NetNews Usenet Archive 1992 #27/NN_1992_27.iso/spool/misc/activism/progress/8643

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/* Written  1:38 am  Aug 10, 1992 by [e-mail] in igc:carnet.mexnews */
/* ---------- "SALINASTROIKA" ---------- */
                     SALINASTROIKA AND OTHER NOVEL IDEAS*

                                Dedicated to Guillermo Bonfil Batalla (rip)(1)

                                 David Barkin

      Mexico has become the wunderkind of the Western world, a showcase of
neo-liberal economic reform. But behind the quantitative success are the
unmistakable signs of economic decline and social neglect. In its foolhardy
immersion into the heady waters of global economic integration, Mexico and its
people are being buffeted by a profound series of changes in virtually every
dimension of life.

      Transcending the narrow limits of economic policy, a new group of
"cientificos"(2) broadened the State's scope of action by initiating a series
of social and technological innovations which are changing relations among
social groups and transforming space in Mexico. Structural imbalances, social
polarization, and personal hardship are swept under a pile of self-
aggrandizing felicitations from the national and international press. An inner
circle of Mexican financiers has been handsomely rewarded for its support of
this radical model which so thoroughly disregards the needs of the Mexican
people. The current administration also has been generous in facilitating
foreign participation, converting "distant neighbors"(3) into active partners
for restructuring the Mexican economy. In return, the international financial
community has joined the celebration, channeling new funds to Mexico in spite
of its own rules and practices which should limit such transfers to reduce
their risks, given the fragility of the present situation.

      In a seemingly magical succession of events, structural imbalances and
social dislocations have been transformed into propagandistic victories:

            1) in spite of its continuing growth, the large international
      debt, once the pretext for a draconian stabilization program, has
      apparently ceased to be a threat because the international banking
      community is again supporting the Mexican government;
            2) the specter of hyperinflation continues to be conjured up in
      the political and economic discourse, permitting the maintenance of
      selective wage controls and bountiful profits for privileged producers
      in spite of sharply lower rates of inflation;
            3) an unprecedented balance of payments deficit, heralded as
      evidence of internal vigor, is financed by foreign capital which is
      handsomely rewarded for prolonging the life of the overvalued peso and
      for creating the facade of a successful economic reform package;
            4) as the decline in domestic purchasing power and competition
      from cheap imports have been decimating domestic manufacturing for more
      than a decade, the regime has rewarded select groups of consumers with
      attractively priced international consumption products previously
      unavailable locally;
            5) although stabilization polices are swelling the ranks of the
      poor and hoards of itinerant small merchants crowd out established
      businesses in the market and on the sidewalks, the government boasts of
      its anti-poverty program which is effectively structured to purchase
      political support and defuse dissent in marginal areas;
            6) the centralization of control over the nation's productive and
      financial resources was accelerated by the widely acclaimed
      privatization of parastate enterprises and banks; and
            7) a complex and onerous package of tax reforms which is
      depressing economic activity and reducing the social wage ~a package
      described as fiscal terrorism by both workers and businesses~ is
      officially a success story since the budget is in surplus and the
      bureaucracy is shrinking.

      In the two years since the original manuscript of this book was
finished, the Mexican government has adeptly forged an alliance of forces
~domestic and international~ which also glorifies its contribution to
reshaping international economic relations in the western hemisphere. The
cornerstone of its international economic policy has been the official
initiative to recast North America by extending the Canada-United States free
trade area to include Mexico and then to permeate the rest of the Latin
American economic space.(4)

      The North American Free Trade Area (NAFTA), under negotiation since
1990, is an essential instrument in this restructuring. This concerted effort
by the executives of the three countries to irreversibly modify productive and
social structures, has evoked a remarkable groundswell of opposition from new
trilateral (Canada-US-Mexico) alliances of grassroots groups from many
different sectors as well as broad national coalitions. As the negotiations
advanced, this grassroots opposition has found unaccustomed allies: joining
the fray against the trade agreement, Mexican business groups from a broad
range of industries are beginning to realize that the hardships faced by the
Canadian counterparts probably offer a taste of things to come in Mexico;
similarly, the recent decision by the US Supreme Court to vindicate the
abduction of a Mexican citizen by US polices forces acting extraterritorially
reinforces the fears of human rights groups in the three countries. In the
light of recent history, the NAFTA's promise of higher incomes, greater
employment and cleaner environments seems more like a utopian pipedream, or a
politician's campaign rhetoric, than an achievable goal. In this epilogue to
the Japanese edition of my book, I propose to explain why the Mexico of the
nineties is becoming more like Huxley's Brave New World than King Arthur's
Camelot.

Salinastroika

      Shortly after his inauguration, Carlos Salinas de Gortari undertook a
series of bold moves which galvanized Mexican society and sparked the
imagination of the leaders of the world's capitalist nations. Attempting to
throw off the cloud tainting his claim to electoral victory, the new president
unseated several despotic leaders of Mexico's most corrupt industrial unions;
ordered important business leaders jailed for fraud, and underwrote a new
social pact which contributed to the precipitous decline of living standards
of Mexico's workers and the compression of purchasing power of its middle
class whose expectations are still bolstered by a cultural barrage promoting
consumerism.

