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Mexico - A neoliberal experiment
Neoliberalism is the dominant economic, social and political model of our time - the latest phase of capitalism. In the neoliberal era, western-style representative governments have largely abandoned their (at least theoretical) roles as representatives of and mediators among a range of social actors. Joachim Hirsch refers to the "national competitive state" in which government represents the interests of capital at the expense of popular sectors of society. The role of the state is limited to administering poverty and managing social discord so that neither interferes with corporate profits. Disputed social territory - including personal security, public education, social security, public health programs, environmental protection, labor rights, etc. - is increasingly left to "market mechanisms," as the state abandons its role, however marginal that role may be historically, as benefactor (promoter of social programs) and protector of those sectors ravaged by market mechanisms (the homeless, the poor and the unemployed, to name but a few). Neoliberalism is characterized by easy movement of money and goods across borders, but strict control of people (or "labor markets" in the logic of capitalism). The South provides cheap labor, cheap commodities and, increasingly, cheap industrial products for consumers in Europe and North America.
Neoliberalism finds its roots in the so-called Washington consensus, which is nothing more than a class consensus that extends across borders. Conniving governments from the South are often representative democracies, but only in the formal sense of a democracy that can be purchased by local elites and "democracy-building" programs sponsored by the Agency for International Development. The governments are indeed representative. The problem is who they represent! Democracy is a principle worth defending and, in fact, worth dying for. But the "democracy" that is integral to the Washington consensus has very little to do with civil society ordering the affairs of a nation, and everything to do with control of key economic and political decisions by local elites. There are no better examples than the United States and Mexico. In the constellation of forces during most of the last decade, neither president George W. Bush nor presidents Fox or Calderon even won a majority of the vote in their respective elections - not that voting has a whole lot to do with democracy when nearly unlimited money can build a surrealistic view of the most important political issues of the day that often bares little resemblance to reality. In the final analysis, Wall Street own Barack Obama, the Sinaloa cartel owns Felipe Calderon, and the rest of us are left with precious little to say about the important affairs of our countries.
While military power is occasionally (and from recent experience, increasingly) necessary to maintain the Washington consensus, economic power exercises day-to-day control. Corporate-centered globalization, the everyday operational face of the neoliberal model, is impressive in its reach and level of absolute greed. The neoliberal model has been predominant in this hemisphere for a third of a century (depending on the country in question) and there is sufficient data available for an even-handed evaluation.
Though the elites throughout the hemisphere exercise their influence through the mainstream media to obscure reality with platitudes and slogans in an effort to convince the masses that the neoliberal model is the only and best model, the facts speak eloquently. In the 1970s, countries in this hemisphere averaged 4.5% growth in cumulative gross national product. In the 1980s, average growth declined to 3.5%, and in the 1990s average growth declined to 2.5%. (Gross National Product is, at best, an imperfect indicator of improving standards of living - for example, the environmental disaster caused by the grounding of the Exxon Valdez in Alaskan waters added to the GNP of the US for several years because the cleanup generated economic activity. And with increasing concentrations of wealth in the hands of a small elite, growth in GNP correlates even less with the economic well-being of the masses. But as a general marker it gives us an idea of where we're headed. And even by neoliberal standards, we appear to be headed in the wrong direction!)
So why is there a Washington consensus if economic growth is actually slowing? The key element here is the understanding of the Washington consensus as a class consensus across borders. While most of us are treading water or getting progressively poorer, the neoliberal model has resulted in an historically unparalleled concentration of wealth and power in the hands of transnational corporations, their shareholders, and the political and technical elites who oversee the system.
Again, the facts speak eloquently. Between 1982 and 1996, real wages in Mexico decreased by an astounding 80%, reversing slightly in the late 1990s, then declining again at the turn of the century, for a cumulative loss of over two-thirds over a period of two decades. In 2004, the minimum wage in Mexico is equivalent to about US$3.96 per day. In a country where prices at WalMart, the largest retailer and employer in Mexico, are typically equal to or higher than WalMart prices in Houston, Mexico's minimum wage doesn't buy much. Yet Mexico's minimum wage remains among the lowest in the world.
The US working class fares better, but not by much. Between 1970 and 1992, real wages in the US decreased by 19%, even in the midst of what most mainstream economists would consider a period of prosperity. And the poorest half of the population continues to lose ground.
On the other end of the champagne glass (to borrow a common metaphor that portrays the wealthy at the top enjoying oodles of bubbly while the poor share the dregs in the confined neck at the bottom), the rich are doing quite well under the neoliberal model, thank you very much. In 1997, the richest one-fifth of the world's population owned an astounding 85% of the world's wealth, though this compares favorably with the United States where the wealth of the top 1% of households now exceeds the combined household financial wealth of the bottom 95%. The absolute concentration of wealth and power at the top is unparalleled. The rich are getting richer, the poor are getting poorer, and the illusionary "middle class" is rapidly disappearing. The rich constructed the Washington consensus. The poor majorities are left only with the consensus that neoliberal "adjustments" are always accompanied by "pain," and are nearing a consensus that the pain will be permanent, rather than temporary as neoliberal defenders always promise. Perhaps we should be asking ourselves, first, why do these wonderful programs always involve adjustment pains, and second, why are we always the ones who suffer these pains?
