Volume 46 Number 180,
January - March 2015
Mexican Reforms and nafta
Sergio Cabrera*
Date received: June 2, 2014. Date accepted: November 6, 2014
Abstract

The North American Free Trade Agreement (NAFTA) was meant to spur growth, improve income distribution and allow Mexican society to regain the purchasing power it had lost since the 1970s. These objectives have also been used to push through other economic agreements. However, these strategies have not yielded their promised fruit. Instead, the mechanisms and ways in which these agreements have been implemented have caused the economy to contract and purchasing power to fall, while simultaneously increasing income and wealth concentration. The reforms that Mexico began to impose in 2012 are aligned with NAFTA objectives, and their mechanisms and implementation threaten to further aggravate the losses of the past 20 years. In conclusion, NAFTA and these reforms fundamentally drive economic liberalization and reduce the role of the State in social affairs.

Keywords: Free trade agreement, economic liberalization, economic reforms, social deterioration, State intervention.

INTRODUCTION1

The last 20 years of NAFTA (1994-2014) negatively affected the majority of the societies in its three member countries (Canada, United States and Mexico), broadening and deepening internal and external imbalances and gaps. However, the potential for this situation to become even worse is now higher. In recent years, the governments of the three countries have rebuilt a strategic vision of the common economic space, which involves moving further down the path that up until now has only brought fragility and uncertainty to Mexico. Some changes have been implemented to supposedly create a way out, but the strategy remains the same, which makes it difficult to believe that these failures and limitations will be overcome.

The basic idea of this work is that this reconstruction, from the Mexican perspective, implies full and comprehensive deployment of economic liberalization and the contraction of the substantial functions of the government, two halves of the same process. One fundamental aspect of this contraction appears in social and economic functions, diminishing the capacity of the government and preventing society and its needs from playing a role in the design and implementation of public policy. This seems to be one of NAFTA’s key strategies. That is why this work insists that the reforms undertaken since 2012 are clearly aimed at supporting the economic interests of multinational consortiums. The first portion of this article reviews the successes (few and far between) and failures (many and widespread) of NAFTA. The second part addresses the avalanche of reforms implemented since 2012 in Mexico as mechanisms and instruments that have expanded and deepened NAFTA. These essentially regressive reforms have shown their institutional and economic weakness, and demonstrated that the Mexican economy is highly subordinated to the global financial system. From that perspective, it could be said that these reforms are part of an ongoing process that implies a radically global and financialized system. In that sense, the outcome of NAFTA has imposed market relations on societies, subjecting them to market fluctuations and seizing on their capacity to generate and recreate social, political and economic projects.



PART 1. THE VORACIOUS TRANSFORMATION

The 1970s crisis drove the reorganization of global capitalism and between the beginning and end of the oil boom, economic liberalization was imposed on the entire planet, supported by the disasters of the crisis and the reforms implemented, among the most important of which were in the financial realm (Serfati, 2010). This strategy was especially radical in Mexico and Latin America in the early 1980s and has been reinforced, refined and expanded up to the present day, while also being imposed on the rest of the world.

Over 30 years ago now, in the 1980s, Latin America and Mexico pushed forward with privatization and trade openness, constituting the first generation of structural reforms. Those reforms, as they do now, claimed to combat imbalances, turn around the crisis and spur economic development, all of which would supposedly bring with it justice, democracy and freedom. These same objectives were paraded in the second generation of reforms in the 1990s, which were implemented alongside the NAFTA negotiations 20 years ago.

The crisis that began in 2007 and has affected the entire globe, especially developed countries, is once again serving as a means to impose similar programs on the world, which has only aggravated deterioration and concentration on the global scale in the economic, political and social realms (Cabrera, 2013).

In the 1980s, structural reforms were designed to boost the export strategy, brought about the contraction of the domestic market due to the fall in wages and income of workers (Herrera, Lope, Badillo and Escobedo, 2012). Wages in Mexico peaked in 1976 and then systematically fell throughout the 1980s and, to a lesser extent, the 1990s. They began to fall at a slower rate starting in 2000, but the trend was far from reversed. The implementation of public policies led to a vicious cycle of salary decreases and the contraction of the domestic market, and it is precisely these decreases that have been so key to making NAFTA work. The agreement sped up commercial and financial liberalization and openness, driven by bodies such as the International Monetary Fund (IMF) and the World Bank (WB), whose agenda has been known since the 1990s as the Washington Consensus, and benefits multinational corporations. The interests of workers were increasingly marginalized, making the interests of more powerful groups hegemonic, and this attitude drove three generations of reforms. It would not be incorrect to call it a neoliberal political project: total economic liberalization and the radical marginalization of the State in the national economy, national interests and society (Vidal, 2010). From that perspective, it could also be said that trade agreements have been both the vehicle and instrument, if not the essence of, the neoliberal strategy, characterized by a vision of the world in which the subjugated classes are entirely subordinated and marginalized from decision-making. With that said, if today we were to remove all agreements on trade liberalization, we would see that this political orientation persists, regardless of the trade agreements.