      In the spirit of the times, "Salinastroika" was compared favorably with
Gorbachev's earth-shaking reform program. Perestroika (put in reference to
Japanese edition here) injected a burst of fresh air into the global search
for new solutions to the world's problems in the mid-eighties. While offering
a profound critique of the existing system, the Soviet premier offered a
program of radical changes for a stagnating society and economy. This program,
which Gorbachev claimed was the logical extension of the high ideals of the
October Revolution of 1917, sparked a series of far-reaching political and
economic transformations.

      Unfortunately, it seems more appropriate to compare the Mexican
situation with the economic decline and social chaos of the post-Gorbachev
era, rather than with the principles in this political program. While the
western world rejoiced in the triumph of capitalism, foreign entrepreneurs
joined a privileged few in the former Soviet republics to begin restructuring
society for their own benefit, eliminating the multiplicity of autocratic
processes which rigidly constrained individual initiative and creativity. The
revelers promised that in a short period of time, they would unleash the vast
natural wealth and extraordinary human potential locked up behind the iron
curtain. The serious concerns expressed by some thoughtful sectors of Soviet
society were dismissed; the reformers began unraveling the vast array of
social institutions which offered a safety net, guaranteeing every segment of
society some minimal level of access to food, shelter, and social services,
and protecting them from the social horrors of destitution caused by
unemployment, illness, or old age.

      Similarly, the Mexican stabilization program reshaped the government
apparatus and unleashed individual initiative.  The results were apparent
almost immediately. With the drop in inflation as a result of lower government
spending and declining real wages, interest rates plunged, and the federal
budget went into surplus. Investor confidence rose as the administration
offered guarantees and jumped headlong into the negotiations for the free
trade agreement.  Mexico offered spectacular returns on financial investments,
and a thriving consumer demand from the upper layers of society offered a
ready domestic market; foreign franchisers and retailers joined with local
entrepreneurs and established chains to cater to this special but numerous
segment of Mexico (ca. 15 millions among the industrial labor force,
established merchants, commercial farmers, professional groups and financial
interests). Export oriented foreign investment and industrial modernization
further stimulated the domestic market, while the automobile industry also
thrives on its privileged position in policy circles. But most Mexicans still
cannot participate:  real wages for the majority are still declining and
absolute poverty is spreading, official spending on education, medical care
and other social services is woefully inadequate, while formal employment
opportunities are inadequate.

      After the political debacle of the 1988 Mexican elections, the chief
executive embarked on a program of democratization. The official party ~PRI~
attempted to provide more opportunity for local autonomy while the election
laws were modified to assure some modicum of participation by opposition
parties in the legislative process. Some minimal safeguards and external
checks and balances opened the campaigns and voting ceremony to scrutiny and
debate. A National Human Rights Commission was founded and proved more
independent than its creators might have dreamed, while a growing political
debate stimulated more grassroots organizing and participation than the
country has witnessed in its recent history.

      Democratization, however, is not easily achieved. The continuous program
of regional political battles during the past three years demonstrates that
the mere emplacement of the trappings does not guarantee the substance of
democracy. The Mexican State, and its system of overlapping provincial elites,
is very much concerned with defending its control of the nation's wealth and
power. The economic reorganization offers too many opportunities for
individual enrichment, for existing groups to voluntarily share their
privileged access to the nation's vaults and resources. In only a few
instances has the State begrudgingly ceded its control to the moderate
opposition; it staunchly defends its hegemony against the populist left PRD
(Democratic Revolutionary Party), led by the son of President Lazaro Cardenas,
who forged a populist and socialist tradition by nationalizing the nation's
oil reserves and implementing a massive agrarian reform (1934~1940). To
protect its hegemony, the official party mobilized the entire panoply of
government institutions and resources to persuade the populous of the
bountiful rewards that would be heaped upon them in return for its support on
the ballot. The key 1992 gubernatorial elections reflected the effective
exercise of political power to purchase a political weal.

The impact of the economic reform program

      Since 1982, the Mexican economy has been profoundly reorganized. The
Lopez Portillo government was forced to devalue the peso sharply after the
western industrial nations successfully forced down the price of petroleum.
Unfortunate investment decisions and poorly conceived economic policies
further aggravated the country's problems, forcing it to declare a suspension
of its foreign debt service, precipitating in large measure the world debt
crisis. The apparent signs of successful correction ~an early surplus on
current account and strong retrenchment in the public sector~ proved to be
insufficient and short lived remedies to the profound problems facing the
country.

      A mid-term (1985) change in public policy firmly positioned the
De La Madrid administration on the path of neo-liberal reconstruction. Instead
of reviewing the complex array of policies adopted to implement this new
strategy, we will examine some of the most salient features of the new society
which the program is creating.