The United States and Mexico have been central to the development of the neoliberal model. We share a 2,000 mile border, the only place in the world where the Global North meets the South. The US-Mexico border is unique, and the relationship between the two nations is equally unique.
In many ways, this geographic marriage represents the most important relationship in the world - a laboratory that is defining the neoliberal model. Three historical markers stand out as central to the development of neoliberalism: the establishment of free trade zones and maquiladoras in 1965, Structural Adjustment Programs initiated by the International Monetary Fund in 1982, and the signing of the North America Free Trade Agreement in 1994.
The US-Mexico relationship has been the proving ground for the practical realities of the Washington consensus: production-for-export replacing production for internal consumption, the use of debt as a lever to force structural adjustment programs, loose investment rules that allow hot money to cross borders in seconds, and a trade agreement (read NAFTA) that is the model for a new legal framework that expands the rights of corporations at the expense of civil society.
Experiments that "work," from the perspective of transnational capital (and all of the above-mentioned experiments "worked") are exported to other countries. This implies a complete restructuring of the economies, politics and cultures around the world, to make them consistent with the neoliberal vision. Nearly everything is on the table for reform: economic policy, public subsidies, social programs, industrial policy, government procurement, intellectual property rights, patents, banking and financial services, agricultural policy, foreign direct investment, energy policy, labor regulations, environmental protection, public education and health care - and the list goes on. Twenty-first century neoliberalism is a project for world domination, and the US and Mexico are at the center of the vortex.
1965 - Free Trade Zones and Maquiladoras
While most observers mark the early 1980s and the Latin American debt crisis as the beginning of neoliberalism, the seeds were firmly planted in 1965 with the establishment of free trade zones and maquiladoras (factories that produce for export) under the Border Industrialization Program (BIP). The BIP represented an important change in the relationship between labor markets and production, moving factories to the source of labor rather than the other way around. Initiated at the end of the Bracero Program (in which Mexico sent cheap labor northward, mainly to harvest fruits and vegetables, under short-term contracts), Mexican politicians hoped the BIP would provide jobs for former Braceros, though ultimately the program, in combination with other neoliberal policies, actually increased immigration from Mexico to the United States, especially undocumented workers.
Foreign production for the United States market certainly existed before 1965, but growth after 1965 was staggering. Total US imports grew from $18.7 billion in 1964 to $1.17 trillion in 2002. In constant 2002 dollars, this represents more than a ten-fold increase. Today about one-third of everything produced in Mexico is exported (an amazing statistic, the implications of which take a moment to fully sink in). Given Mexico's decreasing real wage rates (and decreasing living standards), this means that Mexico's working class is fighting a losing battle, each year paying relatively more, measured in hours worked, for imported goods while selling relatively less in exports.
From the perspective of a traditional capitalist model of development, the BIP marked a clear step backward in the industrialization of Mexico. Production for internal consumption, also known as import substitution, was Mexico's predominant economic model from the 1940s to the mid 1960s, and relied heavily on industrialization led by state intervention. The import substitution model protected strategic industries with tariffs, and required increasing levels of technology and concomitant increasing levels of education among workers.
In contrast, the production-for-export model, of which maquiladoras are the centerpiece, rely on cheap labor and low technologies, and the vast majority of production is exported. It is a model the United States itself pointedly avoided in its own process of industrialization. While there are a number of reasons behind the rapid and successful industrialization of the United States, trade policy has to be considered among the most important. For the better part of two centuries, US trade policy was characterized by high tariffs and other measures that protected young industries from international competition. Since the mid 1960s, the US has taken exactly the opposite position with non-industrialized nations in the South. Rather than encouraging protective trade policies like those that assisted US industry, the new neoliberal mentality calls for open borders and free flows of goods, services and finance. Neoliberal economists are bothered tremendously by anything that gets in the way of the pure functioning of open markets - like the annoying needs of real people in their day-to-day lives. If it weren't for those bothersome people, especially the poor masses with their constant demands for food, housing, education and health care, the neoliberal model could work with scientific precision. That's what the textbooks say! But the real world tells a different story. The results of neoliberalism have been devastating for the poor majorities and working classes in the Mexico and as well as the United States.
Maquiladoras are at the heart of this new model, marking an important political change in Mexico from production for internal consumption to production for export. Maquiladoras often consist of not much more than four walls, a roof, some benches and a few simple tools, hardly the basis for spurring the industrialization of the country as proponents claim. About 98% of the inputs used in maquila production are imported from outside of Mexico. Increasingly these imports come from Southeast Asia, particularly China, where the lowest industrial wages in the world are found. Virtually 100% of maquila production is exported from Mexico, with about 90% destined for the United States. This part of the economic model is enshrined in law, as maquiladoras are prohibited from selling their production in-country. Northern consumers won't have to look far to find maquila-produced goods, from television sets to refrigerators, automobiles to furniture, and textiles to electronic equipment.
The maquiladora model relies on low wages, lax environmental standards, and an "inviting" tax structure, characteristics that are attractive to transnational corporations but ultimately damaging to the majority of Mexicans.
Low wages are key to the "success" of the maquila model. Industrial wages in the US average about $17 per hour, while in 2004, the minimum wage in Mexico is about US$3.96, at current exchange rates, for an eight-hour day. Maquiladoras typically pay some small multiple of the minimum. Some 60% of the Mexican workforce has yearly earnings below the poverty level, defined by the Mexican government as income of less than US$1.90 per day per person in urban areas and US$1.50 per day in the countryside. A family of five would require income equivalent to about three minimum wages, after taxes, to escape the official poverty level (and substantially more to live dignified lives!).
