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MEXICO SINCE NAFTA: Elite Delusions and the Reality of Decline

In late 1993, the governments of Canada, Mexico, and the United States completed the North American Free Trade Agreement (NAFTA) to build an investment and production bloc that would rival those of Asian and European Union countries. The Mexican government made it clear that the enhancement of foreign direct investment (FDI) and portfolio investment—not trade—was its prime motivation for entering into the agreement.1 Mexico’s need to recover from its devastating 1980s economic slowdown neatly coincided with an emerging U.S. strategy of relocating production plants to low-cost sites to confront surging competition from Japan and U.S. organized labor. After Mexico passed a new foreign investment law in December 1993, 91 percent of its economy became open to foreign ownership. The U.S. automobile sector was particularly heavily impacted—in 2010, one out of every four automobiles imported into the U.S. had been assembled in Mexico.

A profound crisis followed in late 1994 through 1995. Recovery came in 1996, as the Mexican economy enjoyed a jump in foreign investment and manufacturing exports to the U.S. soared for several years. NAFTA’s advocates felt vindicated, ignoring the fact that the export boom was driven by unique “new economy” conditions in the U.S. which caused a massive overexpansion of communications and information technologies. By 2000, this “investment-led” expansion in the U.S. came to an end.

At this point, Mexico was hit from both sides. China’s manufacturing exports quickly expanded when it joined the World Trade Organization (WTO) in 2001, knocking out textile, apparel, and other labor-intensive Mexican export plants. Meanwhile, U.S. demand slowed through the recession that followed the 2000 dot-com implosion and into the jobless recovery period that lasted through 2004. Five years of strong GDP growth—averaging 5.4 percent a year from 1996 to 2000—were followed by seven years (2001-2007) of a 2.3 percent annual GDP expansion rate (which slightly exceeded population growth). Then, Mexico was more severely impacted by the 2008 U.S. financial crisis than any nation in Latin America.

Far from helping to overcome Mexico’s economic backwardness, NAFTA has permanently tied Mexico to a low-wage export strategy. In spite of the export boom, real manufacturing wages in 2002 were 12 percent below the 1994 level, while maquiladora wages only rose by 3 percent.2 In the same period, manufacturing sector employment growth dropped by forty-four thousand jobs while maquiladora employment growth rose by 493,000 jobs—roughly equal to one year’s worth of migration in the first half-decade of the twenty-first century. NAFTA increased exports and foreign investment but it failed to generate significant employment growth because of policy-based wage repression that constrained the domestic market. Labor productivity failed to improve and from 1994 through 2009 employment growth in the formal economy averaged 387,000 jobs per year—absorbing only 38 percent of Mexican youth leaving school for the labor market.3

Furthermore, Mexico deindustrialized under NAFTA because transnational firms began to import more of their inputs and suppliers, almost exclusively relying on a combination of imported components and cheap Mexican labor to process and assemble products for re-export. Approximately 80 percent of Mexico’s exports were for the U.S. market, with foreign-owned firms accounting for 80 percent of total exports. Although Mexico had a $93 billion trade surplus with the U.S. in 2010, overall it suffered a trade deficit.4 It fell from the twelfth largest exporter in 2000 to the fifteenth largest exporter in 2010, with its share of global exports dropping from 2.61 percent to 1.96 percent.5 Cheaper imported consumer and intermediate goods (inputs) also undermined the domestic industrial base. Stagnation, falling wages, a growing “jobs deficit,” and surging migration from 2001 through 2008 demonstrated the failure of NAFTA’s export-led strategy.

During the debate over NAFTA, “experts” predicted that NAFTA’s job-creating engine would lead to the “convergence” of Mexico’s living standards with those of the U.S. and Europe.6 Instead, the gap widened. In 1980, Mexico’s GDP per capita was 47 percent of the average OECD level; in 2005, it had fallen to 34 percent.7 According to a World Bank evaluation, NAFTA increased total 1994-2003 cumulative per capita income by a miniscule 4 percent.8 But a rigorous examination—that uses standardized data sources—of the World Bank study demonstrates that NAFTA had reduced per capita income.9 At this point, the NAFTA narrative dissolved into silence.