      1) A changing incomes policy. The devaluation of 1982 and the inflation
of the ensuing years contributed to a dramatic decline in the real purchasing
power of wages. With the imposition of the Economic Stabilization Pacts in
1987 (see chapter 7), this decline was slowed somewhat, but by mid-1992, the
value of the minimum wage had lost about 65% of its 1960 purchasing power, to
some 25% of its 1976 zenith. Of course, because of this decline, the minimum
wage itself acquired a new social significance: it no longer fulfills its
legal mandate of "covering the basic needs of an average family", and
therefore cannot be a yardstick against which to measure worker well-being.
Throughout the whole formal economy, wage settlements were agreed to in
multiples of this politically established floor, and the Social Security
Institute reported that average wages in the industrial sector during the
early nineties averaged about 1.8 minimum wages; similarly, workers in many
commercial agricultural regions were earning about 1.5 times the minimum. The
basic market basket of consumption goods required for a typical worker's
family cost about 4.78 times this bench mark in 1988, while a total family
income of about 3 times the minimum (2.72) was required to not be classified
as living in extreme poverty. The 1990 census reports that 60% of the
households in Mexico received less than this standard; 72.4% earned monetary
incomes below 4 times the minimum.(5)

      2) Differential sectoral growth in industry. With the changes in the
wage structure, the internal market contracted dramatically. As part of the
adjustment process, the new policy explicitly promotes export production
rather than goods for the local market. The major beneficiaries of this new
approach were the automobile and computer industries and the maquiladora or
export platform assembly plants.

      The maquiladora industry grew dramatically from 1982 to 1992, taking
advantage of special legislation bestowing privileged tax treatment on certain
exports to the US.  By 1992, more than 2,000 plants with about 480,000
employees were in operation; their growth was slowed in the last year by the
recession in the United States.

      Automobile production, however, soon became the mainstay of Mexican
industry. Emerging from the doldrums of a stagnant or declining local market,
the industry was repositioned to play a dynamic role in the US market; during
the 1980s the large auto makers decided to reorient production of cars and
auto parts towards export. Maquila production of automobile parts also
expanded. Existing assembly operations were modernized and automated while a
showcase plant was built in the mid-eighties by the Ford Motor Company in a
joint venture with the Toya company of Japan; this plant soon was able to
achieve the second highest level of labor productivity in the world automobile
industry because of its design, the technology employed and the level of
worker training.

      By the end of the decade, the government provided an additional stimulus
for the industry, stimulating domestic demand in a number of ways. Perhaps the
most important was the ready credit policy which induced people to purchase
new vehicles by offering special bank facilities, credit pools, and mutual
self-financing schemes. Environmental considerations in Mexico led to a
program for the rapid replacement of over-aged private taxis and collective
transport vehicles (e.g., Minibuses and VW vans), while the imposition of the
program of "one day without a car" led many people to acquire another vehicle
to circumvent the intent of reducing automobile circulation in Mexico City.
Foreign investment and the spread of new marketing systems also contributed to
increased demand.

      The electronic equipment industry in general, and computers in
particular, also enjoyed dynamic growth. For years, the maquila sector had
been exporting parts for electronic apparatuses and consumer appliances. After
the onset of the crisis, specific support was offered for integrating the
production of finished products in Mexico. An important signal was sent out to
foreign manufacturers when the government approved IBM's application for 100%
ownership of a new installation, a policy change which was soon to be extended
to many other industrial sectors. The government stimulated internal demand
through credit and training plans which offered users easier access to new
equipment and encouraged businesses to begin to seriously consider integrating
electronic data processing and even production control techniques into their
operations. Government itself also became a leading purchaser of electronic
equipment as part of its modernization and streamlining programs.

      In contrast to these dynamic sectors, traditional manufacturing
industries stagnated or declined. With the drastic fall in purchasing power of
the middle and working classes and the dramatic opening of consumer markets to
imports, many producers of non-durable consumer goods and some durables were
displaced by imports; inexpensive imports from lower-cost producers flooded
the mass consumption markets, while upscale shopping centers offered their
affluent consumers the opportunity to acquire in Mexico goods for which they
formerly made pilgrimages to the elite malls of California or Texas.

      On balance, the industrial sector employs fewer people now than it did a
decade ago. Although about 600,000 new jobs were created in the growth
sectors, almost an equal number became redundant in declining industries and
in sectors which underwent a thorough restructuring.

      3) Balance of payments. Traditionally, the balance of payments is a
leading indicator of the health of the Mexican economy. The growing deficit at
the beginning of the 1980s was as worrisome as the surplus following the 1982
devaluation was a cause for celebration. As the cumulative difference between
inflation in Mexico and the United States grew faster than the peso was
devalued, the early undervaluation of the peso turned into a worrisome
overvaluation by mid-1992. With the change in the international position of
the peso during the past decade, the relatively rapid growth of the deficit on
current account has been a subject of sharp debate among Mexican policy makers
and analysts.

      Official economists repeatedly assert that the growing trade deficit is
no cause for concern. Their evidence: 1) imports of intermediate and capital
goods have grown: 2) the public sector is generating a surplus on current
account and private imports are financed by the banking system; 3) non-
traditional exports from the manufacturing sector are quite dynamic; 4)
inflows of private investment funds are more than adequate to finance the
deficit; and 5) foreign exchange reserves in the Bank of Mexico are at an all
time high.

      Independent analysts, however, counter that many of these same features
should be a cause for concern. Among their arguments: 1) a substantial part of
the import bill (including intermediate goods) is for an affluent few, or to
substitute mass consumption production by Mexican industries which have been
driven out of business; 2) much of the growth of non-traditional exports has
been in the auto industry, but on the whole this industry has been generating
a deficit, as the value of parts imports incorporated into finished products
exceeds export earnings; 3) mobile foreign capital imports were channeled into
high yielding government paper and the Mexican stock exchange which can easily
be taken out of the country, should rates fall, investors lose confidence, or
other countries offer better terms (witness the fall in the Mexican stock
market in June 1992 and the resulting capital flight); 4) foreign exchange
reserves are sufficient to cover less than one-half year's imports and are
insignificant in the context of the threat of capital flight.

