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Healthy Macroeconomy, Greater Poverty and Unemployment I/II
Summary: This is the first of two bulletins reproducing an essay prepared for a book on autonomy as a response and alternative to neoliberal globalization that will be published in 2004 by the solidarity organization Mani Tese from Italy, among others. The text seeks to refute the positive image that is frequently portrayed in other countries of Mexicos economic performance, without denying that there are favorable indicators. Nonetheless, a closer look at the results of the neoliberal model that has been imposed on Mexico during the past two decades shows its failure in terms of improving the welfare of the Mexican people, presenting as a matter of fact the fallbacks in terms of growth, employment, poverty and national revenues. IntroductionThe image of Mexico as an example because of its successful economic adaptation and integration into globalization has been difficult to rectify. For many years, international financial institutions, the U.S. Treasury Department, and other governments hailed Mexico as a model to be followed. After a virtual bankruptcy in 1982, successive Mexican governments reoriented the economy, leaving behind economic schemes that were attacked as antiquated, fervently embracing the new model that claimed to make the economy efficient and bring the desired development to Mexico. The favorable image of Mexico that was sown to the wind in all four directions is not completely false; there are positive macroeconomic indicators. It is also true, however, that after 20 years of neoliberal policies, (1) the country has not succeeded in finding a route that brings sustained growth, a generation of employment, the abatement of poverty that is to say, the improvement of the welfare of the Mexican people. To the contrary, the evidence points to deterioration in the quality of life of Mexicans. In social and environmental terms, the neoliberal model has failed. Mexico is a country with serious poverty, social and environmental deterioration, and is more insecure and more pessimistic about its future than it was 25 years ago. A similar situation prevails in Chiapas. Poverty abounds and the State has converted itself into one of the major expellers of labor in the country. Recent studies, using indexes of welfare that combine various indicators, mark Chiapas as the poorest state in Mexico. Nonetheless, this somber panorama prevails in the midst of a certain growth, of healthy government finances, the expansion of the agricultural frontier and a stable perspective, that allows international organisms, risk evaluators for investors, to continue to grant Chiapas higher and higher marks. The situation goes beyond whether the glass is half-empty or half-full. Seen alone, the positive indicators that create the vainglory of the government, without a wider context, present a distorted panorama that does not express the difficult reality of the 67.8 million Mexicans, or 73.3% of all homes, of a population of 102 million, that live in poverty or extreme poverty. They also hide nothing less than genocide (2) of the indigenous communities, by means of the application of an economic model that considers that there are more than enough peasants and indigenous people in the country, because they cannot compete in international markets, a priority for neoliberal technocrats in government. What we seek to achieve with this essay is give some elements of a greater panorama, with the goal of understanding that the apparent contradiction of the economy in Mexico and Chiapas in 2004, with a relatively healthy macroeconomy, on the one hand, and with rising poverty and inequality on the other. Both President Vicente Fox and the governor of Chiapas, Pablo Salazar, arrived in December 2003 at the midpoint of their six-year mandate, and it seems a good moment to offer a characterization of what the success proclaimed by the bureaucrats has meant for the Mexican people. In like manner, we will offer a projection for the future. A Little HistoryDuring more than 40 years (1940 1982), Mexico followed the model of Industrialization for Substitution of Importation (ISI). In spite of its problems and contradictions, related to the nature of the Mexican state and of the privatization initiative in the country, the ISI model had a fair amount of success in creating employment, increasing both the Gross National Product (GNP) and the GNP per capita, and somewhat rectifying the historic inequality in the distribution of wealth, both amongst classes and geographically. Likewise, it created a substantial industrial base that made Mexico and important producer of intermediate and consumer goods.The change in model begins in 1982, when the country declares a moratorium, as it is unable to meet scheduled debt payments. In this year, its debt had reached US$86 billion, a rise of 330% in just six years.At this time, around 75% of Mexicos debt was with commercial banks, one third of them from the United States. In hurried meetings in Washington, DC, in August of 1982 with high executives of the US banks, Treasury Department officials, and National Security Agency (NSA) officials, the Mexican officials