Does Mexico Benefit from Free Trade?
By John W. Warnock: a Regina (Canada) political economist and author of  The Other Mexico: The North American Triangle Completed   

All our political leaders, our business organizations, and most of our  university academics proclaim that the free trade agreements benefit Canada,  the United States and Mexico, and the proposed Free Trade Area of the  Americas (FTAA) will benefit the less developed countries in Latin America.  I spent the month of March touring Mexico, looking for information on the  impact of the new free market free trade regime on Mexican development. In  Canada this new political economy system is called globalization; in Latin  America it is called neoliberalism. 

 First, it should be remembered that these agreements have very little  to do with trade. Even before they were signed we had almost complete free  trade. The new agreements are primarily about private investment rights.  

How does one judge whether a political economy regime is a success?  Mainstream economists usually cite figures on economic growth. In Mexico the  period 1945 to 1974 was the period of state-led Keynesian political economy.  During that period real annual growth averaged 6.4% and inflation 3.1%.  Manufacturing grew at a rate of 7.6%, and many jobs were created. This  period was called "the economic miracle." Between 1973 and 1983 real  economic growth averaged 4.8%, and inflation rose to 16.5%.  

In the period of neoliberalism, from 1982 to the present, the real rate  of growth has averaged 2.8%.The average annual inflation was 45.7%. These  basic figures alone explain why there is such skepticism of neoliberal  policies in Mexico. 

 Mexico has always been characterized by inequality, but this has risen  under the neoliberal regime. The World Bank reported in March that the  bottom 10% of the population earned only 1.5% of total income whereas the  top 10% earned 42.8%. The distribution of wealth, which would be very hard  to measure, is believed to be much worse.  

The poverty line set by the Mexican government is two daily minimum  wages for a family of five. Today this is 80 pesos or around $13 Canadian.  The World Bank argues that since the inauguration of NAFTA (1994-2000) the  number of working people living below the poverty line has risen to 36  million persons or 62% of the economically active population. Over this  period the real minimum wage has fallen by 40.7%.  

In the latter part of March the Mexican government sponsored a national  symposium on poverty. Julio Bolvitnik, an economist from El Colegio de  Mexico, argued that 71 million people or 73% of the population live in  poverty and 45 million in extreme poverty. James Foster, an economist from  Vanderbilt University who works for the World Bank, argued that economic growth does not solve poverty and that rising poverty and inequality were a  "time bomb" in Mexico.

  Labour's position in the economy has steadily declined during the  period of neoliberalism. Mexican government figures (INEGI) report that  between 1993 and 2000 the gap in wages in manufacturing between Mexico and  the United States rose from $9.6 to $12.1 per hour. The Organization for  Economic Co-operation and Development (OECD) reports that since 1995 real  wages in Mexico have declined by 10%. But over this period labour  productivity increased by 45%. This is due almost exclusively to the fact  that many workers have increased their hours of work from eight to twelve  hours per day. The number of Mexicans working more than 48 hours per week  rose from 2.3 million in 1988 to 9.3 million in 2000.  A study by economists at the National University in Mexico City shows  that over the last three years labour's share of the Gross Domestic Product  has declined from 34.16% to 30.66%. In 2000 13.3 million workers earned less  than the minimum wage (40 pesos per day, or $6.55 Canadian), which is  roughly one-third of all workers. UNICEF reports that there are five million  children under 14 working in Mexico. The Constitution prohibits children  under 14 from working.  

In 1980 the average automotive worker in Mexico earned about one-third  of the wage of an American automotive worker. By the year 2000 this average  worker earned only one-twelfth of his American counterpart. 

 The Bank for International Development, Latin America reported in March that employment in the formal sector of the economy (jobs which pay a wage  or a salary) are in decline in Mexico and throughout Latin America. The  percentage of people working self-employed in the informal economy, with  very long hours, usually seven days a week, low income, and no social  security benefits, is rising steadily. In Mexico this was 40% of the  economically active population in 1990 and is now over 50%. 

 Mexico has no unemployment insurance and no social assistance. Medicare  does not exist. Only those who work for the government or a private company  which is registered with the national system (IMSS) have any pension, about  one-third of the economically active population. The ability to provide  social programs has been limited by the structural adjustment programs  imposed on Mexico by the World Bank and the International Monetary Fund and  supported by the Mexican political and economic elite. Today total  government expenditures are only 19% of Gross Domestic Product. That  compares to an average of 40% in the industrialized countries of the OECD.  

Neoliberalism and NAFTA have been good for the rich in Mexico and the  large corporations. The banks, privately owned and robbed by the Mexican  rich, have been bailed out of bankruptcy twice by taxpayers. The illicit  drug industry flourishes and is now more important than the oil industry,  and free trade and cross-border trucking have made marketing much easier.  Mexicans know that their country is falling behind the United States  and Canada in every area. Aside from incomes, spending is very low on  education, health, agriculture and rural development, and research. It is  not surprising to find that most people, including academics, do not believe that so-called "free trade” has been good for their country.  

John W. Warnock is a Regina political economist and author of  The Other  Mexico: The North American Triangle Completed.