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A Remedial Lesson Confronts the Technocrats : Mexico: Near-meltdown will happen again unless economic policy includes broad-based political partnership.

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Before the Mexican meltdown became irreversible, the Clinton Administration finally woke up to the gravity of the crisis and stepped in to prop up the sinking peso, the embattled government of President Ernesto Zedillo and plummeting confidence in the country’s stability. It may turn out that this latest, mammoth Mexican rescue package (to the tune of up to $40 billion, a sum that by itself describes the magnitude of the crisis) will suffice to restore stability to Mexican markets. Right now, that is the top priority, and everything else can wait.

But not for long. If Mexican politicians, intellectuals and businessmen, as well as American admirers of the so-called Mexican miracle, actually believe much of the nonsense that is being said and abstain from a serious reassessment of much of what occurred in Mexico over the past 10 years, the same causes will produce the same effects. Otherwise, neither the peso crisis nor the bailout will be the last.

A serious critique should have as its ultimate purpose the creation of conditions whereby Mexico can grow and thrive on its own. The first area to scrutinize is the economic model that Mexico has pursued since 1985, when it became evident that the previous policy of import-substitution-led industrialization, which had generated four decades of 6% growth per year, had become unsustainable. For 10 years now, Mexico has followed the free-market, free-trade creed to a T: trade liberalization, privatization and cultivation of foreign investment. The results have been dismal: mediocre and sporadic growth (if any), a gigantic current-account deficit stemming from continuing high debt service and a huge trade gap, persistent low savings and a private sector that, with a few exceptions, simply cannot hack it in world markets and takes its money out of the country at the first sign of trouble.

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While no one in Mexico believes that returning to the protectionist schemes of 1940-1980 is a realistic alternative, there is increasing doubt that the present debacle was simply an accident or a mistake (as the government and Washington assert) and that time and patience will eventually sort matters out. Many are wondering whether it might not be a better idea to review some of the improvised, rushed decisions of the Salinas years, and perhaps consider a more gradual and selective trade opening, a more rational search for foreign capital that emphasizes direct investment over speculative flows, a greater role for the state in infrastructure and less insistence on eliminating inflation.

Secondly, serious, substantive attention must be given to the role that Mexico’s closed, authoritarian political system played. A tiny group of technocrats reached power in the early 1980s and has not budged since. They decided, on their own and with their colleagues north of the border, how things should be done. They were sometimes popular--when things went well--but were never in touch with the pulse of the nation or accountable for their actions. They dismissed the opposition as ignorant and retrograde and not worth consulting on key issues. The press, unions, human-rights groups, dissident business groups and academics were silenced or ignored. The technocrats, as Zedillo’s campaign slogan put it, “knew what to do.” Now we know too.

It may be that opening up the country’s politics and jettisoning the archaic institutions and customs of the past would not have staved off the current economic collapse. Broader consultations and negotiations might simply have held up reforms, strengthened entrenched interests and paralyzed government and society. But it will be extraordinarily difficult, if not impossible, for any recovery program to function if it is not implemented by a much more broadly based government, springing from and legitimized by a much more democractic political system.

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So far, Zedillo is stubbornly attempting to separate the political and economic spheres: He is forthcoming on electoral reform, as long as it does not affect economic policy; he is more amenable to contacts and meetings with the opposition than his predecessor, as long as his team is made up exclusively of his friends and acolytes.

Finally, Mexico and the United States must agree that the course followed over the past few years is unsustainable. American taxpayers cannot first be told that their country has just signed a free-trade pact with a modern, dynamic, successful nation and a few months later be informed that they must co-sign a credit of up to $40 billion to save that same nation from chaos. A closer partnership, including a monetary agreement, a deal on immigration and much more intense consultations may well be in order. But that is not the question.

The issue is whether the Mexico cheerleaders in the United States and the pro-U.S. virtual annexationists in Mexico will continue to dominate policy, placing it on the least sure of footings.

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There can be a tighter, better relationship between Mexico and Washington; it must be based on an honest appraisal of what each country is and what each wants. Otherwise, we will keep lurching from crisis to crisis: Mexico going under, the United States bailing it out and everyone wondering what went wrong.

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