NAFTA has imposed the free movement of goods and services and eliminated tariffs. It is now also the guiding force for the integration process of the three countries, subordinated to globalization and financialization, to the benefit of corporations. NAFTA consists of 90 articles divided into 22 chapters, organized into eight sections: General Part, Trade in Goods, Technical Barriers to Trade, Government Procurement, Investment, Services and Related Matters, Intellectual Property, Administrative and Institutional Provisions and Other Provisions (SICE, 2014), which have damaged and hurt the societies of all three countries, but especially Mexico, sinking the nation further into economic, financial and political dependence.



The Economy

Starting on January 1, 1994, taxes on trade between the three countries were broadly and quickly dismantled. Because Mexico was the most technologically, financially, economically and politically weak, it was the most affected, and this impact was especially felt in the 1994-1995 crisis, the result of the strategy espoused by the government since 1982, which can be summarized in the strong exposure of the national economy to the global market, especially the financial market (Correa, 1992). This crisis led to social and economic deterioration and the government was left weakened and further subjected to financial powers. Mexican exports were extremely concentrated in the United States, mainly due to a lower number, yet highly concentrated group, of multinational companies. Although their numbers grew in the first ten years, the same strategy asphyxiated their growth and that of the overall economy, especially labor-intensive sectors. This put Mexico eighth on the list of top exporting countries. In addition, imports have been marked by this same trend of transnational companies and concentration, hegemonized by the maquiladora strategy, which is highly predatory towards fragile domestic productive chains and has intensified dependency, whose negative effects are multiplied in recessions and crises. Under these conditions, trade agreements that open up the national economy to other more developed economies do not benefit the development of the former.

In the area of imports, few companies have benefited, but one that has is Maseca, the largest corn importer in Mexico, which has seen big earnings since 2001, which continue to rise every year. The Grupo Lala and Grupo Bimbo are in a similar situation as exporters of raw materials from the United States with a big profit. Other entities have benefited and grown into global corporations, such as Telmex, Cemex, América Móvil, Gruma, Cementos Chihuahua and mining groups, the latter of which are now not only dominant in their original field but have begun to control other sectors as well. With that said, the reforms Mexican has implemented since 2012 are laying the groundwork for these corporations to enter sectors such as the telecommunications and energy industries, among others.

Out of total Mexican exports, nearly 80% go to the United States, and the situation is similar in Canada. Major exports include oil, electronics (maquiladora) and car parts (INEGI, 2014). It should be noted that oil has been a key export since 1994. Over the past 20 years, the mechanisms have silently but surely been built up to ensure that Mexican oil acts as a reserve for the United States and works to the benefit of global financial interests. This was underscored by the 2013 Mexican Energy Reform.

The agricultural and livestock sector has also experienced severe consequences over these past 20 years, especially the corn industry, as small producers in Mexico have been trampled by corn producers in the United States. The latter have access to credit, technical assistance and better technology and, moreover, large export companies receive subsidies (Ray, De la Torre and Tiller, 2003). This situation has worsened since NAFTA took effect because the Mexican government began to eliminate tariffs on corn coming from the United States, which quickly displaced Mexican producers. This was further aggravated by the growing share of imports, the withdrawal of guaranteed prices and the reduction of subsidies for national producers. It appears as though the potential reforms to the agriculture and livestock sector announced in 2014 could further depress the few, and already damaged, producers of corn and other products left in Mexico. This is evident in the fact that agriculture in Mexico went from accounting for 7.9% of the gross domestic product (GDP) in 1988 to only 3.4% later on ( La Jornada, 2008).

It was argued that NAFTA would complement domestic investment with foreign direct investment (FDI), raise productivity and drive the industrial, agriculture and livestock and services sectors, which would produce multiplicative effects on jobs, recovering the purchasing power of wages, and that in the end, this virtuous cycle would lead back to economic growth and even development. But since 1994, FDI has only gone up selectively, in the financial and/or high yield sectors, which do not drive the overall economy or production (Castaingts, 1995). Another supposed objective of FDI was to increase competitiveness, which would mean advanced technology with high productivity. In 1995, FDI was nearly 11 billion dollars (bd). During the first decade of NAFTA, average investment was 9 bd, which has since rose to 30 bd, although in 2011-2013, it averaged 23 bd (Ministry of Economy, 2014). With the additional disadvantage that the profits of FDI are exported, in 1995, profits of 1.4 bd were sent out of the country, while that figure over the past three years on average was 7.5 bd (UNITÉ, 2014). The growth of Gross Fixed Investment has not surpassed 4%, while it was 8% in the period prior to NAFTA, which, even at that level, was insufficient. Productivity has advanced little and in few sectors, while in other sectors, it has stagnated and even regressed.