The Middle-Class-Nation Narrative

President Calderón, his financial backers, and his ideological allies have attempted to construct a rival narrative. Mexico, they claim, is a relatively prosperous middle-class nation that suffers from an image problem—a viewpoint strategically used as an ideological weapon in the far right’s attempt to hold onto political power in the 2012 presidential election.

In April 2011, Expansión magazine—the Mexican equivalent of Fortune—led off with an audacious article. Its subtitle asks: “Would You Like to Live in a Country That Grew at the Rate of 5 percent . . . and Where Global Corporations Want to Invest?”10 The article owes its origins and data to a slickly-produced book entitled Middle Class: Poor No Longer but Still Not Developed. 11 The authors’ definition of middle class is elastic enough to embrace nearly everybody, including such characteristics as going to a movie theater; taking an airplane trip; owning a car; living in a city; owning a business; or making payments on a scheduled debt.

But millions of desperately poor Mexicans live in cities. Humble citizens, separated from their families, do fly to the U.S. on a budget carrier. Millions of economically marginalized Mexicans own a business—which might consist only of a pushcart parked at a busy corner— constituting part of the vast underground or “informal” economy. At least 47 percent (as of 2010) of all wage-earning and salaried workers belong to this informal sector, as the weak economy has created only 211,500 jobs per year since 2000.12 This informal labor force constitutes 21 percent of Mexico’s population—49 percent when these workers’ dependents are factored in. Those in the informal sector—where no official labor contracts or places of business are registered, and no taxes are levied—generally eke out (at best) a meager subsistence. Only 51.6 percent of the labor force (excluding employers) receives either a pension or health benefits.13 Almost all should be excluded from the staggering claim that “the middle-class population is the majority in the country.”14

In Middle Class, De la Calle and Rubio make use of a fivefold division of household income, isolating those with annual incomes above $1,800 USD but below $72,000 USD in 2000 (amounting, according to the 2000 Census, to 40 percent of total urban and rural households).15 By conventional Mexican standards, no family living on $1,800 per year, or even more than triple that amount, would define themselves as anything other than working class—a class that has disappeared in the new narrative. (For example, the most miserably paid maquiladora workers in most plants receive annual wage incomes above $1,800.) Without justification, the analysis used in Middle Class excludes all rural and small-town households—constituting nearly one-third of Mexico—which happen to be the households with the highest incidence of poverty.

On this basis, the authors claim that the number of (urban) middle-class households amounted to 53 percent of the total population in 2002. They make such a claim even though the lowest income group in their analysis consists of “those [urban] persons with slightly below average income, with only a secondary education and without an auto in the family.” 16

Never outdone, Jorge Castañeda proclaimed that two-thirds of Mexico’s population would rise to middle-class status by 2012—purportedly due, in part, to NAFTA.17 Echoing this upbeat analysis, the New York Times claimed that the “Mexican economic expansion . . . has created a larger middle class.”18 The Times failed to note that the 5.5 percent GDP increase in 2010 failed to compensate for the stagnation of 2008 and the 6.1 percent drop in GDP in 2009, leaving per capita income 4.3 percent lower in 2010 than it was in 2007. 

Claims that Mexico is a middle-class country appear to at least partly depend on a sleight-of-hand willingness to ignore the large rural and small-town populations. Including these households, the largest subgroup of those earning $1,800 to $72,000 a year—15 percent of all households in 2000—had annual incomes equal to or above $1,800, but less than or equal to $15,000. This subgroup constituted what has conventionally been understood as the working class. That is, 62 percent of wage-earning workers made $5,678 (amounting to three times the minimum wage) or less in annual take-home pay. Even with two incomes, and including the value of benefits and imputed income from social programs, their annual family incomes fall below $15,000. Using an approach that focuses on incomes above $15,000, the middle class is a mere 25 percent of the total population.19

