PERSPECTIVE ON NAFTA : Guess Who the Losers Are in the Mexican Peso Crisis : Workers on both sides of the border will take the biggest hit. High-level free-trade maneuvering is a prime culprit.
NAFTA is proceeding right on schedule. It will take about five years for the damage to become obvious to everyone. In the meantime, the American people will be saturated with propaganda, half-truths and fairy tales by their own government.
When a major event such as the devaluation of the Mexican peso occurs, little effort is made to tell the American people the truth because the truth isn’t pretty.
The peso devaluation is being blamed on the Chiapas uprising in southern Mexico. Washington wants us to believe that investors have lost faith in the peso because a band of rebels is demonstrating against the Mexican government.
In fact, the devaluation of the peso had been planned for more than a year and was openly discussed at the highest levels of the Mexican government. It was also widely known in Washington. I discussed it in my testimony before the House Committee on Small Business in March, 1993--eight months before the North American Free Trade Agreement was passed into law.
The Mexican government delayed the devaluation until after its 1994 presidential election to avoid angering millions of Mexican voters. The plan was to devalue the peso after the election in August, and before the new president was sworn in on Dec. 1. As a courtesy to U.S. politicians, Mexico waited until after the U.S. elections in November and the approval of GATT (the General Agreement on Tariffs and Trade) by the U.S. Congress.
Why would Mexico be so sensitive about GATT? President Clinton promised to back Mexico’s outgoing president, Carlos Salinas de Gortari, as the head of the new World Trade Organization. However, the European nations, working with emerging nations in Africa and the Caribbean, outmaneuvered the White House and put together a majority voting block to elect an Italian. Of course, publicity about that scheme was also delayed until after the passage of GATT to avoid angering the American people.
The United States is the largest buyer of goods and services in the world. Wouldn’t it make sense to have a U.S. citizen in charge of the World Trade Organization? This idea was never even discussed.
The 40% peso devaluation creates millions of losers and enriches a handful of already wealthy winners.
The losers are the American taxpayers, whose government has committed 9 billion of our tax dollars to support the peso, and U.S. pension and retirement funds and American investors who lost about $20 billion in the peso devaluation. American job losses to Mexico will be even greater because the cost of Mexican labor has plummeted as a result of the devaluation of the peso. Last January, U.S. companies manufacturing goods in Mexico could hire seven Mexican workers for the cost of one American worker; now they can hire 10.
Before the devaluation, Mexican workers barely made enough to survive. Many of them live in cardboard shacks with dirt floors and no toilets near the factories of the U.S. companies they work for. Now they face having their pay cut by 40%.
Of course, the winners are the international companies that have flooded into Mexico. Twenty percent or more of the expense of manufacturing a product is the cost of labor. Lowering the wages of Mexican workers increases the profits for the international corporations.
The other big winners are the 36 Mexican families that control more than 50% of the Mexican gross domestic product.
In 1991, Mexico had only two billionaires; in 1994, there were 24, even as the vast majority of the people of Mexico were living in abject poverty.
Things are getting worse, not better, for most Mexicans.
In the meantime, our senior officials in Washington continue to gush about the success of NAFTA during the first year after its passage. Let’s look at the facts.
First, follow the money. Investment in Mexico by U.S companies increased by 40% in 1994. The money is being used to build factories in Mexico, a process that takes 18 to 24 months. Companies in Mexico will be able to undercut the prices of comparable products made in the United States because of the low wages of workers in these factories.
The goods made in these Mexican factories will be shipped across the border, duty-free, into the United States. Prices paid by U.S. consumers will not be reduced.
U.S. auto manufacturers with factories are in Mexico will be big winners. Last year, half a million cars and trucks were shipped to the United States from Mexico. In 1995, the number of cars shipped will be limited only by Mexican auto plant capacity. Check to see if U.S. car prices drop. They won’t.
Finally, the U.S. factories that previously made these goods here will be closed and their American workers will lose their jobs. As a result, the middle class in the United States will be severely damaged. So will the tax base and our ability to balance the budget and pay down our debts.
There is one other major problem that will certainly occur as a result of the peso devaluation. The illegal immigration problem will get worse. Millions of Mexicans will flood across our borders because with wages cut by 40%, it will be even more difficult to survive in Mexico.
Secretary of Labor Robert Reich summed up the problem with NAFTA recently when he said, “The days when you could graduate from high school and get a good factory job are gone.” The problem is, where can these high school graduates get a good job in the United States?