In other areas, Mexican companies lag their northern counterparts in technology, which has led quite a few to bankruptcy or to being absorbed by foreign firms, intensifying concentration but not increasing investment. As a result, two-thirds of national exports are related to transnational corporations (TNC). Briefly, in terms of competiveness, Mexico went from 48 to 58 on the list in the first 18 years of NAFTA, according to the Global Competitiveness Report published by the World Economic Forum (WEM), although in 2011 it rose back up to spot 53 (Ministry of Economy, 2013).

This fleeting and unstable growth and limited investment have been increasingly harmful to the labor world, both in terms of wages and the number and quality of jobs out there, made worse by the productive disengagement and commercial orientation that hurt the overall economy. Unprecedented trade openness was imposed in Mexico, whose force and power lay in wage contraction and a growing labor supply at all skill levels. Moreover, the labor capacities of skilled workers were massively wasted as they were unable to practice the professions in which they had been trained. Thus, everyone from engineers to artists who had trained in their fields were unable to work in the early years of their career in those fields, which made it challenging to enter later on. Professional capacities are thus lost, not only on the individual and family level, but also to the detriment of overall society. When this phenomenon is widespread, as it currently is, and not only in Mexico, the social cost is enormous.

Wage deterioration continues into the present day, as the share of wages in GDP has systematically fallen. For example, in 2003, according to INEGI, Mexico’s National Statistics and Geography Institute, it accounted for 30.8% of GDP, a figure which fell to 27.2% in 2012 (SDPnoticias, 2014). This situation is largely derived from the proliferation of free trade agreements, and the exposure of the economy to the disadvantages implicit in NAFTA. Mexico has signed trade agreements with 45 countries in recent years, not to mention 30 investment promotion agreements and nine limited scope agreements, despite the fact that economic growth during 20 years of NAFTA was, on average, below 2.5%. This is a sign that officials have to come to the wrong conclusion. They think that more liberalization will invigorate the economy when it is precisely this form of liberalization that has led to stagnation and the vicious cycle.

Per capita GDP barely grew at an average below 1%, made worse by the fact that income concentration is getting stronger. Moreover, when NAFTA took effect, it was said that environmental deterioration would be mitigated and migration reduced, but both aspects have trended in the opposite direction.

In the 1990s and 2000s, some countries in Latin America achieved growth due to public policies outside of the neoliberal scheme, renegotiating their participation in the global economy and restoring a larger role to their domestic markets and the State as a mechanism to improve income distribution. These aspects respond to the political will of left-leaning governments in South America, a region that was for years subject to neoliberalism. All of these countries have made progress in implementing alternative economic strategies at the ballot box. Their progress in building post-neoliberal societies still faces great challenges and the difficulties of their alternatives still limit their capacity of economic management. However, their strategies have been diverse and have had to confront the political and ideological contexts in which their neoliberal predecessors governed. The greatest resistance to the anti-neoliberal strategy is fundamentally tied to the groups in power that have benefited from neoliberalism.

These post-neoliberal governments in South America have sought to define a basic strategy, with actions that aim to protect their space, limiting and regulating economic and, especially, financial openness. However, openness frequently advances quickly in countries with a large supply of raw materials and labor force, and the actions of these administrations have not been enough to reverse concentration, inequality and poverty, even if they have slowed these processes to some extent.

Meanwhile, government officials in Mexico have resisted any type of economic, social or political process that would counteract this dependency on power centers. They lack a strategy to recover the relative autonomy needed to face issues of domestic governance and address the most urgent social demands. As a result, the State is increasingly weak in the face of various interest groups, which has increased the political, social and economic chaos in the country.

In addition, considering that free trade has not achieved the goals it set out to attain, various sectors of Mexican society have recognized that NAFTA is not an equitable agreement between the three countries, and Mexico, more than the other two partners, suffers most from this inequality. The objectives of a small group of economic interests have prevailed over the majority of society, seeking full domination of the markets and the social and political affairs of our three countries (Delgado and Mañan, 2005).

One of the most dramatic expressions of free trade and neoliberal policies is mass migration, which has been especially painful for Mexico and Central America (García Zamora, 2010). This inequality clearly persists with the reforms implemented in 2012, as these disadvantaged sectors in Mexico continue to be excluded.

