Free Trade Battle – Vote of Confidence Lacking
Viewpoint / Mark A.
Sunday December 7, 2003
Several weeks ago
protesters from Latin America
and the U.S.
rallied in Miami
against “spreading the magic” of the North American Free Trade Agreement (NAFTA)
to the rest of the hemisphere. Concerned about what’s happened in Mexico
demonstrators argued against transferring a flawed market pact to the rest of
in the form of the Free Trade Area for the Americas (FTAA) accord.
This is puzzling for
many because Mexico’s
economy has changed significantly under NAFTA. Private investment rather than
state-led initiatives now drives Mexico’s
economy, while principal tradable goods have changed from basic commodities to
telecommunication equipment and electrical machinery. In addition, while
petroleum still generates a majority of Mexico’s
income, it no longer dominates Mexico’s
In spite of these
developments the promise of free trade – well-paying jobs, stable employment, keeping
Mexicans in Mexico,
accelerated economic growth, and development – has yet to pay off. Indeed, as
NAFTA gets ready to celebrate 10 years in January, one question is increasingly
asked in Mexico:
If Mexico is doing so well, why are Mexicans doing so poorly?
A review of basic
economic indicators helps answer this question. On the wage front things are
positively dismal. Almost 51% of Mexico’s
workers earn two minimum wages or less (minimum wage is about $4.00 per day).
Critical here is that minimum wage has lost 2/3 of its purchasing power since
1983, meaning that workers need to work three minimum wage jobs today to buy
what they bought in 1983.
One of the reasons
for this is that, in spite of several strong years, overall economic growth has
been rather laggard. For example, per capita Gross Domestic Product (GDP, what
a country produces and sells each year) in 2002 was only 7.3% greater than it
was in 1982, an annual growth rate of 0.35%. Similarly, per capita fixed
investment – necessary for equipping a population with skills and education –
was only 0.2% higher than in 1983, a paltry 0.04% growth rate per annum.
The impact of declining
wages and lethargic growth come to life when we look at specific sectors of the
economy. Since 1983, when Mexico began embracing free markets, its
manufacturing sector registered average growth rates of 2.9%, and ticked up to
3.6% during the NAFTA era (1994-2002). These are respectable numbers until we
consider that between 1935 and 1982 manufacturing growth rates averaged 6.7%.
Surely, one might
argue, “We must consider exports, which have grown under NAFTA and made Mexico
more dynamic.” Think again.
First, exports are
growing at about the same clip as under Mexico’s
state-led economy. For example, while exports grew 11.8% during the NAFTA
period (1994-2002), from 1951 to 1981 manufacturing exports grew at an 11.9%
clip. Second, manufactured exports may be a misleading indicator because the maquiladora
sector – specially zoned export assembly areas created by the state in the
1960s – has been the primary force behind growing exports. Finally, outside of
sector job growth has been flat, meaning NAFTA’s direct impact on job creation has been negligible.
banking sector, things aren’t much better. In fact, its story in the neoliberal era is perhaps the industry worst. To be sure,
President Lopez Portillo’s ill-advised nationalization in 1982 didn’t set a
positive tone, but the banks liberalization and eventual privatization (from
1988-1992) were akin to forced marches that left the industry in the hands of
political cronies and un-skilled financiers.
Because the technical
details are complex, the best way to picture Mexico’s
banking collapse is to think about the recent scandals in Corporate America and
our own Savings & Loan debacle. What moves Mexico
beyond the cronyism and inside deals that caused financial uncertainty here is
paid more to bail out the banking system ($130 billion) than it received when
it sold them.
Eighty percent of Mexico’s
banks are now in the hands of foreigners.
Credit has been suppressed across the
In the case of the
latter, in 2002 bank credit for businesses and individuals – necessary for
small business investment and growth – was 55.6% less than in 1993 and 9.1%
less than in 1982. All of this has contributed to an inefficient and costly
banking system that helps us understand why many Mexicans keep their money
elsewhere (according to one public official only 27% of Mexicans participate in
the formal banking system).
While I could
continue, it’s sufficient to say Mexico’s
oil (no R&D), agriculture (a net importer) and other industries have fared
similarly, while wealth disparities have increased across the country. To put
this all in perspective – and in terms everyone understands – rates of
migration from Mexico
to the U.S.
have increased rather than fallen since NAFTA. In fact, the number of Mexicans
who have left Mexico
since 1980 is three times the previous 50 year period (1930-1980).
None of this is a
vote of confidence for NAFTA, and helps us understand why protesters in Miami
were concerned about “spreading the magic” of NAFTA to the rest of the
hemisphere. It also helps understand why few, if any, will be celebrating NAFTA’s tenth anniversary in Mexico
come January 1.
Dr. Mark A. Martinez is an associate professor of American foreign
policy and international relations at California State University, Bakersfield.