In 2008, median household income was $716 USD per month, or $179 per person.20 For these households—which fall right in the middle of the income distribution—it is assumed that neither rent nor mortgage is paid. Instead 19 percent of monthly income is assumed to be non-monetary, consisting of the imputed value of the owner-occupied home. Additionally, these households receive more than 10 percent of their total income from government in-kind transfers, such as health care.21 These assumptions are clearly not valid for the large number of households that must pay rent. The “slightly-below-average” household, in the fourth decile of the income distribution in 2008, received $526 USD per month, or $6,307 per year. Using the UN’s definition of the poverty line (two times the minimum food budget), the standard of living for such an urban Mexican family would be a mere 54.9 percent of the poverty level.22 Poverty analyst Julio Boltvinik has defined slightly-below-average-income families—as well as those in the fifth decile—as “moderately poor.”23 The moderately poor are understood to be those who suffer from an inadequacy of basic goods and services—i.e., housing, food, sanitation, education—that Mexico’s level of economic development could easily provide.24

According to Boltvinik’s estimates, 66 percent of Mexicans were poor (encompassing the indigent, the poor, and the moderately poor) in 2010—about as far away from a “majority middle class” as one might imagine.25 The next category of income recipients includes only 19.6 percent of all households that attained a “barely adequate” standard of living in 2010—down from 21.9 percent in 2005.26 After taking Boltvinik’s rigorous studies into account, the simplistic formulation that Mexico has become a middle-class society simply melts into air.

Nonetheless, it is important to carefully examine what appears to be the pièce de résistance of the majority-middle-class narrative— the presentation of data suggesting that average real per capita income in Mexico increased by 40 percent in the twenty-year period from 1988 through 2008.27 There are several problems with this representation. First, in 1988 Mexico was in a very deep hole—per capita income had fallen by at least 14 percent since 1982.28 After these most-difficult years, the economy began to expand at a moderate pace. Between 1988 and 2008, per capita income grew at the very meager rate of 1.5 percent.29 In other words, average real per capita income growth over that twenty-year period was a modest 32.7 percent instead of the 40 percent claimed by De la Calle and Rubio whose estimate was based on a low (thus incorrect) population growth rate, revised upward by the 2010 census for 2000-2008.30 Using the entire neoliberal period (1982-2008), the cumulative growth in per capita income was only 18.7 percent. If the analysis is extended through 2010, the overall (cumulative) average increase in per capita income since 1982 was a pathetic 14.1 percent—amounting to an annual average growth rate of 0.47 percent. 31

The (Real) Distribution of Income

In 2008, the median household income—according to the official distribution of income data gathered from the household income survey—received only $8,592 USD per year, or roughly $2,148 per individual family member.32 According to this survey, the average household income was $12,232 USD per year, or $3,058 per capita.

A second measure of average per capita income involves dividing national income—the sum of all wages, profits, dividends, interest, and other incomes—by the population. This National Income Accounts approach suggests that personal income per capita was $7,525 USD in 2008.33 In theory, the average per capita income from the household income survey ($3,058) should closely approximate the National Income Accounts estimate ($7,525). Thus, there is clearly an extremely large degree of slippage—by a multiple of 2.46—between these two attempts to measure “average” income, and an even greater difference—by a multiple of 3.5—between median per capita income measurements and average per capita income according to the National Income Accounts.

There are two major reasons why the data is skewed. First, the distribution of household income figures actually does not record the incomes of Mexico’s highest income strata—the upper class, as well as much of the income received by the upper middle class, 3 percent and 7 percent, respectively. The household income survey caps wage income—in 1998, the cap was only $81,500 per year, ignoring all wage income above that limit.34 There is also massive underreporting of business income (61 percent unreported) and dividends and rents (66 percent unreported).35 Including all such items, the share of total income for the top 10 percent rose from 41 percent to 54 percent in 2002 and from 44 percent to 62 percent in 2000.36 Overall, at least 50 percent of total income received is not registered by the household survey—which serves as the basis for the official distribution of income figures. Specialists argue that the household survey offers a largely accurate account of the income of a median household, while the National Income Accounts measure captures the incomes of the rich.37