acceded to a solution for the banks, which left Mexico in shackles.The agreement achieved consisted in granting additional loans to Mexico so that it could continue to pay its debt. In this way, the banks did not have to declare Mexico insolvent and avoided a blow to their own finances. The alternative would be that Mexico suspend its payment of debt, signifying the close of some of the most important banks in the US and an enormous blow for the financial sector throughout the world. It was because of this possibility that the NSA was present in their meetings.Mexico continued indebting itself with funds that it essentially never saw. The fresh money served to pay the interest on an ever-growing debt or to facilitate the capital flight that accelerated in the 1980s. It is estimated that from 1971 to 1985 Mexico lost US$56 billion in capital flight, equivalent to 60% of the debt it accumulated in the same period. (Barry, 1992)The economy did not bounce back and in short order the process of renegotiating the debt was repeated, newly increasing the balance of its external debt. Through this iterative process, by 2000 Mexico would have paid its creditors eight times the original balance of its debt, according to the World Bank. (González Amador, 2002) In the mid-1980s, the International Monetary Fund (IMF) intervenes to provide funds in more favorable terms than those of commercial banks, but in exchange it demands that Mexico implement policies of structural adjustment. These policies would drive the mutation of the Mexican economy towards the neoliberal model, through well-known measures: reductions in payments and other barriers to commerce; liberalization of foreign investments and financial markets; cuts in public spending, especially on social spending; the sale of state enterprises and the dismantling of a series of subsidies for popular consumption. These measures were extended during the 90s with the Salinas administration and continue today under Vicente Fox. But the neoliberal model brought economic stagnation. The eighties are generally referred to as the lost decade in terms of economic growth, but for Mexico there were two lost decades, because it has not seen sustained economic growth since 1982 (see Table 1) and poverty continues to spread. TABLE 1 Growth of the Mexican EconomyAnnual Average
Sources: Dussel (2000) for 1950-1970, Galleger and Zarsky (2003) for the other time periods.Already in 1988, the Mexican people resented the effects of liberalization, principally because of the loss of hundreds of thousands of jobs and the substantial deterioration of the acquisitive power of their salaries. There were presidential elections this year and the Mexican people voted against the neoliberal route that had taken on the reigning PRI party (Partido de la Revolución Institucional), upsetting by a plurality of votes in favor of the leftist opposition of Cuauhtémoc Cárdenas. Nonetheless, in one of the most shameless electoral thefts in Mexicos history (which has seen many), where in the middle of a failure of the computer system the night of the votes, Cárdenas was denied victory. The government of the departing president, Miguel de la Madrid, declared the Carlos Salinas de Gortari to be the next president by a clear, convincing and unobjectionable victory. According to the New York Times, the US government endorsed the electoral fraud to impede the arrival of a leftist government and secure, through Salinas, the continuity of neoliberal reforms. (New York Times, 2004) Despite the democratic undoing in 1988, the alarm had been sounded, particularly for Washington, that the danger could present itself again. Faced with the eventuality that there were no chains that could ensure the continuity of the neoliberal project, beyond the whims of a president, in particular one attacked by US opinion, that of the leftist and national Cárdenas. The chains took on an unexpected form: that of international agreements, proclaimed as mechanisms to facilitate commerce, but that would contain a profound political agenda. In 1990, President Salinas traveled to Washington to begin negotiations that would end in the signing in 1993 of the North American Free Trade Agreement (NAFTA) between Mexico, Canada and the United States. The Agreement, ratified by all three legislatures, means that future leaders will have difficulties in reverting without making themselves the object of strong economic sanctions that, particularly in the case of Mexico, could destabilize the nation. Aside from commercial matters, the Agreement codified and institutionalize the neoliberal orientation of the economy in investments, government purchases, and a brand-new mechanism (Chapter 11 of NAFTA) that allows corporations to demand reparations from governments in secret tribunals for supposed indirect expropriations, which could include any government action that impedes corporations from obtaining profits that they foresaw making in the future. The articles of the treaty grant powers and privileges to the corporations, unpublished until this moment. At the same time, it makes government measures that restrict the liberty of corporations difficult or impossible. Moreover, NAFTA restricts democracy by placing