Mexico's maquiladora sector suffered dramatic declines from its peak in 2000 (3,703 maquilas) to 3,230 maquilas in July 2003. Job losses totaled about 280,000, a 21% decline, during this period. Total Foreign Direct Investment (FDI) in the maquila sector declined by about one-third from 2000 to 2003. Declines in employment were most severe in electronics assembly, footwear, textiles and clothing. More sophisticated activities, such as auto parts, remained largely stable, mainly because of the more extensive investment in infrastructure and the need for highly trained workers in this sector.
Lax environmental regulations attract foreign firms that are tired of seeing their bottom lines affected by bothersome environmental regulations in their home countries. It's part of the eternal struggle of the capitalist to externalize costs and maximize profits. Water, soil and air contamination are often bi-products of industrial production, and in a sane society, the polluter would be responsible for cleanup, with the costs reflected in the price of finished products. But capitalists are always looking for ways to cut corners and force society to pay for some of the costs of production. In maquiladoras along the US-Mexico border, pollution is an endemic problem, as local officials collude with transnational corporations to increase profits (no doubt lining a few political pockets along the way) while environmental quality suffers.
Both low wages and environmental destruction result in social problems. Low wages force workers to choose among various necessities - food, housing, education, health care, transportation. Degradation of the environment affects entire communities, and is especially serious along the border where clean water supplies are limited. With all of these problems, government offers the solution of last resort. But maquiladoras pay almost no taxes. Transnational corporations often pit local and state governments against each other in bidding wars to see who will offer the largest tax breaks. In an effort to attract more foreign investment in the maquiladora sector, the Fox administration phased out payroll taxes in 2004 and most maquiladoras are exempt from income tax. Without tax income, the state is unable to address the social problems caused by low wages and environmental degradation. Corporations get rich while the communities that host maquilas are degraded - socially, culturally, economically and environmentally.
Members of the ruling class often make the argument that maquiladoras provide jobs, as if a job is a privilege and working people should be thankful for the opportunity to sell themselves for poverty-level wages. The argument is comparable to forcing someone into the desert for three days without water, then wondering why they complain when offered a glass of ice-cold vinegar. The pertinent question is not "Why aren't they thankful for something to drink?" but rather "What are they doing in the desert and where's the water?" In relation to jobs, the pertinent question is not "Why aren't they happy to have jobs?" but rather "Why are these the only jobs available?" and "What are the policies that created this situation in the first place?"
Unemployment and poverty have both increased in Mexico since the late 1960s, and working class wages in the US have been stagnant or falling - even in the midst of the 1990's "economic boom." The neoliberal model leaves most people poorer, and creates a "race to the bottom" as workers and local governments are forced to compete by offering lower wages, lax environmental standards and low taxes.
Early 1980s - Structural Adjustment Programs
In 1970, Mexico's foreign debt totaled US$3.2 billion. In the early 1980s, foreign debt reached US$100 billion. A full explanation of this dramatic increase is beyond the scope of this brief investigation. Suffice it to say that international lending institutions, in particular the World Bank and the International Monetary Fund, paved the way with official stamps of approval, and the Mexican ruling class and US investors profited handsomely. But most Mexican workers suffered, to the point where the 80s is known as the "lost decade." While many Latin American countries found themselves in serious debt in the early 1980's, Mexico was the first to confront possible default.
In many ways this was a godsend for the International Monetary Fund (IMF). The IMF was founded in 1944, along with the World Bank, at a conference of over 40 countries, most of them aligned with the soon-to-be-victorious "Allies" in World War II. The goal was to prevent another economic cataclysm like the Great Depression of the 1930s, which was widely blamed for fuelling the rise of fascism in Europe. The IMF's original task was to monitor currency values and help member countries maintain their balance of trade by making small short-term loans. This role became obsolete in 1973 when the U.S. ended the "dollar-gold" standard (in which it guaranteed to redeem $35 with an ounce of gold, and all other currencies were pegged to the dollar).
While nominally a special organ of the United Nations, functionally the IMF is controlled by a few capital-exporting countries, with the United States taking the leading role. Votes on the governing board are determined neither by population nor by one-country-one-vote, but rather by the monetary contribution each country makes to the institution. The United States controls about 18% of the votes (double the power of the next-largest contributor, Japan) and wields effective veto power over all IMF decisions. In effect, the US Treasury Department sets IMF policy.
The IMF foundered in the mid-1970s, performing an annual analysis of each member country's economy, but doing little else. It carved out a new role for itself with the advent of the Latin American debt crisis in the early 1980s. When Mexico came close to defaulting on debt payments, the IMF answered the panicked calls of large private banks and wealthy member governments by assembling a "rescue" package of loans accompanied by a large number of conditions (called "conditionalities" or Structural Adjustment Programs (SAPs) in IMF parlance), ostensibly to prevent future debt problems and to restore the Mexican economy to health. These conditions included measures to open the economy to foreign corporations, eliminate trade barriers, restrict access to credit, and cut social spending. Although Mexico was not the first country to receive an IMF "policy-based loan," it was here that the IMF first imposed a comprehensive macroeconomic program via structural adjustment.
