Now Presenting A Volatile Mexico -- From the People Who Brought You the Global Financial Meltdown

By Jeff Faux, The Nation. Posted July 21, 2009.

This past winter both the outgoing director of the CIA and a separate Pentagon report declared political instability in Mexico to be on a par with Pakistan and Iran as top-ranking threats to US national security. It was an exaggeration; Mexico is not yet a "failed state." On the other hand, it is certainly drifting in that direction.

A vicious war among narco-trafficking cartels last year killed at least 6,000 people, including public officials, police and journalists. The country leads the world in kidnappings (Pakistan is second). And with the global crisis, the chronically anemic economy is hemorrhaging jobs, businesses and hope.

Not surprisingly, voters turned against President Felipe Calderón's right-wing National Action Party (PAN) in the July 5 midterm elections. But the left-wing Democratic Revolutionary Party (PRD)--which many believe was robbed of the presidency in the 2006 election--has ripped itself apart with factional infighting. So frustrated Mexicans gave their Congress back to the Institutional Revolutionary Party (PRI), whose decades of corrupt authoritarian rule were supposed to have permanently ended in 2000. At least, thought many voters, the PRI knows how to keep order.

Mexicans are of course responsible for their own country. But geography has always forced them to play out their history in the shadow of their northern neighbor. "Poor Mexico," goes the saying. "So far from God, so close to the United States." Today, Mexico is a prime example of the socially destructive effects of the neoliberal economics promoted throughout the world by the US governing class.

The North American Free Trade Agreement--proposed by Ronald Reagan, negotiated by George Bush I and pushed through Congress by Bill Clinton in 1993--is both symbol and substance of neoliberalism. It was sold to the citizens of the United States, Mexico and Canada with the promise that free trade in goods and money would transform Mexico into a booming middle-class economy, dramatically reducing illegal immigration and creating a vast market for US and, to a lesser extent, Canadian exports.

Fifteen years later, Mexico is still unable to create enough jobs to employ its people. Out-migration has doubled, and on both sides of the US-Mexico border labor-market competition has kept wages down. At the top, income and wealth have ballooned. It is no accident that among NAFTA's prominent godfathers were former Treasury Secretary Robert Rubin (Democrat) and former Federal Reserve chair Alan Greenspan (Republican), whose fingerprints are all over the current global financial disaster.

I was an opponent of NAFTA. Still, I thought the best case for it was that efficiencies from economic integration could at least make US and Mexican businesses more internationally competitive. But even that argument turned out to be worth no more than a share of Bernie Madoff's hedge fund.

Several years ago I gave a speech to a group of businesspeople in Mexico City. Those from the multinational banks and corporations thought NAFTA was a great success, but smaller Mexican businessmen saw it differently. You Americans, said one, promised that with your technology and our cheap labor, we'd be partners in competing with Asia. Then you opened up your markets to China and invested there instead. "Sure," he said. "We can make TV parts for half what it costs in the United States. But the Chinese can make them, and ship them, for a tenth. So instead of closing the gap between Mexico and the United States by raising wages, we have to narrow the gap between Mexico and China by lowering them."

When I mentioned the conversation to a New York investment banker who had lobbied for NAFTA, he conceded that his side may have talked vaguely about partnership with Mexico. But he shrugged and added, "Things changed"--that is, profit opportunities in China dwarfed anything Mexico had to offer.

The Wall Streeters had little interest in making Mexico more competitive. They also had little interest in making the United States more competitive. Their purpose was just the opposite: to disconnect themselves and their corporate partners from the fate of any particular country. The World Trade Organization, the opening of the US market to China and a parade of bilateral trade agreements followed in NAFTA's wake.

In Mexico, the political and financial elite were willing collaborators. For example, NAFTA opened up Mexican banks to foreign ownership: political insiders who had bought the giant Banamex from the government for $3.2 billion and gotten the government to provide it with permanent subsidies then sold the firm, with the subsidies, to Citigroup for $12.5 billion. Today roughly 90 percent of the banking system is owned by US and other foreign investors, who do not have to recycle Mexicans' deposits, or the Mexican government's money, back into Mexico but can invest them anyplace in the world.

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Jeff Faux is the founder and former president of the Economic Policy Institute and the author of the new book The Global Class War, a study of the impact of globalization abroad and on U.S. living standards and politics.

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