Mexico’s Neoliberalism and Its Negative Impact

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The current research paper defends the following thesis: Neoliberal policies in Mexico notwithstanding the fact of their warm welcome by the international community and international financial institutions had a negative and devastating impact on the country’s social fabric ruining social solidarity, autonomous development, state social and human development functions and instigating further exploitation of Mexican labor by transnational and national capital.

Neoliberalism as a set of social and economic policies is closely tied with the context of globalization which is characterized by aggressive development and expansion of financial and transnational capital in the third world and Western countries. The theoretical premises of neoliberal policies were elaborated in 70-s by the group of scholars closely associated with the interests of international monopoly capital which sought to debunk the so-called welfare state in the West and install a new model of economy which was to reduce state intrusion into the economy, decrease taxes and improve investment incentives.

It was the project of complete market deregulation and as W. Graf rightly calls it, a new recommodification of the state which refused its role in guaranteeing high social standards and haltering the aggressive nature of the market economy. Friedman, Hayek, and other neoclassic economists were the main proponents of neoliberalism as the new model of state policies in society. As D. Harvey claims, neoliberalism hence may be understood as the ‘capital’s class power renewal’ (Harvey,).

Third World countries such as Mexico benefited during the period of Welfare State in the West when capitalist expansion was hindered by the state’s crucial role. For Mexico, as other Latin American countries, the period after World War 2 was characterized by great industrialization leap forward combined with an active state role in bridging the gap between rich and poor. The development of the national economy was autonomous but not perfect due to structural inequality between the center and periphery. But even these minor achievements were ruthlessly terminated by neoliberal globalization that reinforced itself through political and economic pressure of international capital centers like the United States, international financial institutions as IMF, World Bank, etc.

For Mexico, the negative consequences of this transformation were evident since they transformed into the entire periphery of the United States, the supplier of disenfranchised labor and natural resources. The development of social services and the protection of workers’ interests were stopped and the country sunk into aggressive exploitation, moral, cultural, and personal deprivation while few benefited from the ‘intimate’ relations with the political establishment, comprador oligarchy, and American corporations which promoted their power through new ‘integration’ mechanisms such as NAFTA. But let’s look concretely at how it happened.

The neoliberal dogma of growth and economic consequences of neoliberal reforms on Mexico

Neoliberals confuse either consciously or not economic growth reflected in the level of Foreign direct investment, GDP with real development of national economy and bridging the gap between rich and poor which is considered to be the main achievement of the Western welfare state. This is explained by the fact that neoliberals protect the interests of grand moguls and capitalists whose profits stimulate the improvement of statistical economic variables. For instance, economic growth that

was the case in Mexico in 1996-2000 results not from national economic and social development but the neoliberal restructuring of the Mexican economy the growth of which depends on exports rather than the development of the national economy and internal market. The latter in their turn depend on creating a large portion of the middle class and consumers, which is incongruent with neoliberal theory and practice. As M. Hart-Landsberg suggests that the percentage of exports in GDP had grown from 15 % in 1993 to 33,5 % in 1999 due to the implementation of neoliberal policies that loosened the grip on American transnational monopolies which were provided by the tax-free conditions and no social guarantees vis-à-vis Mexican state (Hart-Landsberg, 2002).

Export reorientation of the Mexican economy soon resulted in the deterioration of other sectors of the economy, especially community economic development because the state was moved by the interests of the market and international oligopolies rather than the interests of the people.

Mexico neoliberal governments following NAFTA agreements and IMF ‘conditionalities’ implemented massive scope of reforms including capital account and trade liberalization, tax reforms, liberalization of the labor market, liberalization of the pension system, etc. which can be described as the total regress in comparison to the import-substitution system which was dominant after World War 2 (Kunhardt, 2001).

General economic consequences of these reforms can be described as opening Mexico to a free movement of capital and investments in the international market at the expense of social development. While Mexico was forced by International Financial Institutions to liberalize its market and refuse all protectionism, budget deficit, social expenditures on education, public health, national projects, Western countries while promoting liberal rhetoric constantly refused from its total implementation themselves. Therefore, inequalities between peripheries and center were reinforced making the Mexican economy dependent on the changing conditions of the international market, investor preferences as in the case of the 2001 year crisis in the United States when low levels of consumption made its automobile monopolies reorient capital assets from Mexico to East Asia (Hart-Landsberg, 2002).

Basic elements of neoliberal transformation in Mexico and its immediate consequences

Neoliberal restructuration in Mexico initially took the form of the cut of public spending which resulted in massive economic stagnation in 1983 and 1986. In its turn, the need to pay ever-rising public debts was one of the main causes of rising trading imbalance and surpluses negatively affecting national economic development.

The next step was initiating a massive privatization project which changed economic conditions radically. If in 1984 Mexican state-controlled over 1, 200 firms, in 1988 it had only 448 state enterprises at its disposal which in their turn were planned to be privatized (ECLA, 110).