Mexico's loans became the standard for SAPs that the IMF went on to impose in over 80 countries during the 1980s and 1990s. The psychological barrier that prevented the IMF from assuming virtual control of a country's economic policy was broken in Mexico. Full-scale threats to the global economy, such as the Latin American debt crisis, were no longer required for the IMF to use the leverage of debt problems to re-order national economic policy. As the march of structural adjustment continued across Latin America, the Caribbean, Africa, and much of Asia, economic policy began to assume a homogenous character throughout the South. No longer were experiments with "socialism" or "import substitution" tolerated. Free trade, privatization, low-wage labor in assembly factories, and export-led economies - in other words, neoliberal policies - became the global rule.
Today Mexico exports fully one-third of everything produced within the borders of the country. Almost 90% of these exports are destined for the United States. The maquiladora sector represents an important part of these exports, but the majority of the exports (and this is true for Latin America as a whole) are raw materials. In the case of Mexico, oil is king, with minerals and "designer vegetables" (broccoli, cauliflower, asparagus, etc.) also important. Water and hydroelectric power from southern Mexico may prove to be the most important exports of the 21st century (see President Fox's Plan Puebla Panama for examples of this). Cheap labor in the form of undocumented workers is also a key "export." Family remittances from migrant workers represent Mexico's second most important source of hard currency, reaching about US$12 billion in 2003 and expected to reach a whopping US$17 billion in 2004. We will see later how neoliberal policies affect labor markets.
1994 - NAFTA
From the perspective of the ruling class, the North America Free Trade Accord (NAFTA), signed on January 1, 1994, is the defining legal structure for future United States economic relations with the rest of Latin America. NAFTA integrates the economies of Mexico, the United States and Canada by eliminating most trade and investment controls over a 10-year period, with some agricultural tariffs phased out over 15 years. NAFTA builds on the US-Canada Free Trade Agreement signed in 1988.
- NAFTA provides for the strongest intellectual property rights (patents, copyrights, and trademarks) in any bilateral or international agreement. This is particularly favorable for US-based high tech, pharmaceutical and entertainment companies.
- Prior to NAFTA, Mexico could review all foreign investment proposals to determine if they were in the national interest. NAFTA abolishes this right.
- NAFTA prevents governments at all levels from giving preference to procurement from local suppliers or promoting local-content provisions.
- NAFTA provides for expedited travel visas for businesspersons wishing to travel between the US and Mexico, but makes no provisions for working class people wishing to travel.
- NAFTA eliminates equity and market share restrictions for financial services such as insurance, banking and securities.
- Under Chapter 11 provisions, NAFTA permits investors to sue host governments before secret panels made up of trade experts, who are prohibited from considering national laws or traditions in forming their decisions. Deliberations are carried out in secret and civil society is prohibited from presenting testimony.
- In preparation for signing NAFTA, the US insisted on over 300 changes in Mexico's constitution and legal structure. Perhaps the most significant was the reform of Article 27 of the constitution, ending land distribution to campesinos under the ejido program.
After a decade of NAFTA, the results are obvious - corporations have benefited handsomely while the working class on both sides of the border suffers declining living standards. NAFTA has been nothing short of a disaster, yet it is proudly trumpeted by the ruling class as the blueprint for the Free Trade Area of the Americas, a proposed (and ultimately failed) trade agreement that would have included every nation in the hemisphere except Cuba.
Neoliberal proponents promised that NAFTA would increase trade between the United States and Mexico and would increase foreign investment in Mexico, and this has generally been the case, though with significant deviations dependent largely on business cycles. Net US investment was a negative US$41 billion in 1995 (largely a result of capital flight due to the peso crisis) but the roller coaster turned positive in 1997 and topped out in 2000 at a whopping US$162 billion (much of this due to the purchase of Banamex by Citigroup), only to fall into negative territory again in 2002. Exports to the US increased from US$49.4 billion in 1994 to US$161 billion in 2002. Employment in the maquiladora sector increased from 546,433 in 1994 to 1,291,232 in 2000 (though this number has decreased to near one million since the 2001 recession). But numbers don't tell the whole story. Increasing exports can be good, bad or neutral, depending on the impact on living standards in both countries. Net foreign investment can be good, but it can also increase dollar-denominated debt, forcing nations into a perpetual debt treadmill, and short-term "hot money" investments often do more harm than good. Increases in maquiladora employment must be evaluated by the quality of jobs and the impact on the rest of the economy. A closer look reveals substantial negatives on both sides of the border.
In 2003, Mexico's foreign debt was a whopping US$140 billion, equivalent to 21.6% of total GNP, and interest payments alone amounted to US$37 billion annually. All of this debt is dollar-denominated, putting Mexico on a path of continually increasing exports (with secularly decreasing values) just to service the debt.
In 1992, 64.9% of Mexican families earned the equivalent of four minimum wages or less - not a stellar economy - but the number increased to 65.5% in 2002, the result of a decade of economic "growth" under the neoliberal model.