private capital above citizen control. For example, the restrictions to commerce of Chapter 11 are defined in such a way that any environmental, labor, social, or human rights standard can be placed in doubt and eventually rescinded. In essence, it prohibits any government measure that could be taken to define a policy of development favorable to the interests of its people, but goes contrary to the interests of corporations. In this sense, the treaty has a super-national, super-constitutional value, of an unappealing and anti-democratic nature. But the preceding is just an example of a greater phenomenon. What Mexico has been living since the 1980s, through successive agreements with the IMP and numerous trade agreements, is nothing less than the destruction of the autonomous economy and policies of the state. So, the Mexican economy doesnt have its own national course, if we understand that to mean an economy that responds to the interests of the Mexicans, oriented towards improving their quality of life. The crux of the economy, the driving force, that would imprint a sense and a national direction, has been left to emanate from the state. What has occurred in the last two decades is the transference of control of the economy to a diffuse, but ideologically well-defined, private initiative, that is chiefly foreign, especially from the United States. Suddenly Mexico is forbidden from walking the same path of all developed countries, through a national industrialization. The industrialization in first world countries had, at one level or another, a state orientation that channeled resources and granted protection to certain prioritized sectors, according to internally decided criteria. But they have taken the staircase away (Chang, 2003) from developing countries that would have allowed them to ascend to higher levels of industrialization. The unfortunate combination of free trade agreements with advantages for corporations and structural adjustments imposed by multilateral banks and submissive Mexican authorities who comply unquestioningly with neoliberalism, has meant that the country is prevented from seeking to excel at that which it has a comparative advantage as industrialized nations did in the past. This road has been cut off for Mexico. In fact, the country has de-industrialized in 20 years and the state has its hands legally tied from reversing the trend. It is not an exaggeration to say that, in economic terms, the country is now at the service of major corporations. Mid-Term Prospects The process of de-nationalization of the Mexican economic and its progressive corporatization has not yet concluded. Despite the lean results of the neoliberal model in Mexico (which we will reexamine in detail in the next section), a sharp change in orientation is not foreseeable. To the contrary, with the politicians that predominate in the country today, everything points to an extension of the model. In Mexico, there is little left at the federal level to privatize. The two para-state principles that are still in the hands of the state (the Federal Electricity Commission and PEMEX) are being privatized piece by piece and there are incessant initiatives by executive powers for legislation for definitive de-incorporation (privatization). There are also second generation policies of structural adjustment that consist in decentralized privatization, that is to say, privatization at state and municipal levels. One area where local governments still maintain control is public services. Due to pressure from multilateral banks (World Bank, Inter-American Development Bank, IMF), state and municipal governments are privatizing their services of running water, health, education, municipal sanitation including street-cleaning and trash collection, etc. All this is in a context of profound integration, which we will examine later. Some Positive Indicators and Their Contexts We will now look in greater detail at the apparent contradiction between a healthy economy with growing levels of poverty, unemployment, and inequality. There are positive indicators of Mexicos performance in times of liberalization. For example, after NAFTA came into effect, Mexicos exports increased by three times, in 2002 surpassing $160 billion dollars, making Mexico the USs number two commercial partner (until it was displaced by China last year). Mexico also occupies place number 11 among exporter nations in the world. Moreover, the countrys exports are no longer in their majority primary products or from natural resources; 88.4% are products manufactured with some level of technological sophistication. Oil, it is certain, is still being extracted from the earth at a rate of 3.2 million barrels per day, 50% of which goes to the United States, but in 2002, crude oil represented only 9% of total exports, whereas in 1981 it represented 72.5%. (Arroyo, 2003) If there is an undeniable boom in Mexican exports, the actual model has impeded its dynamism in the rest of the economy. The problem resides in the fact that exports are concentrated in a very small number of corporations, less than 1% of those that exist in Mexico. The free trade agreements have forbidden government norms that in earlier years fomented the productive