      The Mexican foreign capital market is in serious disarray. Massive
inflows of speculative private foreign capital are temporarily financing the
trade deficit and bolstering the central bank's reserves. But this outside
assistance is very costly: real returns on foreign financial investments in
Mexico are more than double those available in the USA or other financial
centers, while long term foreign claims on domestic resources auger ill for
the ability of the Mexican economy to finance its foreign sector without
continuing peso devaluations, domestic inflation, and depressed living
standards.

      The dependence on foreign direct investment is also troublesome. In a
rare public speech, the chief economic advisor to the President, Jose Cordoba,
warned in mid-1992 that Mexico will require more than $15 billion each year
over the next decade in order to maintain the present momentum. He was not
sanguine about the chances of sustaining a flow of this magnitude, given the
dynamics of the Mexican economy and the competing opportunities for investment
in the world economy in the coming years. The implication is that Mexican
financiers will have to begin transferring resources from speculative and
commercial investments to productive projects, and that the very high
propensity to import will have to be reduced.  Both of these changes would
require profound changes in policy and behavior, changes which are contrary to
commitments evolving out of the negotiations for the NAFTA.

      4) Employment. The Mexican government boasts of low unemployment rates.
Its periodic surveys show national rates of less than 3% while few individual
cities report more than 5%. In a country where poverty is increasing,
nutritional standards are declining and migration is a permanent feature of
the labor market, such reports may seem unrealistic. Some details from the
surveys help put this information into perspective: more than one-quarter of
the labor force works less than 35 hours a weeks, and a surprising 5% of the
employed reports that it labored without spending any time on the job! Low
unemployment rates are also the product of a social system which offers no
welfare or unemployment insurance system, and any who are unemployed must fend
for themselves to survive.

      In Mexico, people are eking out an existence in the burgeoning service
and commercial sectors, where poor and unproductive rejects from the rest of
the economy must compete. The restructuring of industrial and agricultural
production forces people into the service sector and the migratory labor force
in agriculture within Mexico and to a broad range of jobs in the United
States. The ranks of itinerant and semi-fixed merchants in the urban areas are
now so large that these groups are now a major political force, often
displacing established commercial interests. While the struggles between these
groups exacerbate urban problems, the Ministry of the Treasury is (perhaps)
inadvertently strengthening the position of these newcomers, developing new
systems to incorporate them into the formal economy by developing simplified
systems for them to report their activities and pay taxes.

      The rural employment picture is much more complex. On the one hand, many
regions report an actual labor shortage to continue traditional agricultural
activities, because off-farm employment has grown to such an extent that
during peak labor demand periods (for preparing the land and harvesting),
people can no longer easily take a leave to attend the demands of the farm,
and then return to their jobs. As a result, although vast tracts of rain-fed
land are no longer cultivated, farmers without access to capital to improve
traditional methods cannot raise yields sufficiently to warrant people risking
their jobs to assure the harvest. In contrast, temporary employment
opportunities abound in commercial, export-oriented fruit and vegetable
production. Brigades of "swallows", as the 4 million migratory workers are
called, travel from region to region in search of work as different crops
mature, earning only a precarious existence and exposing themselves and their
relatives to the worst horrors of agrochemical and gastrointestinal poisoning.

      Each year, many millions of Mexicans decide to risk their lives
attempting to cross the US border in search of work. Although the Immigration
Reform and Control Act of 1986 enabled more than 2 million Mexicans to
legalize their residence in the USA and was supposed to control the flow of
undocumented workers, as many as 5 million Mexicans are now estimated to be
working in the USA. This outlet for the more adventuresome workers provides an
escape valve, providing an important supplement to individual incomes and
reducing social tensions in all parts of Mexican society; for the country it
represents a net inflow of about $5 billion dollars a year in foreign
exchange. Although it is a continuing source of irritation in bilateral
relations, this part of the labor market has become an essential ingredient in
the Mexican government's domestic economic stabilization planning process.

      5) Privatization. The international financial community has joined its
Mexican counterparts to redistribute public sector holdings among themselves.
Certainly there was great need for rationalizing the public sector, which had
grown to elephantine proportions during the preceding two decades; the state
built  basic industries and services to promote industrialization, and during
the 70s salvaged troubled private enterprises. In addition, it created other
businesses through various public programs to stimulate entrepreneurship among
grassroots organizations. Through the decades, growth and stability were more
important than profitability.

      Privatization in Mexico has become famous for its rapid pace and broad
scope. During the past decade more than 430 public sector enterprises have
been sold, with most of the proceeds going into a "Fondo de Contingencia". The
funds are being used to repurchase some of the country's outstanding public
debt at a discount and to retire part of the sizable internal debt, offering
the government the opportunity to further reduce the internal constraints on
public sector spending. The international press frequently notes the
generosity with which the winners have been treated.