The NAFTA years have bolstered international competition and concentration, especially in the Mexican economy, leading to a vicious cycle. The more competitive Mexico becomes, the more capital and income is concentrated, and vice versa, leading to an uncontainable downward spiral in which the overall economy and society lose out the most. The lack of regulation, especially on concentration, has irreversibly harmed a generation of young people, among whom unemployment, underemployment and informal employment represent an urgent and immediate challenge, as Global Risks 2014 from the WEF ascertained (2014). In the short term, there are other urgent challenges, such as economic stagnation and deterioration, environmental and social exploitation and enormous scientific and technology deficits.

It is entirely paradoxical that one of the objectives NAFTA professed was economic convergence among the three countries in the fields of industry, commerce and finance, and yet the results have been quite to the contrary. In industry, the presence of China and industrial disengagement in the United States economy has pushed the Mexican economy into a more unfavorable position.

Although exports have grown, they have not grown enough, and nor has the overall economy, precisely because the lack of convergence has made the Mexican economy more dependent. This divergence is also the result of the monetary policies Mexico has implemented. The effect of overvaluation driven by the high interest rate policy to strengthen the peso has been harmful to exports and boosted imports. Although trade with the United States grew between 1994 and 2000, the presence of China systematically dampened growth expectations. But in Mexico, this same trade with China has created poor-quality and low-paid jobs in the commerce sector. The financial sector has grown faster than the real economy, dominating it, with a strong tendency towards concentration. This overall situation is against the interests of the societies in the three countries in general, and specifically, the interests of workers, due to both wage compression and deteriorating working and living conditions. Moreover, the informal economy has grown in all three countries, although it is entirely out of control in Mexico.



Wages

One necessary feature of a dynamic and developing economy is a solid working class with decent wages and jobs. After all, a structured labor market with different levels of jobs and salary strati, with growing purchasing power, is the foundation of any dynamic economy. However, this has been impossible for Mexico, because, just like in the other two countries, the working class has been losing its share of the wealth produced. In Mexico, purchasing power fell more than 20% between 1994 and 2003, although it has been greater than the increase in the price of the basic basket of goods (Moreno, 2007). This is the result of the rising number of imported products in the basic basket, principally grains, and made worse by the growing process of financialization surrounding them. This has negatively impacted Mexican agriculture, as national protections have been loosened and dependence continues to rise, leading to the loss of food sovereignty. Mexico has reached the point where it is now importing 95% of soy, 58.5% of rice, 49% of wheat, 25% of corn (Reporte Indigo, 2012) and nearly 40% of meat ( El Economista, 2013), with grave consequences for Mexican producers.

This export fervor, based on wage compression and labor deterioration, has determined the living conditions of the working world. This was confirmed when the persistence of neoliberal ideology led to the new 2012 Labor Reform, which further limited the already low negotiating power of unions and closed the door indefinitely on the chance to create counter-cyclical controls that would contain this oft-mentioned economic destruction. Based on the current parameters to which the Mexican economy adheres, it is unlikely that wages will recover or employment dynamics will improve in the short, medium or long term, which constitutes an insurmountable limit on growth. According to the International Labor Organization (ILO), 90% of unemployment in Mexico is the result of firing and wage recovery has stagnated (ILO, 2014).

One of the most damaging effects of the past two decades of NAFTA is endemic poverty, the result of wage contraction and the deterioration of working and living conditions, which has been maintained in monetary variables but increased in terms of wealth. Some analyses suggest that poverty has been marginally reduced, especially moderate and/or extreme poverty, while others, using very specific criteria, find that a broad swath of the population is still below the poverty line (Boltvinik, 2013). In Mexico, as the Country Assistance Strategy 2014 to 2019 (World Bank, 2014) reported, extreme poverty rose between 2006 and 2012 from 14% to 19.7%, which means more than 23 million Mexicans are currently living in this condition. One reason for this is economic and wage deterioration.



Social Affairs

The Mexican elite came to believe – and a sector of the population was led to imagine – that NAFTA would usher in development, although there were also many voices who warned against its limitations and dangers. In the end, only the elites of the three countries have benefited. When NAFTA took effect, there were 360 million people living in the region; that number is now nearly 480 million and yet their living conditions have not improved and have in fact deteriorated. Some sectors live in the worst conditions, not only in Mexico, but also in the United States and Canada, amounting to nearly 100 million people, that is, essentially the 75% increase in the population. Mexico has contributed 50% (Coneval, 2012) of that growth. But the 2007 crisis created the conditions to accelerate the deterioration of living conditions in the three countries, and in the entire world. Moreover, this pauperization is limiting the effects of the dynamics that are meant to rebuild the new strategies implemented. Mexico is undoubtedly in the worst conditions, with a rate of informality that may surpass 60% of the working population (ILO, 2014). This means that social security contributions are low and less than 40% of the population pays into some sort of social security system. In Mexico, less than 25% of people over age 65 receive a contribution-based pension and among men aged 50 to 59 years, only 27% have access to a minimum pension, while that figure is even lower, at 12%, for women (Ochoa, 2006). This is the result of low job creation and low wages.

