The Next U.S. and Mexican Presidents Face a Dire Partnership

This year there will be presidential elections in the United States and Mexico. Which election matters more? Try Mexico’s. We already know the winner: Carlos Salinas de Gortari, a 40-year-old Harvard-educated economist. He figures to shape his country’s future far more than either George Bush or Michael S. Dukakis will shape that of the United States. Even for Americans, Salinas’ success or failure may ultimately overshadow what happens in the White House between 1989 and 1992.

If Salinas can’t reverse six years of economic stagnation and high inflation, Mexico may drift into deeper poverty and political turmoil. That’s ominous. With a population (82 million) roughly three times that of Canada, Mexico represents a huge potential market for U.S. exports. More troubling, its social problems spill over into the United States. An economic recovery won’t cure all of Mexico’s problems or end all of the conflicts with the United States--over drugs, immigration and debt. But without growth the problems will increase.

There is already political unrest. Salinas is guaranteed victory in July’s election as the candidate of the Institutional Revolutionary Party (PRI), which has dominated the politics of Mexico since the 1920s. Nevertheless, he may get only 60% of the vote. The current president, Miguel de la Madrid Hurtado, got 71% in 1982. Before that, PRI candidates received about 90%. “This election is so different--you have to go back to the 1940s to find this much competition for the official candidate,” says Wayne Cornelius, head of the Center for U.S.-Mexican Studies at UC San Diego.

The PRI’s diminishing power is a lagging indicator of Mexico’s failing economy. Until the late 1970s Mexico was gradually overcoming its poverty. The country was industrializing. Rapid economic growth had produced a middle class. Since then it has been downhill. In 1987 Mexico’s economy produced slightly less than it had in 1981, according to economist Abel Beltran del Rio, head of a forecasting service specializing in Mexico. Meanwhile, the population rose 15%. Living standards have fallen sharply for almost everyone. High inflation has compounded the sense of crisis; in 1987 consumer prices rose 159%.

Middle-class Mexicans can’t afford to replace their cars. They eat out less often and vacation abroad less frequently. If they’re young, they have trouble buying a home. The harshest effects, however, have been felt in urban slums, where the poor often live in homes with dirt floors and no running water.

Anthropologist Mercedes Gonzalez de la Rocha studied 100 poor households in Guadalajara. They strove to offset declining “real” wages (wages adjusted for inflation) in two ways. Crowding increased; more friends and relatives shared the same space to save money. And more family members, especially sons and daughters, got jobs. Between 1982 and 1987 the proportion of workers under 20 in Guadalajara’s small manufacturing firms jumped from 26% to 44%, according to a study by sociologist Agustin Escobar Latapi (Gonzalez’s husband).

In part, these tactics worked. Although real wages fell about 35% between 1982 and 1985, household income dropped only 11%. But families suffered bad side effects. Diets have deteriorated, and, as Gonzalez found, family violence has risen.

Mismanagement and bad luck landed Mexico in this mess. In the 1970s Mexican presidents began priming economic growth through heavy government spending. The discovery of huge new oil reserves in the mid-1970s ultimately made matters worse. Mexico could borrow abroad on the expectation that oil prices would remain high. When they collapsed, Mexico was saddled with a massive international debt and a stubborn inflation, because vast amounts of money had been pumped into its economy.

Can Salinas turn the economy around?

The situation is a bit better than it looks. President de la Madrid has made reforms. He has cut government spending. Many inefficient nationalized firms have been shut or sold. Import tariffs and limits have been reduced. The added competition forces Mexican firms to be more efficient. An anti-inflation program that was launched in December--a mix of tight credit, more cuts in government spending and a partial wage and price freeze--has reduced monthly inflation from 15% to 2% since January.

What the next U.S. President can do is respond sympathetically to the pleas of Salinas for some debt relief. To pay interest on its $103-billion foreign debt, Mexico last year had to run a trade surplus equal to nearly 7% of its output. These trade surpluses help neither Mexico nor the United States. They worsen Mexico’s poverty by both siphoning off production and preventing faster growth, which might raise imports. For the United States, the surpluses mean added competition from Mexican imports and lost exports.

But no amount of debt relief will provide a panacea for Mexico. Its main problems will be solved at home or not at all. Salinas’ plans sound sensible. He has emphasized relying on a revitalized private sector, not government, as the main engine of Mexico’s economy. He has talked of the necessity of keeping inflation low. He has acknowledged the need to reinvigorate Mexico’s democracy: to erase the taint of corruption from the PRI’s domination and to give the opposition a legitimate role.

It’s anyone’s guess as to whether Salinas can achieve this transformation after he takes office in December. Long protected, Mexican companies may not provide strong investment or job creation. In the 1980s Brazil and Argentina successfully began anti-inflationary programs but squandered initial gains. Mexico could make the same mistake by speeding up its economy too quickly. Political reform threatens entrenched interests in the PRI. “It means a series of wrenching changes in terms of how they conduct themselves in elections and how they divide up the spoils,” says Wayne Cornelius.

The stakes are huge. Salinas’ quest resembles that of Mikhail S. Gorbachev. The next U.S. President faces nothing so daunting. If Salinas fails, Mexico may not remain a stable, pro-business society. Pressures for emigration will rise. Mexico will be less able to fight drugs. Americans and Mexicans will increasingly blame each other for domestic problems. It’s a dreary future.