chains that created jobs. The dynamics of exporting corporations are their own enclaves with respect to the rest of the economy. They are, in the words of investigator Alberto Arroyo, successful islands in a stagnant country." (Arroyo, op. cit.) Added to the preceding, the bulk of the exports come from maquiladoras (factories operated in open door conditions). The maquiladoras created more than half a million jobs in Mexico since the signing of the FTAA, but they are also divorced from all other economic activity in the county. Osvaldo Martinez notes, In these industrial exports, Mexican economists calculate that for each dollar of Mexican industrial exports to the United States, there are only 18 cents of national components But if we take the maquiladoras that have proliferated along the border and now towards the center of the country, for each dollar exported the national component is 2 cents. (Martinez, 2002) The successful exports go hand in hand with major imports. In fact, the country imports more than it exports. Before the FTAA, Mexico had a commercial surplus. Since 1994, it has had a persistent and growing deficit in trade balance, with the exception of the years 1993 1995. The deficit in trade balance means that the country has a persistent need to attract foreign financial funds to make up the difference. Among other measures that authorities take to make the country attractive is raising interest rates. But that which is attractive for foreign investors harms national industry, as high interest rates decrease economic activity. For defenders of the neoliberal model, another great success was the financial opening, because many important capital flows have arrived in Mexico. In ten years, from 1994 to 2003, direct foreign investment in Mexico totaled $126 billion, equivalent to 24% of all direct investment in Latin America in the same period. Moreover, it is worth mentioning that, of all foreign capital, the majority, 79% in total, has been from direct investment, and 21% of investments have been for speculative purposes. (Arroyo, op. cit. and the Secretary of the Economy 2004) Once again, there are difficulties. On the one hand, much of the foreign capital that entered the country was used to buy already established corporations, not to create new sources of work. Second, the foreign investments were concentrated in the more dynamic sectors with greater possibilities for profit, principally in manufacturing (of that 61% in the production of automobiles and auto parts), in commerce (12.4%), and in financial services (10.6%). Agriculture, on the other hand, has received only 0.21% of foreign investments (information from 1994 1998). (Dussell, 2000) Moreover, investment has been concentrated in some metropolitan zones. By concentrating economic activity in some areas, less developed regions like southeastern Mexico, including Chiapas, have been abandoned. By way of example, in 2002, of the $13.3 billion in foreign investments that entered the country, only $1.8 million arrived in Chiapas (0.014%), and, in fact, from the year before to that year, more foreign capital left than entered, leaving Chiapas with a negative net balance of $900 million in the period 2001 2003. (Secretary of the Economy, op. cit.) We insist: liberty of movement granted to capital increases inequality and the state has very little, or nothing, that it can do to change the direction of financial flows, as was common in years past. We newly refer to the principal economic indicators, some of which are in perfect health: in 2003 inflation was at its lowest in 30 years (3.98%); the reserve is healthy ($58 billion in May 2004); the price of oil is high (around $42 per barrel in June 2004), with a positive outlook for public finances. Even so, Mexicos recent economic history is more complicated and less optimistic than shown by a few positive indicators of the current economy. Due to questions of space we limit our commentary to four indicators (economic growth, job creation, poverty, and income distribution) to offer a greater context. The Results of Neoliberalism in Mexico: GrowthPossibly the worst problem in neoliberal times is that the economy does not grow, or that it grows at an unsatisfactory rate and/or for short periods of time. During approximately 30 years, from 1950 1970, Mexico grew an average of 6.6% per year (3.3% per capita per year), a strong and sustained rate that allowed for the creation of a small middle class and abated some of the poverty. On the other hand, if we consider the two decades of implementation of the policies of structural adjustment, 1982 2002, or the period of NAFTA, 1994 2003, growth rates per capita have been 0.96% and 0.26% respectively. These feeble indicators are the lowest registered ever, since the state began to systematize economic information in the 1930s.During the Fox administration, gross growth has been around 0% and in fact is negative when considering growth per capita. To these assessments, one should also take into account the increasing environmental degradation, equivalent, according to the World Bank, to 10% of the GNP. (Arroyo, op. cit.)In this somber panorama, there were five years, 1996 2000, of growth averaging 5.1%, resulting in the most important U.S. expansion in the entire post-war period. Nonetheless, when the U.S. economy slowed down in 2001 and 2002, Mexico fell into a profound recession, greater than that of the United States (see Table 2).We emphasize two events. First, the Mexican economy depends primordially on the health of its neighbor, nothing new for Mexico, but this tendency has increased. 