      Among the most notable successes of these privatization sales were the
telephone company (Telmex) and the commercial banking system. Telmex's sale to
a group headed by a wily entrepreneur, Carlos Slim, together with Southwestern
Bell Telephone Company and the France Cable and Radio Company is a saga yet to
be fully revealed. This company not only is among the most profitable in the
world ($1.1 billion profits on a net worth of $3.9 billion in 1991), but has
become the most heavily traded of the Mexican companies on the New York Stock
Exchange. The banks were divvied up among the financial groups of Mexico's
richest and most prominent families, and since the transfers of ownership,
they have been strengthened by a series of measures to increase the number of
customers and bank deposits.

      Privatization touches virtually every aspect of life in Mexico,
reflecting the pervasiveness of government intervention in the economy on the
eve of the crisis. The heavy public subsidies to productive activities were an
explicit part of the development strategy, since they permitted substantial
profits in other sectors where private businesses bought inexpensive goods and
services from public enterprises. Privatization, then, permitted and even
obliged a sharp rise in the prices of these goods, seriously afflicting less
privileged industries and consumers. The cost of local telephone service
increased dramatically with the introduction of measured service, while the
nation's burgeoning private toll road system is among the most expensive per
kilometer in the world. With the sale of the food processing and distribution
agency CONASUPO, many supermarkets in working class and marginal areas were
closed, some inexpensive goods ceased to be available while others increased
sharply in price. Throughout the society, the privatization process, which is
also extending throughout the rural economy (see below) and even to the
heretofore sacrosanct petroleum industry, is providing an opportunity for
private entrepreneurs to further amass unprecedented economic and political
control over the domestic economy.

      6) The concentration of capital. The rewards to the Mexican
beneficiaries of the new development and international integration strategy
are fabulous. In Chapter 6, I pointed out that labor's participation in
Mexican personal income had declined from 36% in the mid 1970s to 25% in 1988;
by 1992, this had fallen even further to 23%. The data from the Mexican Stock
Exchange offer an even more vivid picture: less than 8,000 accounts, including
about 1,500 owned by foreigners, control more than 94% of the total value of
shares in public hands.

      This centralization of wealth aroused the admiration of the
international press. Business Week identified (29/VII/91) five members of a
"protected plutocracy", President Salinas' "cronies" as the article called
them, who have benefitted handsomely from the neo-liberal reform package. More
recently, Forbes (20/VII/92) placed them and two other Mexicans among the 289
richest people in the world, whose family worth is greater than $1 billion
each. Increasingly, however, questions are being raised both at home and
abroad about growing social and economic polarization in Mexico.

      7) The Mexican stock exchange and the role of foreign capital. This new
elite is very proud of its role in internationalizing Mexican capital and the
players in the Stock Exchange (BMV). In mid-1992, 20% of the total value of
securities is held in a very small number of foreign accounts.

      The BMV currently plays a very special role in Mexican economic affairs.
In spite of the fact that so few people can afford to invest in the market,
the government has attached a great deal of importance to fluctuations in
share prices, and the state development bank, Nacional Financiera, plays a
major role in attempting to assure an orderly market, through transactions
executed by its Mexico Fund. As more shares are cross listed on the NY Stock
Exchange (American Depository Receipts), the influence of international
political events and the political uncertainty surrounding the free trade
agreement add an air of instability to the market, which makes investment even
more speculative and unpredictable.

      Foreign capital plays an increasingly dominant role. Government figures
show that foreign investment is increasing by leaps and bounds; most
investment, untied to any particular investment project. Even the directly
productive investment is concentrating in the commercial and service sectors,
propagating various types of franchise operations and implanting US styles of
merchandising which are destroying local businesses. Outside of the computer
and automobile industries very little is directed to new productive facilities
in manufacturing.

      Foreign investors are well rewarded, especially when they do not make
productive investments! During 1991, almost $20 billion took advantage of
Mexico's new opening to feed a spectacular boom of stock prices; the Mexican
environment was particularly congenial, not simply because the index doubled
during the year, but also because there is no effective capital gains
reporting or taxation mechanism. In mid-1992, when stock prices began to
stagnate, domestic interest rates for passive investments were still almost
three times the prevailing prime rate in the US.

      8) The restructuring of the public sector. The trimming down of the
public sector and the redirection of its programs to promote the interests of
capital are prime objectives of the present regime. Many state firms that
operated at a deficit were eliminated, public services were cut back, and user
charges raised substantially. On the revenue side, tax collection is being
reinforced and new groups drawn into the ranks of taxpayers; the changes in
regulations are so frequent and complex, that a new insurgent taxpayer
movement charges the government with "fiscal terrorism".

      The cutbacks in the bureaucracy and in public services for the working
class and peasantry are not simply measures to deliver the existing social
wage more efficiently; they represent deep cuts in service levels and a
deterioration in quality. The changes have been so profound that privileged
employees throughout the economy (including the government) are being offered
supplementary private sector health insurance, educational and other benefits.
The other substantial change on the expenditure side has been the important
reduction in the costs of servicing the debt, both internal and foreign, as
domestic interest rates fell, and part of the principal was retired or
renegotiated. On the revenue side, the surprising result of the changes is
that taxes as a proportion of gross domestic product have not varied
substantially over the past decade; nor has the government been willing or
able to impose heavy taxes on the main sources of personal enrichment since
the policy changes of the 1980s. On balance, then, the government has
forcefully reoriented its entire program to benefit the rich and shelter their
incomes from taxation.