The 20 years of trade openness with NAFTA have, especially in agricultural production, broadened the social deterioration in Mexico and undermined the living conditions of workers in the other two member countries. As such, critical voices have spread to all three countries, supported by the sharp decrease in income of wage workers, although to a different extent in each country. In turn, the Mexican government and, to a lesser degree the United States and Canadian counterparts, has responded by criminalizing social protest and creating mechanisms so that groups and agents can infiltrate these critical organizations to distort their protests and criminalize their behavior. In an environment of social and political discipline, these actions further inhibit protests. From that perspective, NAFTA is not only a mechanism of economic cooperation, but also a tool for a small number of corporations to openly maintain economic and territorial dominance over a space (Camarena, 2014). In this way, NAFTA is an expression of changes that have been accumulating since the 1970s, revealing the intrinsically contradictory and mutable nature of capitalism.



PART II. REFORMS

In general, reforms need time to mature; when they are clear and written with perspective, their chances of success are greater and more credible. Reforms should be governed by the strict principle of attacking harmful effects head on. However, the reforms instituted by the Mexican government since 2012 entirely lack these characteristics. In an environment of social and environmental deterioration, which is not entirely the fault of NAFTA, but rather is derived from the overall strategy behind that agreement and other instruments, the following series of reforms has been imposed. These reforms really aim to legalize the functioning of certain mechanisms and practices that until now have been illegitimate and illicit. What is clear is that the Mexican government is playing a role in reformulating NAFTA. One feature of these reforms is that they have been imposed on the country in an authoritarian manner. In addition, nearly all of the strategies implicit in the ongoing reforms have already produced negative results, majorly undermining their credibility. The reforms include the following.

The Labor Reform (LR) implemented in December 2012 professed to expand job creation and revitalize already existing jobs, as well as improve wages (STPS, 2012). However, what it is really doing is legalizing and regulating processes and mechanisms that have long been around and which, although not technically illegal, do violate institutional regulations. This LR is destroying minimum rules, contributing to legal deterioration, eroding the rule of law, weakening already extremely limited democracy and preventing the existence of spaces for the labor world to defend itself. Although before the reform there were not adequate instruments to penalize actions outside the law, with the enactment of this LR, what was outside the law is now legal. It also creates the potential to criminalize protests derived from the demands of the labor world. Most gravely, this LR has not stopped job and wage deterioration, although it has encouraged informality and worsened precarious conditions. Moreover, it has created loopholes for the waste of skilled and highly skilled workers, with invaluable losses for generations ( El Financiero, 2014).

This reform also allows practices that had not been legalized to persist and introduces new practices that will be harmful to the working world. It is clear that its main objective is to reduce the cost of labor as much as possible, which has been evident since early 2013 when it extended "flexibilization" to all labor levels (De la Garza, 2014). Its impact has been negative, because instead of creating new formal jobs, it reduced them by nearly 38% (INEGI /ENOE, 2014). Although this reform is not directly related to NAFTA, it is useful to consider, as it further contributed to wage reductions, in an attempt to raise economic competitiveness through wage compression.

  • Another reform was the Tax Reform (TR), a revenue-oriented reform, whose discourse and objectives were focused on the potential impact on economic growth and social equality (Cámara de Diputados, 2013). However, its efforts to improve collection have been limited and it has rather had a negative impact on the overall economy and the most disadvantaged sectors. The project to promote and fund unemployment insurance and universal pensions does not appear to be taking off any time soon. The objective of fostering economic growth will be even more difficult. In the short time since this reform was enacted, it appears to be acting against the objectives it espoused, because the public policies that would drive investment, employment and productivity are still missing, and without them, it will be impossible to improve growth or welfare, and without that, public revenue will not grow either. Public revenue has only increased thanks to the growing indebtedness of the government, which was more than 38% of GDP in 2013 (SHCP, 2013a). This increase, moreover, has been of little use in invigorating the national economy and combating the unequal distribution of wealth and income. The paradox is that this growing indebtedness has gone hand in hand with austerity policy. While government debt is channeled into public debt and subsidies for a concentrated and financialized national economic project, austerity is imposed as the general social policy. This prevents important projects and investments from getting off the ground and interferes with the goal of redistribution, as well as better education, healthcare, etc. This TR has had and will have a minimal effect on major corporations, but it is a big burden for micro, small and medium-sized enterprises, which is more detrimental to the overall economy, especially to people with fixed and low income. This leads to a perverse and depressive cycle for the overall national economy.