Foreign investment demands legal structures that insure the "rights" of investors, and increasingly these structures are transnational, taking the form of international trade agreements rather than national laws. From the perspective of capital, international agreements offer several advantages. First, they are uniform. Corporate legal experts can deal with one-size-fits-all regulations rather than dealing with a myriad of local and regional regulations designed to meet local and regional needs. Second, capital exercises powerful influence over the design of international regulations (more on this in a moment). Third, international agreements are generally beyond the reach of civil society. For example, NAFTA supersedes national laws, and disputes are settled in secret tribunals. NAFTA and other international agreements even exert influence over local legislation. When NAFTA tribunals rule against, for example, environmental regulations, they set a precedent that local legislators are bound to follow. Fourth, since international agreements are generally negotiated with the full approval of the United States government, their ultimate enforcement lies with the diplomatic and, if necessary, military power of the United States, generally a powerful incentive to toe the line no matter what the domestic social consequences.
In 2004, the United States negotiated a plethora of bilateral accords, but the two most important initiatives are the Free Trade Area of the Americas (FTAA) and the Central America Free Trade Agreement (CAFTA). Both are based on the NAFTA structure, though both offer transnational corporations additional rights not included in NAFTA. The failed FTAA would have included the entire western hemisphere except Cuba, while CAFTA (which did pass) is limited to Central America and part of the Caribbean. In the late 90s, the FTAA was at the top of the US trade agenda, but with the election of Lula in Brazil and Chavez in Venezuela, the Argentina meltdown, plus burgeoning popular resistance to free trade agreementa across the hemisphere and the world, the agreement became a dead letter. Official attention then focused on CAFTA, where the US could count on pliable governments throughout the region.
Loss of democracy
In addition to these three central historic moments, other events carry weight in defining the neoliberal model. The 1995 peso crisis generated US$50 billion in emergency loans from the IMF and an additional US$20 billion from the Clinton administration, in exchange for virtual veto power by the US Treasury over Mexico's economic decisions for the next decade. This is characteristic of perhaps the most profound and important element of neoliberalism - the usurpation of democracy - a characteristic that cuts across nearly every element of the neoliberal model. Increasingly, transnational corporations and the political powers that defend their interests are gaining power at the expense of civil society, which often spent generations of struggle to win rights and protections. The neoliberal model removes economic decisions from the political arena and places them in the invisible hands of the market. In practice, this means that economic decisions that have wide-ranging impacts on society are placed in the hands of private corporations. The loss of democracy is not an abstract, academic question. It is having a serious impact on the ability of people to control their lives and the future of their communities. The loss of democracy will have far-reaching consequences for generations to come.
IMF Structural Adjustment Programs are one of the best examples. The US Treasury Department, in the form of the IMF, is writing economic policy for countries around the world, using foreign debt as leverage to force Southern nations to adopt neoliberal policies. It should be noted that ruling elites in the South, the new "technocrats," many of whom received training at US universities, are generally in agreement with these neoliberal initiatives. After all, they gain almost as much under the neoliberal model as their US counterparts. However, local elites do not enjoy sufficient popular support to initiate neoliberal policies without the "cover" offered by the IMF. The fact that the IMF "forces" these elites to accept these policies is a direct appropriation of democracy.
The Chapter 11 provisions of NAFTA that allow corporations to sue governments before secret tribunals are another direct threat to democracy. This legal instrument is relatively new, and in the case of Mexico and the United States, it is the first time that either country has agreed to participate in such a dispute settlement mechanism. Although Chapter 11 has only been in effect for ten years, and corporate legal counsels only recently began to experiment seriously with the mechanism, there are already several cases that are indicative of the dramatic loss of democracy.
- In January 1997, Metalclad Corporation of Newport Beach, California, filed a complaint under NAFTA alleging that the state of San Luis Potosí violated NAFTA provisions when it prevented the company from expanding a waste disposal plant. In 1991 Metalclad purchased the facility, which had a history of contaminating local groundwater, with the obligation to clean up pre-existing contaminants. After an environmental impact assessment revealed that the site lies atop an ecologically sensitive underground stream, the Governor refused to allow Metalclad to reopen the facility. Eventually, the Governor declared the site part of a 600,000 acre ecological zone. Although Metalclad never received the necessary local permits, the company claims this action was effectively an expropriation and inhibited the company's ability to make profits. In August of 2000, a secret NAFTA tribunal awarded Metalclad $16.7 million in damages. Apparently the private profits of Metalclad are more important than protection of the community's groundwater.
- In April 1997, Canada imposed a ban on the gasoline additive MMT. Some US states also ban MMT, whose primary ingredient, manganese, is a known human neurotoxin. Ethyl Corporation, the main producer of MMT, responded to Canada's public health law with a $250 million lawsuit, claiming the law violated its investor protections under NAFTA. Ethyl argued that the law was an "expropriation" of its assets because it would eliminate expected profits from Canadian sales of the additive. The Canadian government settled the suit, agreeing to pay Ethyl $13 million in damages and cover the company's legal costs. It also proclaimed publicly that MMT is "safe" - contradicting the position of its national environmental protection agency.
- The Methanex Corporation of Vancouver produces MTBE, an oxidant used as a gasoline additive to improve combustion efficiency. MTBE is highly carcinogenic, and for several years has been contaminating California groundwater. The California Assembly passed a law prohibiting the use of MTBE, a reasonable response to extensive drinking water contamination by a known carcinogen. Methanex sued the State of California for $970 million, for the loss of potential profits from possible future sales of MTBE in California. As of this writing, the case is still pending, complicated by the fact that former Governor Grey Davis apparently accepted substantial campaign contributions from the ethanol lobby, Methanex's main competitor. If decided in favor of Methanex, it will likely be interpreted as open season for corporations to sue for loss of all kinds of "future profits." Even if Methanex loses, local governments will think twice before approving environmental laws that may offend transnational corporations with deep legal pockets.