      9) The reorganization of rural Mexico. Rural Mexico is a special bastion
of traditionalism, a particularly important sector if the Salinas
modernization program were to proceed. During the first few years of the
reform program, the administration concentrated on channeling resources to the
private farmers and those ejidatarios who were willing to reorganize their
land holdings so that might be cultivated efficiently using new technologies
to produce export crops. At first, the government explicitly abandoned its
commitment to food self-sufficiency, but later modified its position as food
imports rose to an alarming $5 billion and the popular outcry became
widespread; but here again, supports for maize and bean production were
systematically channeled to the nation's richest farmers in the irrigation
districts and the fertile plains of the north, rather than to the peasant
farmers of the center and south who traditionally sowed these crops on rainfed
lands.
      The rural scene was dramatically transformed in late 1991 when President
Salinas unveiled his amendments to Article 27 of the constitution. The new
plan, which was ratified in less than two months by the Congress and the
legislatures of all 31 states, proposes to reorganize land holdings and inject
corporate capital into farming, modernizing rural production in a way that a
corrupt and underfinanced bureaucracy has not been able to do for almost a
half century. By permitting ejidal title holders to enter into a wide variety
of commercial contracts, the private sector is expected to finance the land
improvements and cultivation. Many observers consider that the new program
will probably be very effective in integrating a select group of farmers into
a new vibrant agricultural export model. The remaining millions of farmers,
whose plots are too small and/or whose land is of marginal quality, will find
themselves increasingly isolated from the institutional and financial supports
which allowed them to continue in the face of unfavorable market conditions
(including heavy export subsidies for grains by the advanced countries). The
Undersecretary of Agriculture predicts that more than 13 million people will
be forced to emigrate from poor farming communities during the next decade.

      To many thoughtful critics, the country can ill afford the effects of a
narrowly defined program like the one presently being implemented.(6) The
environmental and social problems which another massive rural-urban migration
would occasion are beyond the capabilities of the system to manage in either
economic or political terms. It also seems particularly unfortunate that at
the very moment when Mexico is beginning to negotiate more equitable terms for
the export of its fruits and vegetables, the government is forcing a very
productive sector of farmers to cultivate grains rather than more profitable
fruits and vegetables.(7)

      10) The anti-poverty program. Mexico's anti-poverty program,
Solidaridad, offers an important case study in the use of public largesse for
political goals. The program provides an institutional framework in which
organized local groups can channel their collective energies into local
improvement projects for collective infrastructure projects, such as schools,
water and sewage systems, paving streets, park development and beautification.
In the midst of a deepening crisis, the program attempts to communicate that
the government, the ruling party, and most especially the president, are
concerned for people's welfare. The administration is clear about
Solidaridad's important mission of mobilizing political support.

      A program of new productive enterprises was created to counter the
charge that it is essentially make-work program without any lasting impact. As
in past versions of this strategy, the main stumbling block to the success of
such enterprises is the inability of the bureaucracy to work honestly and
steadily in a collective undertaking which requires reinvestment of profits
and substantial on-the-job training. This approach has failed time and again,
not for lack of resources, but rather because of the organizational and
entrepreneurial skills which cannot be readily instilled in groups of poor
people skeptical that the benefits will be theirs to share in the future; past
experience frequently showed them just the contrary, and leads them to believe
that corruption and inefficiency will seal the fate of these enterprises, long
before they have a chance to succeed.

      Solidaridad, then is a showcase program, a celebrated example of the
skillful exercise of state power for political mobilization in marginal areas.
It communicates an apparent concern for the welfare of many groups which are
not part of the dominant modernization and integration scheme. In an
environment of marginality and hostility or mistrust, this program creates a
window of opportunity for people desperately struggling to survive or
opportunistically resigned to accept whatever crumbs they can glean from the
federal budget. Solidaridad does not fool many into believing that the present
economic strategy offers real opportunities for "Los de abajo".(8)

The spoils (and costs) of success

      The Salinas reform program sparked an early recuperation in economic
growth. The government overcame the confidence crisis and reduced the
credibility gap which had been so significant in undermining similar programs
elsewhere in Latin America; in fact, one American expert likened the "radical
nature" of the fiscal alignment in Mexico to "four or five Gramm-Rudman
adjustments that the United States has never even managed one".(9)

      Public support for the regime is still quite widespread. The
international press understandably celebrates the substantial benefits which
the Mexican adjustment process has delivered. It offers concrete evidence of
the bounty of the neo-liberal economic package, and a model to be adapted for
the solution of the adjustment problems suffered by other countries in the
hemisphere as well as by those which recently emerged from the economic union
of so-called socialist countries of eastern Europe. The bold steps to overcome
the "revolutionary heritage" which led the country to back away from joining
the GATT in the early 80s, to limit the role of foreign investment in the
economy, and to insist on protecting workers and the peasantry, are widely
praised as examples for others to follow. The reform package has delivered
tangible benefits to important segments of the international banking and
industrial community: preferential access to enterprises in the process of
being privatized; a draconian program of wage controls to assure high profit
rates; easier access to the country's abundant natural resources; and very
high yields on financial investments, often sheltered from taxation.