90% of Mexican exports have the United States as their destination; a percentage similar prevails for imports. Second, the important drag effect that the United States has on Mexico has its particularities: when the U.S. economy is in its peak there are positive effects for Mexico. For example, in the period of 1996 2000, the U.S. economy grew at a record rate of 4.1% on average, while Mexico, as we have seen, had an average rate of 5.1%. On the other hand, when the U.S. fell into a recession, as was the case in 2001 2003, with growth rates of only 1.9%, the negative effect on Mexico penetrated even deeper.Table 2 Annual Growth Rates During Selected Periods, U.S. and Mexico
Source: INEGI Now that the U.S. economy has recuperated, the effect has not been transmitted to Mexico. According to the Bank of Mexico, the increase is in service sectors, not in industry, the segment to which Mexican exports are directed. (Ortega, 2004) EmploymentDuring the 90s, the economically active population grew by approximately 1.5 million per year. But the incapacity of the Mexican economy to generate employment for its labor force is notorious. And it is easy to understand why when the economy does not grow, it does not create jobs.Between 1988 and 1996, only 39% of the economically active population found formal employment. The remaining 61% had to enter the informal economy or emigrate. It is true, the problem of unemployment in Mexico is chronic and precedes the neoliberal era, but neoliberalism and the period of free trade has worsened this secular problem. Moreover, in terms of employment, the current model has failed with respect to the former (industrialization by substitution of imports ISI). Job creation during the period of ISI (1970 1981) had an average rate of almost 5%; it fell to less than half that during the period 1988 1996, with an average rate of 2.0%. (Dussell, op.cit.)Both the neoliberal period and the free trade period have generated new jobs, but not as many as they have destroyed. The net balance is negative, as well as the fact that the new jobs are qualitatively inferior. Arroyo notes:55.3% of the new jobs generated do not comply with any of the services required by law, which are only three: social security, a Christmas gratuity, and ten days of vacation per year. If we take as a universe only those that are openly and formally salaried, 49.5% of these do not have any of these three services. (Arroyo, op.cit.) Cordera adds: There are clear indicators that the social damage that in employment and incomes produces economic declines is not made up at the same rate when the economy recovers. (Cordera, 2003) In fact, despite a recovery of the U.S. economy, the Financial Group Citigroup Banamex calculated that there would not be any net increase in job creation in Mexico in 2003. (Zúñiga, 2003). For the millions that are unemployed there are the following options: 1) enter in the informal legitimate economy, but mainly unproductive (currently calculated as on third of the GNP); 2) enter in the informal illegal economy (narco-traffic and human traffic, now the second illicit activity of importance after drug trafficking); or 3) emigrate, principally to the United States. Poverty and Income DistributionCordera notes the following about the structure of poverty in Mexico:Whatever number and percentage of poverty is adopted, that which seems to have been imposed in reality is a tendency to the conformation of a hard floor of poverty of enormous proportions, that threatens social cohesion and, potentially at least, the consolidation of the democratic regimen. (Cordera, op.cit.) Poverty is one of the endemic and persistent ballasts of Mexican history, since the conquest of 1521. Although there have been periods with reduced levels of poverty (for example, 1935 1975), Mexico has never been able to overcome the problem. Today, after 20 years of deterioration under the neoliberal regimen, the numbers are, objectively, scandalous: 67.8 million Mexicans live in poverty, of a population of 102 million. 53 million Mexicans survive on 34 pesos ($3) per day, according to the Secretary of Social Development. (Alcantara, 2002) Julio Boltvinik, who has studied the characteristics of poverty at his post with the Mexican College, estimates that there are 40 million Mexicans in extreme poverty, which is understood as an income level that does not permit one to acquire or produce the minimum indispensable things for mere survival. (Boltvinik, 2001) In Chiapas, the scandal is even greater. According to data from the official 2000 census, 75.9% of the population in Chiapas lives in poverty. And, of these, 70.1% lives in extreme poverty. In rural areas, 84.6% of the economically active population lives in extreme poverty, because their incomes did not reach a minimum wage. (Villafuerte, 2003) In terms of income distribution, there