1) What is the impact of NAFTA after fifteen years?
- As intended, trade has increased dramatically between the US, Canada, and Mexico. Trilateral trade currently accounts for $15.3 trillion in goods and services annually. Mexico’s share of this trade has also increased.
- All three economies have experienced overall GDP growth, but Mexico’s growth has not been as impressive as had been expected, leading some to express disappointment with the accomplishments of the free trade pact.
- Reasons for NAFTA’s underperformance include: problems with the pact itself, especially the exemption of US agricultural subsidies which hurt Mexican farmers; problems within Mexico that have little to do with NAFTA; and unanticipated world events which have taken their toll, including the rise of China as a competitor to Mexico in manufacturing, the 9/11 attacks that distracted the US and resulted in more onerous border controls, and the current global recession that originated in the US.
- NAFTA is often considered a flashpoint for critics of globalization generally, taking probably more than its fair share of blame for the dislocations and economic insecurity brought on by larger free trade dynamics in the world.
2) What is the tenor of current US-Mexican relations?
- US-Mexican relations bear the heavy burden of history. This includes the loss of half of Mexico’s territory to US ‘manifest destiny’ in the mid 1800s, the perceived economic exploitation of Mexico by American companies, and periods of neglect of Mexico by the US.
- Tensions along the 2000-mile border have always been prevalent, from military skirmishing around the time of the Mexican Revolution to current-day issues of migration, environmental damage, and security.
- Increasing drug violence in Mexico in 2008-2009 is of great concern to both Mexico and the US. In 2008, the US Congress authorized $1.4 billion in largely military aid to the Calderon Administration for use in combating drug cartels. The US is indirectly complicit in the current drug wars in that US drug users drive demand for drugs, US banks often house drug profits, and US-made weapons fuel the conflict.
- President Obama’s first visit to a fellow head of state was to President Calderon in early 2009. During that visit, he promised to build a new relationship based on mutual respect and cooperation. This occurred, however, against the backdrop of a measure by the US Congress to renege on a pilot program allowing Mexican truckers greater access to US highways. Mexico retaliated by imposing new tariffs on select US goods.
- The Swine Flu scare of 2009 provided an opportunity for US-Mexican cooperation which has been praised by public health experts.
3) What is Mexico’s profile in Latin America?
- Mexico has the unique fate of being part of both North America and Latin America. Having one foot in each world is often difficult, as anti-US sentiment has often been rife in Latin America.
- Mexico competes primarily with Brazil for influence and power in Latin America. This is reflected in international trade negotiations and at the UN where Mexico leads a contingent of countries opposing a seat for Brazil (representing Latin America) on a possibly expanded UN Security Council. Brazil is a member of an emerging group of economically developing nations that includes Russia, China, and India (BRICs). Mexico is part of the Organization for Economic Cooperation and Development (OECD), considered the most elite club of advanced industrial economies in the world, and including the US, Western Europe, and Japan. The dominance of OECD nations is seen as being threatened by the BRICs.
- Mexico in many ways has more in common with its Latin American counterparts than it does with its North American and OECD partners. It shares not only its colonial history, culture, and language, but also a corporatist state, frequent political swings between extremes of the Left and Right, dependence on natural resources, fragile democratic institutions, and extreme inequalities of wealth. It also shares with its southern neighbors an ambivalence about the rise of China – reaping rewards from China’s hunger for commodities, but experiencing job losses from China’s spectacular competitiveness in global manufacturing markets.
4) Are Mexico’s governmental institutions too weak to position the country to be competitive in the 21st Century?
- Many experts believe Mexico lacks economic institutions to position it favorably in the globalized marketplace. It was able to structurally transition its economy toward the free market with macroeconomic reforms such as privatization and the growth of export industries; however, microeconomic reforms necessary to allow Mexico to take full advantage of the free market have been lacking. These needed reforms, which many count as prerequisites for the functioning of free market capitalism, include the establishment of institutions capable of regulating banking, credit, and labor, and the adoption of laws ensuring the enforceability of contracts.
- Mexico also lacks the political institutions necessary for the operation of full representative democracy. During the 70-year dominance of the PRI, mechanisms for political cooperation and consensus-building lagged. Now that the government must accommodate three political parties and multiple interests, Mexico lacks sufficient institutional channels to negotiate and implement legislation and ensure that all parts of society are represented.
- When economic and political institutions are lacking in quality, capacity, and transparency, corruption often fills the void. Crony capitalism comes to dominate the economy, leading to unfair and inefficient decisions and stifled growth. Favoritism and bribery compromise political leadership and diminish people’s faith in their leaders.
- Civil institutions such as a free press, NGOs, and watchdog groups are also lacking, compounding the problems above.
5) Why are so many Mexicans poor?
- Generally, economic growth and poverty-reduction programs are tricky to combine. If the government spends heavily on welfare programs that reduce poverty, the resulting debt can deter investors who would otherwise help produce larger economic growth; and economic growth is the most efficient and lasting means of reducing poverty. Mexico has yet to find the proper balance between providing a social safety net and keeping the economy growing.
- In Mexico, severe wealth inequality, dating back to the way land and power were distributed in colonial times, is being perpetuated as close ties between government officials and economic elites often make the rich richer. Even when economic growth has been substantial, entrenched inequality in asset ownership as well as the lack of sophisticated financial markets has denied the working poor the ability to own assets of any value, including their own homes.
- Mexico’s poor need a quality education to function in today’s knowledge-based economy. Mexican workers are getting crushed by lower-wage competition from Indian and Chinese workers, whose education has allowed them to obtain employment in more lucrative manufacturing and service industries.
- Mexican farmers are likewise relatively uncompetitive in the global market, due to a lack of technology in agricultural practices and machinery. These issues are exacerbated by archaic land ownership rules and competition from US subsidized agricultural products, particularly corn and sweeteners. Rural poverty in Mexico that disproportionately affects indigenous populations is extreme.
- Lack of opportunities and low wages in Mexico lead to migration, and migration leads to a drain of talent and young, healthy labor.
- The global recession is hitting Mexico especially hard, because of its dependence on the US for exports, remittances, and investment. Countries need positive GNP growth each and every year to combat poverty. Some estimates put expected declines in Mexico’s GDP this year at 4-5%, a significant problem for a country with a 40% poverty rate.
- On the bright side, Mexico, with the assistance of the IMF and World Bank, has pioneered a rural anti-poverty program that is now replicated throughout the world. Cash grants are given to families (mostly women) on the condition that children are sent to school and receive basic medical care. This appears to be effective in helping to break the cycle and culture of poverty that traps many.