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Neo-liberalism on a Global Scale:
The Case of Mexico

by Cliff DuRand

Corporate-led neo-liberal globalization has now had three decades to deliver on its promise that it can lift the world’s poor to a humanly more acceptable standard of living.  It was claimed that unfettered markets on a global scale would free up Adam Smith’s invisible hand to work its magic, resulting in a greater good for the greater number.  But the harsh reality is that it has failed miserably to do so.  Instead of lifting all boats, the rising tide of the free marketers has lifted the yachts of the rich to unprecedented heights while sinking the rowboats the rest of us used to stay afloat. 

This outcome should not be surprising, except to those blinded by neo-liberal ideology.  It could have been foretold by anyone who paid attention to the history of 20th century capitalism.  The free market of the roaring twenties ushered in the decade of the Great Depression.  That collapse of unbridled capitalism had taught a generation that neo-liberal markets were self-destructive.  It took the guidance of a new public philosophy –Welfare Liberalism – to save capitalism from itself.  The lesson that was learned for the next four decades was that rather than a laissez faire state, capitalism needed an activist state that would regulate economic institutions, promote economic growth by stimulating capitalist economic activities and provide some minimum protection to those adversely affected by the marketplace.  In the United States this took the form of President Roosevelt’s New Deal.  At the same time in Mexico a similar public philosophy guided Presidente Cardenas as he consolidated the 1910 Revolution. 

That neo-liberalism was a dead end could also have been foretold by looking at the logic of uncontrolled capitalist markets.  A fair simulation of neo-liberal markets is found in the popular board game Monopoly.  Players can experience the thrill of becoming rich or the despair of impoverishment.  Even though all players start as equal, the rules of the game, which replicate the logic of the market, inevitably results in an ever widening inequality until one player owns all the property around the board and the other players are driven into bankruptcy.  At that point the game breaks down.  It can no longer continue because none of the other players have anything left and the monopolist’s property becomes worthless without an effective demand for rooms in his hotels on Boardwalk or even a shack on Baltic Avenue.  This outcome cannot be avoided (and why should it since it’s only a game) because there is no mechanism for the players to collectively alter the rules of the game to keep it going.  In the real world however, there may be democratic processes by which new rules can be agreed upon that will keep everyone in the game and a state to enforce those rules.  Such a democratically responsive, activist state violates the precepts of neo-liberalism.  But that is what is required to keep capitalism going.  (1)  

In order to better appreciate the perverse effects of global neo-liberalism, imagine not just a single Monopoly game (corresponding to a single nation’s economy, say that of the U.S.), but a number of games going on in different countries of the world.  Let’s call one of them Mexico, another El Salvador, still another _______, etc.  And let’s suppose one of these games has vast wealth and the others are relatively poor (due perhaps to a long history of colonialist exploitation).  Now, following the precepts of neo-liberalism, there are to be free market exchanges between these different games.  That is, the winners in the rich game (the transnational corporations) are free to become players in the poor game.  It doesn’t take much insight to imagine what will happen.  The rich will become richer, and the poor will become poorer.  Even those who had been winning in the poorer games will find themselves at a competitive disadvantage against the big players from the richer game, unless they can form alliances with them.  Without a nation-state to protect them, the citizens of the poorer countries will find themselves falling farther and farther behind.  That is the outcome of combined and uneven development under global neo-liberal principles.

Under what has been called the Washington Consensus, neo-liberal globalization gives transnational capital unfettered access to the labor and natural resources of countries of the global South, it opens up their economies to foreign direct investment, it reorients the economy away from meeting the needs of its own national population and toward foreign markets.  This is well illustrated by the globalization index for 18 Latin American countries that is compiled each year by the Latin Business Chronicle.   Their globalization index is based on these six points:
* exports of goods & services as % of GDP
* imports of goods & services as % of GDP
* FDI as % of GDP
* tourism receipts as % of GDP
* remittances as % of GDP
* internet penetration
By this measure a country would be fully globalized if it exported everything it produced, and imported everything it consumed, and had all of its economy owned by foreign investors, and received all of its income from tourism and the remittances sent home by  those who had emigrated.  The only one of these that most citizens would consider a plus is the sixth –total access to the internet.  Is it any wonder that it is estimated that the vast majority of the population of most countries do not favor globalization.  They want a national economy that will benefit them and a nation-state that will protect their interests as a people.  