      A short list of the special benefits delivered to the various social
groups may help to explain the continuing internal support: 1) high domestic
interest rates for holders of the internal debt during the first stage of the
program assured enthusiasm from the rentier class; 2) a virtually unlimited
(and very profitable) flow of imported consumer goods by the commercial sector
helped control inflation and made a real contribution to the welfare of the
working poor while allowing the rich to enjoy a consumer binge of
unprecedented proportions; 3) the legalization of several million (illegally)
imported vehicles ostensibly for use in rural Mexico, was a very inexpensive
way of reducing discontent among a numerous group of poor (but not destitute)
farmers and influential provincial leaders; 4) high profits for the newly
privatized financial system were assured by permitting a large spread between
passive and active interest rates, and by creating a new obligatory pension
system to be administered by the banks; and 5) credit programs to promote
private consumption of computers, automobiles, and other consumer durables as
well as to finance housing assuage the ire of the middle class, which was
particularly hard hit by cutbacks in the bureaucracy, declines in real
incomes, tighter controls on wages and taxes, and disproportionate rises in
the costs of services.

      As we suggested at the beginning of this chapter, however, the program
is in danger of becoming a Pyrrhic victory. The short-term gains are coming at
the cost of dismantling the economy and disintegrating the society. Competing
imports have displaced entire segments of industry oriented towards the
internal market; producers often transform themselves into importers, unable
to compete with the price or relaxed quality standards allowed for imported
goods. The plight of rural producers is even more dire: the onslaught against
the peasantry has intensified, as government withdrew its support and the
private sector is concentrating on specific regions and producer groups.
Dynamic sectors ~the apparent beneficiaries of an internationalized economy~
like the maquiladora plants, the auto and computer industries, the financial
intermediaries, and tourism, are certainly generating attractive profits for
their owners, and sizable volumes of "non-traditional" exports, but they do
not create sufficient employment opportunities to meet the needs of the labor
force, nor will they redistribute income, since they are tightly controlled by
a small financial elite.

      The environmental disaster of uncontrolled growth is also coming home to
roost. The problems of Mexico City are legion and well known. The explosion of
the main sewage line in Guadalajara as a result of fuel seepage suggested the
depth and breadth of the damage that contamination has inflicted throughout
the country. The border's problems are not uniquely Mexican, but the hoard of
children born without brains in 1992 along the Texas border were all of Latin
mothers. The President has declared the environment to be a priority, and was
awarded a prize for his bold statements, but the present strategy offers
little solace to those who are searching for a more balanced pattern of
growth.

An integrated future

      Both George Bush and Carlos Salinas have staked a great deal of their
political future on the free trade negotiations.(10) As the national teams
wind up the NAFTA negotiations, it is becoming clear why opposition has spread
from human rights, labor, and environmental groups to broad segments of the
business community. The apparent contradiction between favorable public
opinion surveys and the deep seated opposition from many knowledgeable
commentators is a result of the divergence between the promised benefits to
consumers and the worrisome results of specific sectoral forecasts which
project declining employment and/or incomes for broad segments of the
population in all three countries. Most of these evaluations agree that the
governments of all three nations will be unable to oblige the beneficiaries
from the trade agreement to compensate the losers within each country.

      As the negotiations draw to a conclusion, a new phenomenon has emerged
in Mexico: the beginning of broad-base coalition politics that transcends
national boundaries, individual issues, and sectarian positions. The Mexican
coalition has been successful in forcing the government to reveal more about
the negotiating process than it would have liked (but still not much), and to
seriously listen to the concerns of grassroots constituencies (although not
modify its strategy). The NAFTA negotiations have introduced another important
new element onto the political scene in Mexico: multinational collaboration
has also become an acceptable and even an almost respectable tool for the
political opposition. These modifications in grassroots and party politics
will have far-reaching and unpredictable effects in the future.
      The economies of North America are integrating.  The FTA will accelerate
this process, but cannot address the fundamental problems of any of the three.
For Mexico, integration will mean more trade and more employment; production
will continue to increase in certain privileged sectors. Productive imbalances
and social polarization are exacerbating. But now there are fewer institutions
prepared to deal with the problems that the new strategy is creating and the
people that it is leaving behind. The present strategy is betting that foreign
investors will bring sufficient resources to Mexico to pay to correct the
problems:  This seems like a hazardous gamble.

Dale tiempo al tiempo

      Mexico's economy will become even more distorted in the coming years, if
the present development strategy has time to mature. Important segments of the
population are being excluded, and the country's wealth is being revalued:
resources under peasant control are being devalued while those in the hands of
the rich are becoming more important. No thought is given to preserving the
country's rich heritage for posterity; Mexico boasts a natural cornucopia, an
indigenous past, an anti-colonial struggle, a brilliant and abundant
storehouse of cultural and artistic creativity, but this has no value, except
if it can be sold on international markets or to fickle tourists.