Moreover, the TR claims to combat tax evasion, which amounts to, for income tax (ISR) more than 75% (SHCP, 2013b) but in reality is only impacting a small number of companies and taxpayers that already pay in. The reform continues to be a semi-tax haven with major exemptions and loopholes, such as the stock market, money and capital markets and the general financial system. One central goal of this reform was to supplant shrinking tax revenue, partly derived from volatile oil prices and the transfer of oil income to major private corporations provided for in the energy reform, not to mention returns to major corporations. By that logic, it is unlikely that the TR will have any multiplicative effect on GDP, given that, all else remaining the same, the only thing the TR can achieve will be to punish the majority of taxpayers who already pay in, especially wage workers. Its effects are clearly recessive, that is, contrary to its main objectives.

  • Another reform was the Telecommunications Reform (TCR), which aims to promote investment and economic growth and make the telecommunications market more competitive (Presidencia, 2013a), by attacking the duopoly of the market. However, its mechanisms and approach point to the fact that this reform too will counteract its own stated goals. It takes extremely limited actions against the concentration that has developed and characterized this sector. The scarce anti-monopolistic slant of the reform and the features of new technologies make it likely that concentration will only increase.
  • Another reform was the Education Reform (ER), whose discourse aims to combat the educational breakdown that has developed in the shadow of the system, as well as the corrupt practices carried out with the complicity of governmental bodies and the leaders of the National Teachers' Union (SNTE). One objective this reform professes is to make training of human resources more efficient to achieve global standards of competitiveness and at a lower cost. This ER also proposes to increase equality and quality in education (DOF, 2013). It is essential to note that various administrations over the past 30 years have been both witness to and complicit in this breakdown and corruption. Some of the challenges in eradicating these practices include authoritarian mechanisms, just as in other reforms. Beyond these challenges, the political struggles between power groups are still a fundamental obstacle to containing this deterioration. Up until now, based on its format and mechanisms, the ER has shown little promise of producing any positive effect.
  • The Political and Electoral reform was also passed, although of a smaller scope than the other reforms. Its objective is to increase political efficiency, reduce electoral costs and promote electoral transparency, but in reality, its benefits have been relegated to the political class and a restricted electoral space. However, it seems that the Institutional Revolutionary Party (PRI stands to benefit the most, and society as a whole will not benefit at all.
  • The Financial Reform (FR) was enacted so that “banking and loans” can be the “leverage for family and corporate development,” as well as a mechanism of "responsible financial inclusion" (Presidencia, 2013b), and help the appropriate quantity and quality of financing flow towards economic activities to leave behind destabilizing stagnation. It also aims to promote basic banking and financial competition, which is urgent and necessary. However, once again, its mechanisms and strategies are not operational. Regarding the objective of strengthening both private and public credit, if the appropriate mechanisms, regulations and institutionality are not created, the financing seems impossible. Moreover, the reform does not create the conditions for the financial system to adhere to a prudent, solid, transparent framework at the service of development, because regulatory authorities lack or have weak legal instruments to oversee and penalize operations carried out by subsidiary companies with their financial headquarters. This is an extremely important issue in Mexico because there are so many global banks in the national market. In this environment, despite the fact that there are many large and powerful banks, their financing does not flow into the Mexican economy. This reform exhibits the same limitations as those at the end of the 1980s and beginning of the 1990s, where regulation and financing never became reality.



The Effect of the Reforms

Although some reforms are not working at full speed yet and others have yet to take effect, it should be noted that these reforms have effectively focused on legalizing and/or legitimizing what has already been happening in reality for a long time in various realms of Mexican society: granting power to large corporations to avail themselves of the human and natural resources of the country, further compressing the domestic market, even though they deepen and restore the export strategy of dependence. This will only accentuate income concentration and increase poverty. Although investment may grow, the environment in which these reforms have been implemented means that they are not enough and will not impact strategic areas related to national development. Rather, these reforms are just a new form of support for NAFTA objectives. It is also very unlikely that the profits of these reforms are reinvested in the country; they will continue to be exported as they have been in the past, especially over the past 20 years of NAFTA, which will only make Mexico more dependent and further dismantle and break down the economy. The strategies that have in the past promoted dynamics that lead to the strong concentration of the dominant global financial powers are being maintained and reproduced. Their display of economic power and ideological force has allowed for a supra-national political power supported by the native technocratic elite, which undermines institutional capacities and counterweights. This global financial power has hegemonized the economy as a whole, coopting the global political space and creating the conditions for the Mexican economy to be further subjugated.

The reforms implemented since 2012, just like 20 years ago, conceal an economic strategy that responds to two clearly defined objectives: the radical liberalization of the economy and the absolute marginalization of the State from the economy and social and political life. These two objectives feed on another, as the last 30 years have shown. This strategy is imposed on society and social policy, while large corporations are protected from the turbulence of the "free market," bailed out with copious amounts of resources, in the form of public debt, which society assumes. The wave of reforms implemented since 2012, just like NAFTA, have validated and promoted processes that are quite advanced in the fields in which they act.