Mexico Under NAFTA

To see concretely the effects of neo-liberal globalization we need only look to Mexico.  Its proximity to the U.S. and its early adoption of neo-liberalism in the guise of a North American Free Trade Agreement in 1994 makes Mexico an ideal laboratory in which the effects of these policies can be easily observed.  Far from bringing the country into the First World (as was promised by Carlos Salinas, the Mexican president under which NAFTA was negotiated), “free trade” has further impoverished most of the population while enriching a small elite (among them Carlos Slim, now the richest man in the world). 

Since the 1930s the development of the Mexican economy had been protected by import substitution industrialization (ISI) policies.  Following the example set by the industrialized countries of the North which had protected national capital against foreign competition, the Mexican state likewise favored the development of its own infant industry with protective tariffs and limits on foreign ownership.  It also sought to ensure a minimal level of well being of its population through agricultural subsidies and low prices for basic food stuffs, public provision of social services, etc. 

Under NAFTA, and even before that, Mexico has made an about face as it has turned to export oriented development (EOD).  Now 40% of what Mexico produces is exported, 80% of that goes to its nearest market, the U.S.  On the other hand, 40% of Mexico’s food is imported, whereas in 1960 Mexico was nearly food self-sufficient. (2) As a result, the country has moved up considerably on the globalization index.

Industrialization has been heavily focused in the expanding maquiladora sector.  These “off-shore” production platforms for transnational corporations have spread from the border region to throughout Mexico.  Tapping the countries abundant low wage labor force and using imported components, the maquiladoras assemble commodities for foreign (mainly U.S.) markets free of duties.  They account for 80% of Mexico’s exports, although by rights they should be counted as intrafirm transfers rather than true exports.  The only thing Mexican in their production is the labor.

One of the most significant market oriented reforms under NAFTA has been the privatization of ejido land.  Ejidos are communally owned land that was guaranteed under the 1917 constitution.  For the campesinos this was the crowning achievement of the Revolutionary cry for “land and liberty.”  However, as a condition for entry into NAFTA, Mexico had to amend Article 27 of the constitution, ending land reform and allowing for division of ejido land into private property which could then be sold. (3) To assure that it would be sold, the state withdrew much of its support for small scale agriculture.  Agricultural subsidies dropped from $2 billion in ’94 to $500 million in 2000.  From 1990 to 1994 farmers received 33.2% of their income from the government.  From 1995 to 2001, that dropped to 13.2%.  At the same time duty-free corn was imported from the U.S. in ever greater amounts that was cheaper for consumers (because subsidized by U.S. taxpayers) than Mexican grown corn.  These conditions forced an estimated 2 million campesinos off the land in the first decade of NAFTA, swelling the supply of low wage labor.  Another 1.4 million campesinos are expected to be impacted by the January 1, 2008 removal of the last duties on imported corn and beans.

The impact of these neo-liberal policies has been devastating for millions and millions of ordinary Mexicans.  This is especially so for campesinos, who made up 40% of the population 25 years ago but are now only 30%.  There has been massive migration to urban areas and, as is well known, to the U.S.  Much of the story is told in these two factoids:  every hour Mexico receives $1.5 million in food imports; in that same hour, 30 farmers leave for the U.S.! (4)

As a result, 16% of Mexico’s workforce in now in the U.S. –a huge loss to the nation’s economy, in spite of the $23.98 billion they sent home to their families in 2007. (5)  These remittances total more than the foreign direct investment (FDI) in the country ($23.23 billion in 2007). 

This massive migration is in large part due to the lack of adequate employment in Mexico.  Typically 71% of new workers entering the labor force each year cannot find work in the formal sector.  If they don’t emigrate, they eek out a living in the informal sector, which now accounts for 28% of employment.  They may work as street peddlers or in mom and pop stores or find occasional off the books employment in construction or as gardeners or maids.  In spite of long hours the small scale self-employed petty bourgeoisie on the average makes 2.5 times the minimum wage of 50 pesos per day.  It takes four minimum wages to reach the poverty line.

As can be easily seen, underemployment and unemployment are endemic.  Officially unemployment stands at less than 4%.  But the official statistics do not tell the story since a person is counted as employed if they work just one hour per week.  Even if you accept this minimal definition of unemployment you have to add to it the 16% of the labor force that is in the U.S. and you can realize that the economy cannot employ at least 20% of its workers.