In the middle of the 90-s with the growing neoliberal transformation of international trade and capital regime, Mexico accession to GATT and WTO all trade restrictions including tariffs, quotas, import licenses were eliminated which resulted in many national manufacturing firms going to bankruptcy as they lost national market filled by international corporation and investors (Hart-Landsberg, 2002).

Financial regulation was also undergoing change leading to complete deregulation of foreign financial investment and currency which was one of the main results of growing inflation and future debt and peso crisis.

Changing economic priorities and orientation of the Mexican ruling class was reinforced by accessing the NAFTA area which benefited both big American corporations and financial institutions and Mexican comprador oligarchy (Harvey,2005, 121).

Mexican workers were that wide sector of the population that was negatively affected by the neoliberal reforms immediately after their realization.

Their real wages fell approximately by 30 percent during the 80-s. Mexican elites in their turn effectively used the possibilities opened by the economic crisis benefiting from Mexican currency devaluation which made it possible for them to offshore their funds to foreign bans worsening the scope of the crisis. Besides this, they were the first beneficiaries of the state’s privatization campaign in which they gained the best enterprises at the cheapest prices.

Neoliberalism in its own right

The massive growth that happened in Mexico during 1990 and 1993 is mainly connected by the intensive inflow of foreign capital and investment which reached the mark of 91$ billion. Though this ‘growth without development’ led to neoliberal euphoria these changes were detrimental to Mexican social situations and independent economic development. For instance, 1992 saw a dramatic rise in account and trade deficits. As the ECLA report suggests, the total trade deficit amounted to $ 18,5 in 1994 compared to 0,9$ billion 4 years earlier.

Negative economic and social impacts of neoliberal globalization combined with political instability caused by alter globalism movements and Zapatista movements in Chiapas province show great Mexican depends on international speculative capital whose primary interests are profits but not Mexican stability and human development. In 1994 with the growth of such social instability investors began pulling money out of Mexico creating ruins behind them. All this caused the rapid fall of the peso which only intensified the capital flight. Finally, this led to a total collapse of the economy in 1995 when wages fell by 25 percent and GDP by nearly 10 percent.

The growing crisis in concert with government inability and unwillingness to implement anti-neoliberal policies resulted in further development of export-oriented foreign (mainly American businesses) in Mexico which benefited on the lessening level of salaries and super-exploitation of the labor force in so-called maquiladoras – enterprises where products were manufactured without tax deduction and then exported to the United States (Harvey, 2005, 164).

In this way, Mexico became deindustrialized during 80-s and 90-s and became heavily dependent on imports of various categories of manufactured goods.

Human costs of these changes as it was noted were immense. During seven years from 1991 to 1998, the real percent of employed urban workers for the wages fell by nearly 15%. During the same period, the percent of the workers that were unpaid rose by 7,4 percent and the number of self-employed had increased by nearly 6,2 percent. More than 50% of workers were subjected to massive salary declines. As a result, many workers had to live in poor suburbs created in the Mexico agglomerate where they live without water, canalization, and other necessary social services. The main question arises: why did employees were so badly damaged by neoliberal reforms and globalization if these are described as the main elements of economic and social development? To answer these questions it is necessary to analyze different modes in which new neoliberal reforms are reflected in economic enterprises and social conditions.

For instance, maquiladoras are foreign firms (mainly American) which import resources duty-free since they export all the production. This type of enterprise became central to the Mexican economy during the process of neo-liberalization.

By the year 2000, they produced 47% of all export and 54 % of total manufactured exports.

Besides this, it should be noted that the growth of maquiladoras sectors was accompanied by the massive rise of workers employed in it from 420,000 (in 1990) to 1.3 million in 2000.

In its turn as a reflection of the ever-rising export orientation of the economy urban employment and national manufacturing had rapidly fallen to record low marks.

Maquiladoras’ wages are twice as less as traditional manufacturing wages. Besides these HRW and other organizations claim that maquiladoras pollute the air and natural resources, do not organize normal conditions for workers, and super exploit them as disenfranchised labor without home and rights. This results in that the approximate average work life of maquila workers is 10 years because of professional diseases, various injuries, and firing the pregnant women.

Borderline when maquiladoras are usually created has poor conditions that are even more deteriorated. Among them is the absence of living infrastructure such as sewage systems, houses, clean water. Hence, all these works only for generating profit notwithstanding negative social consequences for ordinary people. Besides this, it should be noted that maquiladoras are functioning like international enclaves which are not connected to the Mexican economy. For instance, 97% of production inputs are imported from the United States and do not participate in national economic metabolism.

When the national economy in Mexico stagnates international capital considers it be more profitable to transform their activities in export production which is the most profitable.

This business is largely dominated by transnational automobile companies such as Nissan, GM, etc. These companies are the leading export-oriented companies in the country.