While the three examples sited above deal with environmental issues, NAFTA rules make almost anything fair game. For example, a city government trying to protect local jobs could be prohibited from offering concessionary loans or preferential purchases to a local company if a transnational corporation wants to compete in the same market. Subsidies (read tax dollars) for public education could be challenged as an unfair business practice if a transnational corporation promoting private schools decides to compete in the same market. The postal system could be threatened as an unfair monopoly, with private companies picking off profitable routes while leaving relatively costly inner city and rural deliveries to the government (this challenge is already being made in Canada by FedEx). NAFTA foretells a world of decreasing public spaces, where private corporations make the vast majority of decisions that affect our lives, not based on a sense of the common good but based solely on the corporate bottom line.
Obviously trans-national corporations enjoy important and enforceable new rights under NAFTA, but what about workers? To understand the full extent of NAFTA, let's look at the labor side accords that were tacked on after the AFL-CIO complained loudly. Under the side agreements, known as the North American Agreement for Labor Cooperation (NAALC), workers can file complaints for failure to apply existing labor standards. Of the 21 cases filed to date, one-third deal with health and safety standards that already exist in national law. A review panel investigates the complaint and produces a report. However, the offending corporation can do anything it pleases with the report, including throwing it in the wastebasket if it so chooses. Unlike Chapter 11 provisions, there are no enforcement mechanisms attached to the labor side agreements.
While all of the above-mentioned examples are important, the most significant threat to democracy is also the main constituent of the neoliberal model - the corporation. In an ostensibly democratic country like the United States, it has always amazed this author that large segments of the population are willing to live in virtual dictatorships - called corporations - for one-third or more of their waking hours. No institution present in modern society is less democratic than the corporation. A small cabal of directors and managers exercise virtual dictatorial control over a workforce that, for example in the case of WalMart, numbers in the millions. And this same small group of people decides how to invest and spend billions of dollars in profits that are earned because of the hard work of employees. Not even a hint of democracy to be found, yet the corporation is at the center of modern society, directing production and consumption patterns, use of natural resources, and public policies (via control of the political process through millions of dollars in donations). What could be more undemocratic!
The neoliberal model expands the power of corporations by removing economic decisions from the political realm. Less government (read less democracy) is the rallying cry, and many people who wait in long lines to get a drivers license, hate to pay income taxes or find today's political class unpalatable agree. But the implication of less democracy is more corporate control, a result that any thinking being would object to in principle and in fact.
The Neoliberal Balance Sheet
Ultimately, we arrive at a very practical question - Does the neoliberal model improve the lives of the majority of the people? This question can be addressed from several perspectives.
From a developmental perspective, the answer is clearly no. The statistics sighted above unambiguously demonstrate that the living standards of the majority of people are declining under neoliberalism. The majority of people in this hemisphere are poorer today than 25 years ago. That's a fact that no amount of propaganda can hide from people who live the reality every day.
From a broader cultural perspective, the neoliberal model has serious implications. It is a hegemonic model that doesn't allow for a variety of cultural expressions. Neoliberalism is based on certain fundamental values that are inconsistent at best, and diametrically opposed at worst, to cultural values that are alive and well in many parts of Mexico and the United States. Neoliberalism is based on individualism, consumerism, concentration of capital, and centralization of power. In stark opposition we find community-based models in Mexico and the United States that are based on collectivism, environmentalism, equitable distribution of wealth, and democracy. Perhaps the best known example is the Zapatista struggle for autonomy. The Cuban health care system, the indigenous uprisings in Ecuador, student movements, ejidos (communally owned agricultural lands in Mexico), cooperatives, the international environmental movement, and the citizen's movement in Argentina are but a few examples of alternatives in this hemisphere. These competing visions are locked in profound struggles throughout the world, but no more so than in Mexico, especially along the US-Mexico border.
Next we'll take a look at Mexico's mounting rural crisis, the direct result of three decades of neoliberal policies.
Neoliberalism and Mexico's Rural Crisis
Mexico's rural crisis dates to the late 1970s, when PRI administrations began to implement neoliberal policies, cutting agricultural subsidies and assistance programs, especially for small and medium sized producers. With the implementation of NAFTA, small and medium sized agricultural producers were unable to compete directly with highly subsidized and mechanized US producers and transnational corporations that exercise effective monopoly control over international grain markets. Since 1994, real prices for Mexican corn have fallen more than 70% because of massive, low-priced US imports, effectively destroying the internal market for native producers. Mexico's protective tariffs on corn, beans and milk are scheduled to end in 2008, while in January 2003, NAFTA ended most other agricultural tariffs, threatening the livelihoods of one-quarter of the population.
The roots of the rural crisis are found in the structural mechanisms that capital uses to appropriate surplus value from the campesino class in the neoliberal era - the vicious circle of corporate subsidies, free trade regimes, monopoly markets and vertically integrated corporate structures. For purposes of analysis, we can enter the circle at any point. As a matter of convenience, we will begin our analysis with corporate control of international grain markets, in particular corn. Corn production is at the heart of Mexico's rural economy. About 19 million people, almost one-fifth of the population, produce corn. About 60% of Mexico's agricultural land is planted in corn. Neoliberal policies that impact corn production have ramifications throughout the economy and society.