Second, median family incomes are so far below the mathematical average—$8,592 according to the household survey versus $30,100 according to the National Income Accounts approach—because throughout the neoliberal era, beginning in late 1982, Mexico’s economic and political elite has imposed a policy of wage compression and upward income redistribution. This policy was codified in the famous 1987 Pacto de Solidaridad (Solidarity Pact) in which the economic oligarchs, unions, and the state agreed to hold wages to inflation levels or below.38 As a result, real minimum wages fell by 74 percent between 1982 and 2009.39 In 2010, 23.2 percent of the employed labor force earned somewhere between the minimum wage ($4.45 USD) and twice that amount, while 21.8 percent received the daily minimum wage (or less).40 Unionized workers have been harmed somewhat less—their inflation-adjusted wages fell by 54 percent from 1982 to 2009.41 However, Mexico’s unionization rate fell from 13.8 percent of the paid labor force in 1993 to only 10.3 percent in 2008.42 Manufacturing sector workers have been impacted the least because they are a core component of the export-led model. Nonetheless, their wages dropped by 18.4 percent from 1981 through 2008.43

Mexico’s Bifurcated Recovery

By early 2011, high-level economic policymakers claimed that Mexico’s dramatic economic downturn of 2008-2009 was over, due to the nation’s “solid” management of “economic fundamentals.” Having grown by 5.5 percent in 2010, many predicted 4.5 percent growth for 2011—but the economy slowed to a 3.1 percent annual rate from July 2010 through March 2011, and fell to a 2.1 percent rate in the first quarter of 2011.44 The “recovery” has been limited to rising exports produced by a few (overwhelmingly transnational) corporations that operate in the globally integrated production system. Due to various policies in the U.S.—including the “cash-for-clunkers” program and a 2010 jump in subprime credit that enabled the purchase of 859,000 autos—the U.S.-Mexico auto industry has enjoyed a remarkable recuperation, with Mexico’s monthly production rising by roughly 100 percent (from 110,000 vehicles to nearly 230,000) from mid-2009 to March 2011.45 By late 2010, the boom in auto production had spread to electronics (Mexico’s second-largest manufacturing export sector). Manufacturing exports are the engine that drives Mexico’s misfiring economy. This boom means more foreign direct investment, particularly as auto plants expand and profits surge (Mexico’s forty-seven largest corporations experienced a 65 percent increase in profits from June 2009 to June 2010).46 For manufacturing workers who were furloughed on short-hour schedules, the export expansion will bring full-time work (with possible overtime pay), but insignificant hourly wage increases. Although there’s much talk about Mexico’s “recovery,” its domestic market stagnates for lack of a generalized wage recovery which could boost effective demand. In 2010, for example, domestic auto sales remained 20 percent below the 2008 level.47 Thus, the recovery is bifurcated, and the majority of Mexicans have been excluded—as even some prominent business leaders complain.48 Mexico’s economy is dependent, as never before, on an export-led model that has clearly failed.

No sustained recovery or expansion can occur because the rentier ethos of neoliberalism rejects policies that will stimulate widespread capital formation and upgrade the industrial base (aside from the export enclaves). As the Mexican government has failed to support a system of national innovation, Mexico has languished with an annual labor productivity growth rate of .011 percent from 1991 to 2009.49 Without productivity growth, Mexico is condemned to stagnation. To compensate, the business elite will continue to pursue their predatory practices, which will pivot on further driving down wages and accelerating its all-out attack on organized labor. For example, in the fall of 2009, forty-four thousand electrical workers were fired because, according to the president, “they were hindering economic growth.”50

Lose-Lose for Workers: The Disguised Purpose of Neoliberal Policies

NAFTA’s proponents predicted that a “win-win” free trade agreement would help Mexico’s economy experience long-term growth, rising wages, and expanded employment opportunities. Yet wages are between 30 and 40 percent of their 1982 level, average real per capita income has grown at an infinitesimal 0.47 percent annual rate since 1982, and the total cumulative growth in labor productivity since 1991 amounts to a meager 2.1 percent. Meanwhile, upward distribution of income continues—the assets of the Mexican elite included in the annual Forbes list of the world’s wealthiest people increased by 500 percent from 2000 to 2010; during the same period, the ten-year cumulative jobs deficit (youth entering the labor market minus formal jobs created) reached nearly eight million.51 Sixty-six percent of Mexico’s families endure some form of poverty, while (when properly measured) the top 20 percent receive roughly 67 percent of all income.52 In spite of all these facts and documented tendencies, Mexico’s elite have launched their all-out effort to demonstrate that Mexico is now a successful “middle-class” society.