Contrary to the widespread claim that these industries contribute to Mexico transforming into a modernized economy, the abovementioned phenomena are the signs of ever-increasing deindustrialization of the Mexican economy and social sector destruction. Employees are badly affected by the changing patterns of the market as they do not have a permanent guarantee in social security in the companies they work for. As the market is reinforced in its profit-seeking impulse, workers become hostages of its flexibility. Many part-time workers, season workers are widespread not having any security, insurance, super-exploited. The legislation works in favor of grand international and comprador capital ignoring the interests of the workers.

Peasant and indigenous people territories such as Chiapas become the arenas of protest movements as in the case of the Zapatista movement. They protest against.

Aggressive globalization leads many people to abandon their home places seeking a job just to earn their living. Economic development of provinces is halted and they serve as a supplement to the colonial economy of the United States providing it with agricultural products which bring millions of dollars for local moguls capitalizing on cheap peasant labor. As ECLA reports postulates “Mexican automotive industry is focused essentially on the North American market, is dominated by foreign companies and has limited national linkages” (ECLA, 1999). This is the direct result of neoliberal economic policies.

But not only the transnational corporations are predominantly export-oriented but local national companies as well. As in the case of the US companies, their export orientations were by large part motivated by the 1994 peso crisis and the lowering of national wages. The relation of export to import rose by 15 % in favor of export only in mere 4 years which is good evidence of the abovementioned trend.

As far as these national exporters progress in breaking ties with the national economy they become more and more skeptical over national projects and rising wages.

Even such promoter of neoliberal policies as World had to acknowledge that the Mexican economy is disarticulated and misbalanced: “The productive sector continues to be characterized by a dual structure that seems to have become increasingly differentiated in the wake of trade liberalization and the banking crisis of the 1990s. On the one side is a dynamic export sector made up of internationally competitive firms, including the maquiladoras, and on the other is a less efficient domestic-market-oriented sector dominated by microenterprises and small- and medium-scale firms” (Clifford, 2001)

The domestic purchasing capacities have been continuously undermined by lowering wages which in its turn is designed by the government to support exporters. Exporters’ profit is more dependent on wage level than any other economic entity. As they gain profits in dollars or other foreign currencies they are not inclined to exchange them in devalued peso.

Besides this, it should be noted that the collapse of the Mexican banking and financial system leads to the collapse of many low and medium-size companies which were unable to borrow money for their activities. The bank that was left in the hands of national oligarchy were used for speculative operations on the peso, which had a detrimental effect on the Mexican economy and the social well-being of the people.

In its turn, this led to the considerable decline of loans to the private sector – by 40 percent and the total disappearance of customer credits.

International financial capital was at the forefront of benefiting from the banking crisis. It bought the majority of Mexican banks becoming the main source of credit to large transnational and local corporations.

As it was noted above new configuration of the Mexican economy makes it dependent on the U.S. economy. For instance, as a result of the U.S. crisis, the Mexican economy declined by approximately 1,5 percent in 2001. The production by maquiladoras fell by nearly 9,2 % and employment in maquiladoras by 20%. In its turn, constant Mexican instability forces the transnational corporation to reorient their businesses to Asia and other countries.

Conclusion

Neoliberal transformations in Mexico despite the vivid enthusiasm of international business and its clients was detrimental to Mexican society.

First of all, the Mexican economy was eliminated as the integral entity as its national market was neglected by export and international capital. The ties between national enterprises were broken and internal development stopped. Besides these neoliberal reforms harmed the stability of the financial system as liberalization of trade and capital account market resulted in inflation and currency crises. State which refused of its social responsibilities and made heaven conditions for international corporations and national capital faced up with insolvency and huge foreign debt reproducing itself on a high scale.

In its turn, social fabric and leaving conditions of people deteriorated in comparison to the period of development between 50-80-s. Real wages lowered, social guarantees eliminated. Entire communities faced up the problem of water supply, housing absence, and the state’s inability to provide basic health, education, and other necessary citizen services.

Maquiladoras and exploitation of Mexican employees intensified during the years of neoliberal restructuring leaving the country in ruins and with large polarization between wealth and poverty.

References

Clifford, Richard. (Washington D.C.: The World Bank, 2001), Growth and Competitiveness” in Mexico: A Comprehensive Development Agenda for the New Era, Marcelo M. Giugale, Oliver Lafourcade, and Vinh H. Nguyen, editors, 67.

Hart-Landsberg, Martin (2002). Challenging Neoliberal Myths: A Critical Look at the Mexican Experience. Monthly review, Vol. 54., # 7.

Harvey, David. A Brief History of Neoliberalism. New York: Oxford University Press, 2005.

Economic Commission for Latin America and the Caribbean, Statistical Yearbook for Latin America and the Caribbean 1999 (Chile: United Nations), 110.

Kunhardt, Jorge Basave (2001). Accomplishments and Limitations of the Mexican Export Project,” translated by Enrique C. Ochoa, Latin American Perspectives 28, No. 3 43.

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