Mexico’s reforms since 2012 were conceived of as the touchstone for large corporations, as confirmed by the fact that the United States senate, even before the energy reform was approved in Mexico, was overly interested in supporting it both politically and economically, approving a budget to explore and exploit the Gulf of Mexico zone to "share" revenue. Shortly thereafter the energy reform was approved by the majority of Mexico's local congresses, ratifying the reform of articles 25, 27 and 28 of the Political Constitution of the United Mexican States. This approval, however, was subject to negotiations in Congress between the various sectors of the political class, all looking to benefit. In addition, even before the energy reform was enacted, the CEO of Pemex, in a show of recklessness, asked for "audacious" subsidiary legislation. What that really means is more advantages for investors and the subordination of national interests. In the same context, ratings agencies have offered political support for the reform, raising the country's rating from BBB to BBB+ (La Jornada, 2013). Considering that the United States Federal Reserve (Fed) is soon to make its own changes to fiscal and monetary policy, this step is just one more cog in the wheel of actions to shore up the peso as compared to the dollar and mitigate the effects of these changes. These actions aim to achieve an immediate result: make sure the Mexican economy remains an attractive destination and produce no negative economic impact, at least in the first season of reforms. It is evident that powerful economic groups are interested in Mexico’s natural resources. In summary, the broad range of reforms undertaken only further serve to subjugate the Mexican economy and society to the global financial system.

These reforms in Mexico must now be implemented through the passage of bylaws and subsidiary legislation. This process has created conflicts, revealing that partisan negotiations leave little room for genuine national interest. This orientation and the poor management of reforms have hurt the economy, redoubling economic stagnation and disintegration. It could be said that these reforms are not yielding positive fruit and it is therefore likely that they only disengage the Mexican economy even more.

In addition, recently, global capitalism has been characterized by the design and implementation of austerity policies, which are risky in normal circumstances but highly dangerous in an unstable environment. These policies make economies more fragile. In light of the power accumulated by large corporations, especially the financial sector, this approach threatens to deepen speculation, increase volatility and worsen already weak growth and even stagnation, as well as increase private and public debt (Stiglitz, 2014). Said succinctly, in the current global economy, the reforms imposed in Mexico will not distance the country from widespread stagnation and disengagement, but will rather, due both to the external context and internal mechanisms, leave the Mexican society stranded and continue to drive deterioration.

If the Mexican economy does experience some growth in the coming years, it will not be the result of reforms, but rather decreasing living standards, environmental conditions and natural resources. As has been shown time and again, growth alone does not bring about better living conditions for societies (Cepal, 2013).

Societies all around the world have paid for the speculative economic breakdown of the 1990s with deteriorating living conditions, social security and pension funds, as well as the exorbitant increase in government debt resulting from the repeated bailouts of hegemonic sectors. This is all part of the mechanism implemented 30 years ago, summarized in economic liberalization and the contraction and elimination of the economic, social and political functions of the State. This strategy is not an alternative for national and popular development. Instead, it has reinforced economic and political power, at the expense of the principle of social and political representation.

In that sense, the reforms implemented by the current government, as well as previous administrations, have raised an insurmountable barrier between citizens and the bodies that supposedly represent them politically and socially. This has further weakened any chance of achieving democracy and made law enforcement fragile, which has only increased authoritarianism. The interests that these administrations have promoted prevent them from admitting that the strategy has not and will not benefit the Mexican population, but rather it will benefit only a small and powerful highly concentrated sector of society. This group undoubtedly includes the interests of national sectors, which likely give in to or merge with the interests of major global corporations, as the past has demonstrated. This does not mean that their national corporations will not find local and global success, but nor does it mean that Mexican society will benefit in any way.

NAFTA, as well as the current reforms that support it, has imposed a version of ultraliberalism, dominated by financialization, the increase in inequality and concentration, which, as T. Jodt ascertained, corrupts the social, economic and political structure, thereby corrupting and destroying societies from within in both political and social terms, because a context is created in which there are no mechanisms or regulations, and where recovery is an arduous, long and unstable journey (Jodt, 2010). The dismantling of the Constitution with multiple reforms and the conversion of what was public and social into private allows a select group to capitalize on everything that was formerly national and social, whether that be natural resources, cities, private life, customs, art, etc. This process afflicts any profitable space as society becomes more vulnerable.