According to the United Nations Conference on Trade and Development (UNCTAD), "as of 1997, world agricultural trade still accounted for as much as 11% of world merchandise trade, and remained ahead of other sectors such as automotive products, textiles and clothing, chemicals, fuels or iron and steel" giving some indication of the importance of agriculture to the world economy. Ten transnational corporations control 32% of the world's total agricultural market, exercising sufficient control to declare the market an effective monopoly. The corn market is even more concentrated. The United States produces 39% of the world's corn, and in 2001, three firms controlled more than 80% of US corn exports: Cargill, Archer Daniel Midland (ADM) and Zen Noh. Cargill alone is responsible for about 42% of US corn exports.
Cargill describes itself as an "international marketer, processor and distributor of agricultural, food, financial and industrial products and services with 97,000 employees in 59 countries." Note that Cargill does not actually produce corn or other agricultural products, but the corporation exercises effective control via production contracts that specify seeds, fertilizer, pesticides, herbicides, etc, all marketed by the contracting company. Production of basic grains is one stage in a vertically integrated process in which every step - production, transportation, processing, marketing and export - is under corporate control. Vertical integration means that profits in one transaction can offset losses in another, giving corporations huge advantages in negotiations with producers and buyers.
In addition to monopoly control and vertical integration, Cargill and other US corporations are able to dominate the international corn market because of extensive state subsidies that allowed US exporters to dump corn in Mexico in 2001 at 33% below the actual cost of production. In May 2002, President Bush increased state agricultural spending by 80% over the watershed 1996 Freedom to Farm Act. According to Food First, "Today more than 40 percent of net farm income comes from the federal government. … The top 10 percent of farm-subsidy recipients collect two-thirds of the money, [while] the bottom 80 percent get just one-sixth." We're not talking here about the mythical family farm. Large corporate producers account for most basic grain production. Increasingly the family farmer is converted into a sub-contractor representing little more than cheap labor for corporate farming operations. Subsidies are based on the amount of production, which is why the vast majority of subsidies go to large corporate producers.
Corporate producers are not the only recipients of government largesse. According to President Bush, "Today, 25 percent of U.S. farm income is generated by exports." Under the 2002 Farm Bill Market Access Program, a total of $100 million has already been distributed to 67 U.S. trade groups for the purpose of promoting U.S. agricultural products in overseas markets. An additional $1.34 million in federal funds from the Quality Samples Program has been allocated to 17 trade groups to increase export sales by expanding into new agricultural markets.
Extensive government subsidies have two immediate results. First, Cargill and other exporters can purchase, and sell, basic grains below the cost of production, driving many foreign producers, especially small producers, out of business. Second, subsidies promote overproduction, flooding the market and undercutting prices further.
Overproduction is one of the fundamental goals of subsidy programs, and outside the context of a capitalist economy, it makes sense. Food is not like automobiles, cosmetics, refrigerators or a million other products that consumers can live without for short, or even extended, periods of time. Food must be available every day of the year. Political stability depends, in part, on stable food production. In the context of "free markets" and transnational production, food sovereignty is one of the most discussed topics of the 21st century, specifically because of the importance of food for political stability. US subsidy programs promote US production at the expense of production in other countries, to the extent that food becomes useful as a strategic weapon in international disputes.
Corn is not the only agricultural commodity affected by low prices, over-production and monopoly markets. The international coffee market is another example of neoliberalism at work. Corporations that control the international coffee market are quite profitable. In fact, retail coffee prices are increasing in recent years, even as wholesale prices decline to 45 cents a pound, well below the cost of production. Coffee is not produced in the United States, but rather in the global South, accounting in large part for the lack of subsidies, price support and political clout of producers. While the World Bank has seen fit to stimulate production over the past decade with extensive low interest loans, particularly to Vietnam, it has not seen fit to defend market prices. The result is hundreds of thousands of coffee producers searching for alternative means to survive.
Even if formal US government subsidies for basic grains were to end tomorrow, highly mechanized corporate producers would still enjoy "unaccounted" subsidies paid by the world's population in the form of environmental damage caused by extensive use of fossil fuels, pesticides, herbicides, and chemical fertilizers. The environmental damage is genuine and extensive, yet the cost of repair never shows up in the price of the agricultural products. Rather, the costs are "externalized," eventually to be assumed by society at large.
Michael Pollan outlines the extent of environmental damage in one sector of US agricultural production, cattle ranching, which is closely linked to corn production: "Growing the vast quantities of corn used to feed livestock in this country takes vast quantities of chemical fertilizer, which in turn takes vast quantities of oil - 1.2 gallons for every bushel." According to Pollan, US corn production is "an 80-million-acre monoculture that consumes more chemical herbicide and fertilizer than any other crop. Keep going and you can trace the nitrogen runoff from that crop all the way down the Mississippi into the Gulf of Mexico, where it has created (if that is the right word) a 12,000-square-mile 'dead zone'." Pollan notes another unaccounted cost: "corn constitutes … an important link in [the] food chain, … [part] of an industrial system powered by fossil fuel. (And in turn, defended by the military - another uncounted cost of 'cheap' food.)" Given the environmental attitudes exhibited by US leadership in the recent death of the Kyoto Accords, this unaccounted "subsidy" will most likely continue for the foreseeable future. In effect, environmentally sound producers, ie, Mexican campesinos, are providing a subsidy by producing grains at the margin using techniques that do not damage the environment to nearly the extent of mechanized production. The corporate model is clearly unsustainable in the long term. Water and soil contamination and extensive use of non-renewable fossil fuels cannot continue forever. Some future generation will have to pay the price. Rather than being rewarded, campesinos are actually penalized for their sustainable practices in the "logic" of the market.