is unanimity among academics and government officials that in the two periods considered here (neoliberalism and free trade), income distribution has polarized in a significant manner. In 1984, the 10% richest households received 32.8% of the countrys income. This same sector today has more than 40% of the countrys incomes, an increase of 22% that came at the expense of other sectors. Another way to look at it: the richest 20% obtained 49.5% of incomes in 1984, but today receive 56.1%. The poorest, on the other hand, saw their incomes fall, from 1.7% of total income in 1984, to just 1.1% in 2003. Also, the real value of the minimum wage today is at its lowest point since a minimum wage was created in 1934. In 1998 the buying power that a real salary and a minimum salary had were at 57% and 29.5% of their value in 1980. (Barkin, 2003 and the World Bank, 2004) Towards a Balance Despite the fallbacks in social aspects and in other aspects not discussed here (trade deficit, technological development, loss of the nations competitiveness, maquiladora crisis, informal economy, drug-trafficking economy, social disintegration), the governments since 1982 do not stop in bringing the country ever-stronger versions of this model. For them, the economic events since the crisis of the moratorium in 1982 have been a success. Dussel explains it in the following way: the liberalization strategy implemented in Mexico since 1988 has been coherent in the extreme from its own conceptual framework and in its policies implemented. In its own terms, the liberalization has been relatively successful. [emphasis in original] (Dussel, op. cit.) It is in this limited sense that the functionaries dare to present a positive and optimistic picture. But a model, particularly economic, internally coherent, but inherently exclusive and incapable of posing viable solutions for structural problems and, moreover, failed after 20 years in practice, is unsustainable and has to be replaced. As Dussel later notes: The social tendencies since 1988 definitively send us to the core theory of the strategy of liberalization. What is the relationship between social welfare and economic growth? What development, without job creation, will be sustainable and economically desirable? (Dussel, op.cit.) From this perspective, the Mexican ship is definitely floating adrift, because the current model has stripped it of its internal motor necessary to correct the endemic problems and whose persistence makes the voyage unsustainable. The country is not only adrift there is a danger of a shipwreck. In fact, there are already millions of Mexicans that have abandoned ship to look for employment in other latitudes. There are almost 10 million Mexicans, born in Mexico, that now live in the United States. The money they send back home sets a new record every year. In 2003, $14 billion dollars that were sent home from the U.S. were only surpassed by the incomes from petroleum exports ($18.6 billion), surpassed both foreign investments ($9.4 billion) and tourism ($1.4 billion). Every dollar sent home by Mexicans living abroad belies the official story that the Mexican economy is doing well. The immense majority of Mexicans in the United States have had to immigrate out of necessity, when their preference was actually to stay in their own country, with a decent job and hope for the future. Text notes: (1) We will use here the term neoliberal as a synonym for the measures enacted since the 1980s to liberalize the economy of Mexico, although some economists object to the validity of the term neoliberal for what has happened in Mexico. See, for example, Dussel, Chapter 1, who calls for greater precision, because all the political tendencies in Mexico reject neoliberalism. In its place, Dussel postulates strategy of liberalization. (2) We use the UNs definition of genocide, established in the Convention on Prevention and Punishment of the Crime of Genocide, 1948, Article 2: In the present Convention, genocide means any of the following acts, carried out with the intention of destroying, totally or partially, of a religious, racial, ethnic, or national group, such as [ ] c) deliberately inflict on this group conditions of life that are calculated with the goal of causing their physically destruction, totally or partially.
Center for Economic and Political Investigations of Community Action, A.C. CIEPAC is a member of the, Mexican Network of Action Against Free Trade (RMALC) www.rmalc.org.mx, Convergence of Movements of the Peoples of the Americas (COMPA ) www.sitiocompa.org, Network for Peace in Chiapas, Week for Biological and Cultural Diversity www.laneta.apc.org/biodiversidad, the International Forum "The People Before Globalization", Alternatives to the PPP http://usuarios.tripod.es/xelaju/xela.htm, and of the Mexican Alliance for Self-Determination (AMAP) that is the Mexican network against the Puebla Panama Plan. CIEPAC is a member of the Board of Directors of the Center for Economic Justice http://www.econjustice.net and the Ecumenical Program on Central America and the Caribbean (EPICA) http://www.epica.org. Center for Economic and Political Investigations of Community Action, A.C.
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