Still—due to predictable political business cycle policies—Mexico’s limping, bifurcated, “recovery” might last through the election of 2012. Whenever there is a presidential election, the economy is stimulated by massive government spending in the hopes that the party in power will continue. For example, in 2006 real GDP growth was 5.2 percent—the highest since 2000 (another presidential election year) when it reached 6.0 percent. The political business cycle effect is directed at infrastructure spending—generating a great demand for nationally-produced construction materials and unskilled labor—and targeted social spending aimed at eliciting the vote of Mexico’s poor. Looking beyond this anticipated short-term stimulus program—designed to continue the rule of the party in power—Mexico shows no indications of reversing a trajectory so punishing to its working people, yet so rewarding to transnational capital and the Mexican elite.

 

Notes:

1. Maxwell Cameron and Brian Tomlin, The Making of NAFTA (Ithaca, N.Y.: Cornell University Press, 2000), 1, 40.
2. James Cypher, “Development Diverted: Socioeconomic Characteristics and Impacts of Mature Maquilization’’ in Kathryn Kopinak, ed., The Social Costs of Industrial Growth in Northern Mexico (San Diego: Center for U.S.-Mexico Studies, UCSD, 2004), 363.
3. James M. Cypher and Raúl Delgado Wise, Mexico’s Economic Dilemma (Lanham, Maryland: Rowman & Littlefield, 2010), 140.
4. Ivette Saldaña, “Boom de tratados de libre comercio,” El Financiero, June 10, 2011, 13.
5. Ivette Saldaña, “A medidas, la política de comercio exterior,” El Financiero, June 10, 2011, 11.
6. Gary Hufbauer and Jeffrey Schott, North American Free Trade (Washington, D.C.: Institute for International Economics, 1992), 60-61.
7. Juan Carlos Moreno-Brid and Jaime Ros, Development and Growth in the Mexican Economy (Oxford: Oxford UP, 2009), 223.
8. D. Lederman, W. Maloney, and L. Serven, Lessons from NAFTA for Latin America and the Caribbean Countries (Washington D.C.: World Bank, 2004).
9. Mark Weisbrot, David Rosnick, and Dean Baker, NAFTA at Ten: The Record (Washington, D.C.: Center for Economic and Policy Research, March 2004), available at www.cepr.net/publications/ NAFTA_at_Ten.htm.
10. Orquídea Soto, “Abre los Ojos A México,” Expansión, April 24, 2011, 32-40.
11. Luis De la Calle and Luis Rubio, Clasemediero, Pobre no Más, Desarrollado aún no (México, D.F.: Centro de Investigación para el Desarrollo, 2010).
12. Zenyazen Flores,“Nivel de informalidad pone en riesgo la productividad,” El Financiero, August 18, 2010,
13; David Márquez Ayala, “México. Ocupación precaria y empleo insuficiente,” La Jornada, August 23, 2010, 30. 13. Panorama Laboral 2010 América Latina y el Caribe (Lima, Peru: Organización Internacional de Trabajo, 2010), 32.
14. De la Calle and Rubio, 17.
15. Cypher and Delgado Wise, 24.
16. De la Calle and Rubio, 16-17.
17 Jorge Castañeda, Mañana Forever? (New York: Knopf, 2011), 63.
18. Damien Cave, “Mexico City Journal,” New York Times, March 31, 2011.
19. Cypher and Delgado Wise, 24.
20. Principales Resultados de ENIGH
2008 (México, D.F.: INEGI, 2009), 11
21. Ibid., 14.
22. Araceli Damían and Julio Boltvinik, La pobreza en el Distrito Federal en 2004 (México, D.F.: El Colegio de México, November 2006), 10.
23. Julio Boltvinik, “Midiendo mal la pobreza de ingresos,” La Jornada, April 22, 2011, 25.
24. Damían and Boltvinik.