Impact in Mexico
For the past three decades, Mexico's neoliberal policies followed the "free market" model (dictated by the IMF and World Bank) by largely ending subsidies for grain production, especially corn. Under NAFTA, protective tariffs on corn ended in 2008. Even before tariffs are eliminated, corn prices fell by 48% between January 1994 and August 1996 as imports from the United States increased dramatically, undercutting the national market and forcing many small and medium sized producers to look for other sources of income.
Many campesino producers grow corn both for self-consumption and for local markets, offering a source of income for products that campesino families are unable to produce themselves, for example, school supplies, tools, cookware, medicines, etc. By undercutting prices in local markets, campesinos are forced to look elsewhere for a source of income, while continuing to produce for self-consumption. (According to Arturo Leon, Mexican lands dedicated to corn production have actually increased in the past two decades, while corn imports from the US are also increasing at staggering rates. Demographic factors cannot account for both increases, and presumably the vast majority of increased campesino production is for self consumption and is, to some extent, replacing more expensive nutritional sources such as animal protein.) In the context of neoliberal capitalism, migration to large cities, border maquiladoras or, increasingly, the United States often offers the only available alternative. Displaced rural dwellers from central and southern Mexico are converted into the maquiladora workforce, a process known as proletarianization.
The decision to migrate is generally a family decision and often this means splitting up the family unit for extended periods of time. Maquiladoras often prefer young female workers, for their reputed hand dexterity and because they are generally seen as less demanding than male workers. For families contemplating migration as a survival strategy, this means that young women are often sent to the border region to search for work in maquiladoras, while young men often come to the United States as undocumented workers.
In Ciudad Juarez, Mexico's most important maquiladora center, more than 60% of the maquiladora workforce is women, and most of them are migrant workers. In 2001, 41.1% of population of Ciudad Juarez was immigrants, and the percentage grows every year (INEGI 2001).
Explosive population growth means two things. First, in combination with meager (and decreasing) tax receipts from the dominant maquiladora sector, city services are severely overburdened. Many migrant workers live in barrios with unpaved roads and without water, sewer or electricity. Newly arrived migrants are often forced to live in cardboard shacks located long distances from the maquiladora industrial parks. It is not uncommon for maquiladora workers to travel two hours or more on uncertain public transportation to reach their workplace.
Second, constant migration means a huge unemployed reserve workforce that forces down wages. Turnover rates in the maquiladora sector are extremely high as workers constantly search for better and safer working conditions.
Increasingly, as maquiladoras fail to provide enough jobs, the United States becomes the destination of choice for migrant workers. Undocumented immigration has always been a fact of life along the border, but dramatic increases beginning in the 1980s and extending through 2004 have no historic precedent. Today there may be as many as 12 million undocumented workers in the United States, with more than half from Mexico and another quarter from the rest of Latin America. Entire sectors of the US economy would either have to raise wages and improve working conditions, or close up shop if it weren't for undocumented workers. Perhaps 90% of the fruits and vegetables in the US are harvested by undocumented workers. More than half the workers in the meat-packing industry are undocumented. The hotel and restaurant industry depends on undocumented workers. Next time you go out to eat, visit the kitchen and you are likely to find undocumented workers. The seasonal construction industry depends increasingly on undocumented workers. As much as 10% of the entire US workforce is undocumented.
Undocumented workers provide significant subsidies to the US economy. Most are in the late teens to early 30s, and they arrive in the US as fully formed adult workers. Society is not responsible for their education or upbringing. Many workers have to purchase false social security cards in order to get employment, and they pay weekly into the social security trust fund without any hope of future benefits. The Social Security Administration (SSA) has determined that undocumented workers "account for a major portion" of the $374 billion (as of July 2002) that have been paid into the social security system under names or social security numbers that don't match SSA records, and which payees therefore can never draw upon. Because of their relatively low wages, undocumented workers pay a relatively higher proportion of sales taxes in relation to income level.
Some experts claim that undocumented workers take jobs from native workers and lower wages for all workers. However, a recent study by the United Nations indicates that undocumented workers generate as many jobs as they occupy due to their increased consumption. And studies in Chicago indicate that wages are lowered only in neighborhoods dominated by immigrant workers.
Despite their obvious contributions to the US economy - or perhaps because of the very nature of those contributions - undocumented workers do not enjoy legal or political rights in this country, a travesty that could be remedied with an amnesty program.
Immigration is not an easy choice for most undocumented workers. Most leave their families behind to make a dangerous and uncertain journey of thousands of miles. They cross a heavily militarized border, often walking through desert areas for days at a time. One migrant worker dies every day trying to cross the border. They enter an unfamiliar country as "illegals," they don't speak the predominant language, and they are under constant threat of deporation. Undocumented workers don't come to the United States "por gusto." They come because neoliberal policies offer absolutely no alternatives in their home countries. And with no end in site, the neoliberal model will most likely continue to generate a massive exodus from the Mexican countryside that negatively impacts family structures and community foundations.