Poverty is widespread, although estimates vary widely.  But there is general agreement that between 47% & 67% of households are in poverty.  Rural poverty is between 58% and 76%, according to Mexican economist Enrique Dussell Peters.  World Bank estimates it at 73%.  At the same time there has been a concentration of wealth in the hands of a few –just like in the board game Monopoly.  In July ’07 Carlos Slim became the richest man in the world, worth $67.8 billion, surpassing Bill Gates measly $59 billion fortune.  The best known billionaire in the country, Slim’s companies represent 40% of the total value of Mexico’s Bolsa stock index. Mexico now has more billionaires per capita than almost anywhere else. 

Although income inequality has grown, the Mexican economy has not grown.  Pre NAFTA the Mexican economy grew at a rate of 5% annually between 1960 and 1980. (7) Under neo-liberal policies that growth rate dropped to 2.3% annually from 1980 to 2004.  This is a worse case outcome.  It contrasts with China where income inequality has likewise increased, but where the economy as a whole has also grown.

Industrial development has been sluggish at best.  Under EOD it was expected that the maquiladoras would be the leading sector of economic growth.  But since these are basically what I have called off-shore production platforms for U.S. transnationals, they lack the backward and forward linkages that could stimulate peripheral development of other firms.  They do not rely on domestic inputs, nor do they produce for domestic markets.  In a very real sense, they are not part of a national economy.  They belong to a global economy. (8)  Their main contribution to the Mexican economy is the wages they pay to their workers.  But of the 4 million firms in Mexico, only 3500 account for 97% of the exports.  And they employ only 5% of the workforce!   Foreign direct investment (FDI) has undermined endogenous development rather than contributing to it.  (9)

In sum, what we find in Mexico under NAFTA is a classic case of dependent development.  It continues the pattern of combined and unequal development that has afflicted the global South for centuries.  It is what economist Andre Gunder Frank called “the development of underdevelopment.” (10)  Underdevelopment (as distinct from undevelopment) is a process whereby a country is developed (economically, culturally and otherwise) as a dependent appendage to the benefit of a core country.  In the era of colonialism, this defined the relationship between colony and mother country.  In the post-independence era of neocolonialism, it defined the relationship between the agricultural Third World and industrial First World.  Now in the era of globalization, it is not even the core nations of the North that benefit from the exploitation of the nations of the South.  It is the transnational corporations that are freeing themselves up from the nation-states that gave them birth.  They now roam the globe, moving freely from one game of Monopoly to another (11), using their wealth to extract more wealth from all the other players they encounter.  It is a meta game of Monopoly now being played on a global scale.
                                                                                                March 2008

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ENDNOTES

1.  For a fuller discussion of these points cf. my “Neo-Liberalism and Globalization” http://www.globaljusticecenter.org/papers/durand2.htm
2.  David Barkin, “The End of Food Self-sufficiency” Distorted Development: Mexico in the World Economy.  (Westview Press, 1990).
3.  Maria Teresa Vazquez Castillo, Land Privatization in Mexico: Urbanization, Formation of Regions, and Globalization in Ejidos.  (Routledge )
4.  Laura Carlsen, “NAFTA Free Trade Myths Lead to Farm Failure in Mexico” Americas Program, Center for International Policy, December 5, 2007
http://americas.irc-online:80/am/4794
5.  Mike Nizza, “Money Sent Home by Mexicans Almost Stagnant in 2007” New York Times, January 31, 2008
6.  Enrique Dussell Peters, Polarizing Mexico: The Impact of Liberalization Strategy. (Lynne Rienner )
7.  Growth averaged 6.1% if we also include the years back to 1935.  In spite of a sharp rise in the population, GDP per capita increased an impressive 348% from 1835 to 1982.
8.  Until Carlos Salinas became president in 1988, maquiladora “exports” were not counted in official trade figures.  But then Salinas bundled them in with the rest and by a statistical slight of hand there was a great boom in Mexico’s exports.
9. Lyuba Zarsky and Kevin P. Gallagher, “NAFTA, Foreign Direct Investment, and Sustainable Industrial Development in Mexico”  Americas Program, Center for International Policy, January 28, 2004.  http://americas.irc-online.org

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