A Second Revolution Advances on Mexico : Economic Restructuring Displaces Tradition, From Board Room to Kitchen

Mexico is changing on a scale unprecedented in modern times, yet most observers continue to refer to a Mexico that in many respects no longer exists. In fact, the change is so substantial, and happening so rapidly, that it will have dramatic political implications as it involves much more and broader social and political participation than at any time past.

As of now the change shows vividly in the dramatic transformations that government regulations are undergoing and that the business sector is beginning to undertake. Above all, the ongoing process of restructuring the economy explains why, despite appearances, Mexico’s problems today are different from those of its recent past and how, as a result of the restructuring, the Mexico of the future will be significantly different from the Mexico of today.

When the current administration of President Miguel de la Madrid took over in 1982, it recognized the need to introduce fundamental changes in both the economy and the political system. Through the first two years of the presidential term, the economy was indeed managed better. It wasn’t until 1985, when persistent inflation and recession showed the limits of the initial government thrust, that substantive changes began to be introduced. In that year there was a dramatic policy shift; the government decided to join GATT (the international General Agreement on Tariffs and Trade), initiated a far-reaching process of import liberalization and began to restructure its finances--and not only in regard to the deficit.

The magnitude of change has been impressive, altering the way Mexicans think, dramatically affecting their standards of living and forcing a thorough adjustment of the country to new realities. A few examples can give a sense of what this process has actually entailed. Imports, which in practice had an average effective tariff of more than 200%, now have a maximum tariff of 20%. Exports of non-oil goods have increased by almost 50% every year since 1983, accounting for more than half the country’s foreign exchange, up from just over 10% in 1982.

Where the most dramatic changes have taken place is in the area of public finance. The fiscal deficit has been brought down by about 10% of gross national product--or about twice the size of the cuts proposed for the U.S. deficit by the Gramm-Rudman amendment in its original and much tougher version. No country since World War II has been able to carry out such a cutback.

At the household level, the changes in the government’s budget have been major. From 1981 to 1987, for example, consumer prices rose 13.8 times; during the same period, the price of bread went up by 24 times, tortillas by 17.4 times, telephone service rose 20 times, diesel went up by 43 times, kerosene went up by 93 times, and so on.

Of course, these changes have brought about a further impoverishment of Mexico’s poor and middle classes, but it is precisely the need to promote a lasting recovery in the living standard of the average Mexican that has led to such a profound restructuring of government regulations and of the economy as a whole.

The first implication of these systemic adjustments is that businesses, government, unions and consumers are being forced to change their traditional ways of doing things. In the case of businesses, this means now having to compete head-on with foreign goods and services, both in Mexico and in the world markets at large. In the case of government, regulations and procedures are having to become instruments and promoters of change rather than of control, which--as in the case of the private sector--entails the need for a radical transformation of attitudes and habits. In the case of labor, individual unions rather than labor confederations are having to negotiate one-on-one with their employers, thus altering the sectorial nature of Mexico’s politics.

The process of adjustment has been slow and, therefore, so much more painful; yet it has had a deeply rooted effect. Taboos and traditional ways of doing things have been broken as nobody ever imagined possible. Maybe the only drawback is that change has not been fast enough to have something to show for it so far. Hence the challenge for the new administration will be precisely that of accelerating the pace of change so as to begin rebuilding the economy in a sustainable fashion.

The ultimate challenge, of course, is to the people of Mexico. The country’s adaptability so far promises success in the next phase of adjustment.