      The War Economy proposed in the first edition of this book has been
widely discussed. The peasant based food self-sufficiency strategy it offers,
while workable, is not a sufficient alternative. Food production has become
too devalued, too limited in scope, to offer a viable option for most people
in rural Mexico. In the face of the current narrow model of industrial
modernization, there is a clamor for a more diversified productive base,
taking advantage of abundant and varied natural resources and the enormous
reserve of inherited knowledge stemming from treasured cultural differences.
Such an approach requires solutions to productively employ an important part
of Mexico's population that still struggles to remain in the countryside.(11)

      Today's "cientificos" are in such a hurry to eradicate this shameful and
obsolete native heritage that they have no time to search for an alternative.
The culinary wealth and diversity is no more cherished than the enormous
treasure of biodiversity which is being annihilated by transnational hybrid
seeds and other paths of progress. Both are themes for poetic discourse, but
like the paintings of its famous artists, or the musings of its writers and
poets, they are appreciated more for their marketability than their intrinsic
worth. Their contribution to the earth's integrity or society's enjoyment is
recognized by very few.

      These technocrats are unwilling "to give time a chance," as the popular
Mexican expression might be translated, to allow society to adjust to the
gradual process of international integration which is linking nations and
cultures. And they forget the lesson of another popular saying: that "simply
by waking up earlier, the sun won't rise sooner."(12) That is, Mexico ~the
country, its people, its culture~ will not magically change its course, its
very essence, simply because the President orders its industrial structure
modified, its resources sold or leased out, or foreign goods imported on a
massive scale. The country is beginning to realize the nature of the changes
underway; most Mexicans will not easily acquiesce. It is still too soon to
predict the modifications they will demand. It is likely, however, that the
neo-liberal dreams of today's ruling elites will be shattered by the vigor of
Mexico's extraordinarily diverse and vigorous but impoverished peoples.

                                   ENDNOTES

* This chapter is based on a detailed reading of the Mexican economy during
the 1990-1992 period. Unfortunately, there is virtually no critical academic
literature available, because of the very same problems which are mentioned as
a serious cause for concern in the present analysis. We have made extensive
use of the periodic publications of economic statistics by the government and
numerous private consulting firms that are promoting the present development
effort.

1. Guillermo Bonfil Batalla wrote a very significant book, Mexico Profundo:
Una civilizacion negada (Mexico: Grijalbo, 1987), about the importance of
Mexico's indigenous heritage for the country's present-day vitality.  His
recent death leaves us with the message of the urgency of preserving and
enriching our society by assuring a cultural and economic diversity for the
future.

2. A group of technocrats in the highest levels of policy making who ar
mechanically applying the precepts of neo-liberal restructuring to all
dimensions of life in Mexico. They are broadly criticized by sensitive
analysts throughout Mexican society for they lack of consideration of many
important facets of national life and their apparent disregard for the welfare
of the mass of poor people who comprise more than 75% of the population. They
are named after a similar group who dominated high policy positions during the
lengthy period (1876-1910) before the Revolution when President Porfirio Diaz
imposed a dictatorial regime. For more on this period, and a general
introduction to the profound problems that presently beset the country, see
Judith A. Hellman, Mexico in Crisis, New York: Holmes & Meier, 1983, (second
edition).

3. This is the title of a best selling book about Mexico by NY Times reporter
Alan Riding (New York: Random House, 1986).

4. Mexico is playing an active role in negotiating free trade agreements (fta)
with other Latin American countries. Even before the fta with the United
States was signed, It had signed an agreement with Chile and negotiated others
with the Central American countries and with Venezuela and Colombia. A similar
agreement is likely to be negotiated with the Mercosur (Argentina, Brazil and
Uruguay).

5. Teresa Rendon and Carlos Salas are among the most insightful analysts of
the employment and wage data in Mexico.  For a short discussion of recent
trends see their article: "Subocupacion o trabajo precario? Algunas
caracteristicas del empleo en Mexico en los anos ochenta," en Demos, Number 5,
1992.

6. For an informed discussion of this policy direction, see the various
articles in Cynthia Hewitt de Alcantara (ed.), Reestructuracion economica y
subsistencia rural, Mexico: El Colegio de Mexico, 1992.

7. Production controls are imposed by allocation of water use permits in
irrigation districts. If farmers in selected areas wish to receive water to
cultivate export crops, they must also agree to produce basic grains for the
internal market; high internal prices, however, guarantee attractive rates of
return on these crops.

8. This is the title of a popular and universally acclaimed novel of the
revolutionary period by Mariano Azuela celebrating the ideals and victories of
those who joined the struggle (1912).

9. This is a judgement made by a group of analysts from the International
Monetary Fund; the American, Dr. William Cline, of the Institute of
International Economics, was referring to the severe budget cutting measures
which the Congress unsuccessfully attempted to impose on the US presidency.
IMF Survey, July 6, 1992, pp. 214-215.

10. Although the Canadian Prime Minister also strongly supports the NAFTA, his
popularity is already so low that few predict that he will survive the coming
elections.

11. This short paragraph owes a great deal to Guillermo Bonfil's insightful
argument that a recognition of the vitality of Mexico's indigenous past is
essential for a solution to the country's present problems. The search for
these solutions is the basis for our present research agenda. One of his last
articles "Por la diversidad del futuro" (Ojarasca, Number 7, April 1992, pp.
12-18) vividly expresses the problems created by the confrontation between the
trend towards neo-liberal globalization and the possibility, indeed the
necessity, of a different more plural world, if humanity and the earth itself
are to survive. This current of thought has become increasingly pervasive in
Mexico and elsewhere in the third world, where people of many different
persuasions and approaches are developing these ideas as analysis, programs,
and political platforms.

12. In Spanish: "No por mucho madrugar, amanece mas temprano."