25. Boltvinik, 25.
26. Julio Boltvinik, “Principios de Medición Multidimensional de la Pobreza” in Boltvinik et al., Principios de Medición Multidimensional de la Pobreza (México, D.F.: El Colegio de México, 2010), Cuadro IV.37.
27. De la Calle and Rubio, 37.
28. Economic and Social Progress in Latin America (Washington, D.C.: InterAmerican Development Bank, 1985, 305; 1988, 456; 1996, 357, 420).
29. Moreno-Brid and Ros, 225.
30. Principales Resultados del Censo de Población y Vivienda, 2010 (México, D.F.: INEGI 2010), 1.
31. David Márquez Ayala, “Censo de población y vivienda 2010,” La Jornada, December 13, 2010, 28.
32. INEGI 2009, 11.
33. CEFP (Centro de Estudios de las Finanzas Públicas), México: la economía de los sectores institucionales, distribución del ingreso, ahorro y crecimiento (México, D.F.: Cámara de Diputados: Gobierno de México, december, 2001), 17.
34. Fernando Cortés, “El cálculo de la pobreza en México a partir de la encuesta de ingresos y gastos,” Comercio Exterior
15, no. 10 (October 2001): 880.
35. Ibid.
36. Gerardo Leyva-Parra, “El ajuste del ingreso de la ENIGH con la contabilidad nacional” in Miguel Székely, Coordinador, Números que mueven al mundo (México, D.F.: Miguel Ángel Porrúa, 2005), 762. The undeclared Profits, dividends, interest rates, and rents were attributed to the top 10 percent. Then all income levels were raised, to an equal degree, to account for the remaining (mostly wage-related) unreported income.
37. Cortés 2001; Leyva-Parra 2005. 3
8 James Cypher, State and Capital in Mexico (London: Westview Press, 1990), 195-96.
39. Carlos Tello, “Estancamiento económico, desigualdad y pobreza: 1982- 2009,” ECONOMIAUNAM 7, no. 19 (2010): 17, 28.
40. David Márquez Ayala, “México. Ocupación precaria y empleo insuficiente,” La Jornada, August 23, 2010, 30.
41. Tello, 17, 28.
42. Roberto Zepeda Martínez, “Disminución de la tasa de trabajadores sindicalizados en México durante el periodo Neoliberal,” Revista Mexicana de Ciencias Políticas y Sociales 51, no. 207 (September-December 2009): 72-73.
43. Enrique Hernández Laos, “Mercados Regionales de trabajo en México,” Estudios Sobre Desarrollo Humano no. 2004-12 (México, D.F.: PNUD, June 2004), 5. STPS (Secretaría del Trabajo y Previsión Social), 2011. “Salaria Medio, Cotización IMSS,” Cuadro II 2.1.
44. Roberto González Amador, “Se desacelerar la actividad económica enMéxico: BdeM,” La Jornada, June 11, 2011, 28.
45. Luis Arcentales, “Mexico; Auto Shocks,” Morgan Stanley Research: This Week in Latin America, April 18, 2011, 6.
46. Victor Cardoso, “Santander: crecen 65% las ganacias,” La Jornada, August 20, 2010, 27.
47. David Márquez Ayala, “México. Revisión de perspectivas económicas 2011,” La Jornada, April 11, 2011, 32.
48. Ciro Pérez Silva, “Impulsen la reforma laboral, invita Calderón a empresarios,” La Jornada, April 12, 2011, 9.
49 CIDAC (Centro de Investigación para el Desarrollo), Hacerlo Mejor: Indice de Productividad en México (México, D.F: CIDAC, 2011), 17.
50. Pérez Silva, 9.
51. Carlos Fernández-Vega, “México SA: Forbes mexicanos: 12% del PIB,” La Jornada, March 10, 2011, 34; Zenyazen Flores and Miriam de Regil, “Década perdida para los trabajadores; se crearon 2.1 millones de empleos,” El Financiero, April 28, 2011, available at http://impreso.elfinanciero.com.mx/pages/Ejemplar. aspx?IdNota=314497.
52. Leyva-Parra,762.

 

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