The rise of sweatshop labor is the result of Export Processing Zones, which provide employment in exchange for exploitation. Trade Unions are frowned upon and workers are threatened with dismissal if they attempt to organize. Labor as a whole is made submissive with the threat of the company moving to another country if the workers demand too much (Zolov, 343). This displays the unethical behavior of corporations and the lack of accountability, all in accordance with “free market” policies.
Worker Marginalization
Corporate accountability is non existent and their negative effect isn’t just relegated to Mexican workers, but also to their counterparts in the north. The “downsizing” fervor that has characterized corporate America has undermined workers rights and decreased the standard of living for many Americans. For the majority of American workers, incomes have stagnated or declined along with working conditions and job security. Inequality has reached levels unknown for 70 years. Shockingly, the United States, the most powerful country in the world, has the highest level of child poverty of any industrial society (Chomsky, 28) In the United States the typical family puts in 15 more hours of work a year, a rate that is beyond the level of 20 years ago (Chomsky, 114). The decline in “unionization” is a contributing factor, according to labor economists, to the decline in wages and the deterioration of working conditions (Chomsky 115). Corporations weaken organizing capabilities by threatening workers, with downsizing and shipping their jobs abroad.
The labor movement in Mexico is non-existent in many sectors. Maquiladoras, for example, routinely dismiss employees that are attempting to organize or women that are pregnant. The “pauperizing” of Mexican workers is a direct result of the neoliberal model and the quest for increasing profits by the multinational corporations. During the Porfiriato, hacendados maintained their workers in perpetual misery and poverty. There was no possibility of social mobility of any kind. The current state of Mexico is afflicted by the same problem. Work doesn’t offer workers the ability to save, or to invest their earnings, because their wages barely suffice to put food on the table.
The NAFTA Aftermath
An article by the Wall Street Journal points out that, conditions in Mexico, after NAFTA have been that of an “economic miracle” and that it enjoys a “stellar reputation” in the global community. The article goes on to say that, unfortunately, for the majority of the population, there has been a 40 percent drop in purchasing power since 1994. The poverty rate is increasing dramatically and the reality is that many Mexicans today are poorer than their parents were (Chomsky, 99).
Noam Chomsky describes the situation of agriculture in Mexico, stating that it is being devastated by cheap U.S. agricultural products, which of course are heavily subsidized by the U.S. government (a violation of “free trade” ideology). Chomsky goes on to say that wages in manufacturing jobs have declined about 20 percent since NAFTA, and that general wages have decreased even more (Chomsky, 99).
Upwards of 2 million Mexicans lost their jobs during the first two years of NAFTA. About one-sixth of job losses occurred in the manufacturing sector, which failed to compete with foreign goods. More than 28,000 Mexican businesses went bankrupt, Banks failed, while consumer debt got out of control. The minimum wage also suffered, falling to levels below those of 1981 (Cockcroft, 245).
An inevitable consequence of NAFTA was that it threatened the livelihood of Mexican peasants. The flooding of the Mexican market with cheap U.S. grains threatened the survival of many rural Mexicans that are dependent on agriculture. How is competition possible when U.S. agribusiness is up to six times more productive than their Mexican counterpart?
In 1992, Salinas de Gortari reformed Article 27 of the Mexican Constitution which was a product of the Revolution of 1910. The goal of this article was land reform and Salinas ended it when he allowed for the ejido, which is communal land, to be privatized. The outcome of this legislation was negative, for many peasant farmers were already unable to compete, and therefore to survival dictated that they sell their plot of land. Inevitable, a new type of hacienda system will reappear. Perhaps, something similar to the corporate farms that exist in the United States, in which a handful of individuals own the majority of the land. There is no doubt that that was the intention of Salinas de Gortari when he amended Article 27 (Cockcroft 306).
The indigenous communities of Chiapas were affected the most, by legislation that greatly affected their livelihood. They already suffered from malnutrition, disease, and the discrimination that goes with being Indian in Mexico. The uprising of the Ejercito Zapatista de Liberacion Nacional (EZLN) was a direct result of this “constitutional reform (Cockcroft 308).”
Social Unrest
On January 1, 1994, the day that NAFTA took effect, the Ejercito Zapatista de Liberacion Nacional declared war on the Mexican government, denouncing the PRI dictatorship and the neoliberal economic policies that the government had implemented. Although the EZLN’s military campaign was short lived, their goals were better achieved through dialogue. Soon after, activists from around the globe made their way to the Lancondon jungle of Chiapas to support the Zapatista cause.
Another group that rised up in protest was “El Barzon,” one of the largest mass movements that had emerged as a result of the “First Crisis of the 21st Century.” In late 1994 many Mexicans discovered that the peso had lost 40 percent of its value in a matter of days, and they now owed twice the amount on loans they had borrowed. A reactionary movement consisting of about a million Mexicans from 31 states took to the streets in protest, against the unjust policies of international finance. Many hurled tomatoes at offending financial institutions while other paraded naked through the streets, symbolizing how the banks had stripped them naked. Barzonistas soon after imposed a moratorium on the debt which crippled the banks, resulting in the Ernesto Zedillo administration intervening to bail out the financial institutions. At this point the Barzonistas were deemed a greater security threat by the U.S. than the Zapatistas (Ross, 257).
Social protest in Mexico managed to influence other parts of the world, especially in the United States. In 1999 trade unions, students, environmentalists, and other activists converged in Seattle, Washington, united in their opposition to the policies of the World Trade Organization (WTO), an offshoot of the IMF/World Bank. The “Battle in Seattle” was brutally repressed by Seattle police but the message was clear, and many Americans voiced their disapproval of neoliberal policies, which threatened their livelihood and oppressed so many people around the world. The consensus was that a different type of economic system was needed, not one that lined the pockets of the rich, but a system that would benefit the people. Corporate greed was destroying labor rights and the environment, and it was time for the voices of the people to be heard.
Conclusion
The primary beneficiaries of a country’s resources should be the people of that country and not foreign investors. The present system disproportionately favors the Mexican elite, and U.S. capitalists in all aspects. The Mexican elite rake in the wealth and are protected by the government. According to international economist David Felix “Mobile wealth has also enabled Latin America’s wealthy to veto progressive taxes and limit outlays on basic and secondary education while extracting generous state bailouts when suffering financial stress (Chomsky, 115).” Development of the country is impossible because it caters to the interests of the rich. The reliance on an export economy further undermines the viability if such a system for ‘boom and bust’ cycles dictate profitability. Consequently that dictates whether its citizens are able to feed themselves. This is in essence a continuation of colonial practices in which the colonies sole purpose was to enrich the mother country. Mexico’s current status as a subordinate of the United States is creating greater divisions between those that live in luxury and those that live in misery. The issue of development needs to be addressed in order to allow for a peaceful transformation of the country into an egalitarian system that strives to serve the needs of all its citizenry and not just those at the top of the class pyramid.