An Uncertain Future

As NAFTA has been deepened through the reforms implemented in Mexico, economic development and wealth and income distribution goals seem more distant. With that said, it is important to note a few elements that could imply even greater risks:

  1. Foreign direct investment (FDI) in China continued to rise in the early twenty-first century and some of its biggest investors are economic agents from the United States. This has sidelined NAFTA, that is, the Mexican, Canadian and even North American economies and societies. For the past 15 years, China, and not Mexico, has been the factory of the world, which has weakened NAFTA. In some sense, efforts to strengthen NAFTA, especially those made by Mexico through the reforms enacted since the PRI returned to government, serve to maintain Mexico as a strategic reserve for raw materials and ensure its geopolitical and economic position with the available workforce.
  2. In addition, the strategy followed by countries such as Bolivia, Brazil, Argentina, Uruguay, Ecuador, Chile, Venezuela and other countries (with limitations), have created opportunities for greater independence as compared to what Mexico is doing, although these opportunities are drying up. The vigor of these Latin American countries has been weakened because they lack convergent regional and national development strategies, as well as greater cohesion and social benefits. These limitations mean that for countries like Mexico, whose conditions are similar to those of South American countries, this possibility was gone before the country could benefit. Besides the fact that this opportunity was not taken advantage of, it must be said that regardless of the advantages of one alternative or another, if we do not attack the foundation of economic, regional, social, etc. inequality, the economy will not become even minimally dynamic. Better integration among similar regions and countries will also be necessary, such as what South American countries have done, not merely because they share a Latin American identity, but also because given that their social and economic realities and potential are similar, they can negotiate equal conditions, which will produce better outcomes for their societies. We must avoid as much as possible subjection to other economies, whether that is China, the United States or the European Union, because they make poorly structured economies more vulnerable and lead them towards the windstorm of globalization and financialization to which Mexico has been subjected.
  3. The fact that the European Central Bank and the Fed are imposing austerity policies, such as those experienced in Latin America since the 1980s, is a sign that the global economy, the NAFTA economy and therefore by extension the Mexican economy, are facing imminent economic stagnation. The backbone of the austerity strategy is to raise competitiveness by reducing social costs, wage costs and living conditions with the objective of driving export demand. In the context of an ever-more integrated and competitive global economy, this strategy requires wage contraction. As such, countries such as Mexico and others in Latin America are being swept along into increasing competitiveness by lowering wages and allowing the social fabric and environment to deteriorate, which will be very destructive to Latin American, and more specifically, the NAFTA and Mexican, economies.



Alternative

In light of growing economic and financial liberalization associated with less State intervention, as implemented by NAFTA and other trade agreements and since 2012 with the reforms undertaken in Mexico, combatting this strategy, which has gone global, is a pressing need. One central element of this struggle will be to reverse wage devaluation. The strategy should aim to achieve full employment and universal incomes to restore decent standards of living and revive the domestic market, but also to reduce the degree of conflict in society. A future in which wealth and income is redistributed to all levels of society must be an unquestionable short, medium and long-term goal, as well as a policy of protection for overall society.

Agreements should be put into place to prevent financial bailouts which, as has been seen, not only make underdeveloped economies weaker but also hurt developed economies. In addition, the financial and banking sector must be required to comply with an appropriate financial strategy for country development, and controls should be implemented to prevent these sectors from engaging in speculation, which brings the real economy, and society, to its knees.

We must insist that the fundamental change lies not in integration with the global market but rather in building an inclusive project for the national economy that will bring about the conditions for autonomous, social and popular development. Without closing Mexico off to the global market, nor allowing it to be subordinated, we must create space for enhanced equality and better intraregional exchange, because the current export project has shrunk the economy. That is just another reason to turn the economy towards the domestic market. Because it is essentially transnational companies that engage in exports, the profits are maintained abroad, and are now channeled more and more into financial speculation, with few benefits finding their way back to the national territory. It is time for a comprehensive review of NAFTA, as well as the reforms implemented in Mexico that follow an export-led strategy at the cost of a national strategy.

To do all of this, it will be essential to implement a long-term strategy that reestablishes democracy and uproots the authoritarian attitude that exists in both Mexico and the entire world. The political class elected by society must be required to actually create the programs they promote in their campaigns. More specifically, the political and other reforms in Mexico must be corrected, to reestablish a real connection with society and to the benefit of society.



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* Faculty of Economics at the UNAM, Mexico. E-mail address: sabatic@gmail.com

1An earlier version was presented at the seminar, "20 Years of the North American Free Trade Agreement: Old Problems, New Challenges,” held at the Post-Graduate Studies Department of the Faculty of Economics at the UNAM, on January 23 and 24, 2014.

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PROBLEMAS DEL DESARROLLO. REVISTA LATINOAMERICANA DE ECONOMÍA, Volume 49, Number 194 July-September 2018 is a quarterly publication by the Universidad Nacional Autónoma de México, Ciudad Universitaria, Coyoacán, CP 04510, México, D.F. by Instituto de Investigaciones Económicas, Circuito Mario de la Cueva, Ciudad Universitaria, Coyoacán,
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