Mexico Gets Down to Business About Growth

The North American Free Trade Agreement has been such a success for Mexico--exports have grown from less than 6% of its gross domestic product in the late 1980s to 30% in just 10 years--that President Ernesto Zedillo has continued to deepen the export-led growth strategy. The many economic groups that benefited from this strategy now form powerful political blocs, which have pushed for the free-trade agreements Mexico has signed or is negotiating with its southern neighbors and the European Union.

Though there are some political groups that claim that export-led growth has not benefited the majority of Mexicans, almost everyone recognizes that the 1994-95 crash would have been much worse and the recovery slower without NAFTA. However, even the clear success of NAFTA has not weakened the traditional reluctance of Mexico to strengthen its ties with the United States. The U.S. is still considered the “dangerous giant of the North” whose “every cold becomes pneumonia in Mexico.” Thus the geopolitical desire to establish free-trade agreements with other countries. Mexico’s long and traumatic history with the U.S. requires building checks and balances to its enormous power. Mexico has finally resolved to work to sustain economic growth and achieve social justice but, at the same time, continue to build new bridges with other countries.

If the amount of wealth produced and the well-being of its people measure national success, Mexico has failed. In 1910, the year that the Mexican Revolution began, the per capita income of Mexicans was 27% of that of the Americans. However, 120 years before, Mexicans were enjoying the equivalent of 78% of U.S. per capita. Today, it has dropped to only 7%. Today, the number of Mexicans living under the poverty line (46 million) is three times that of the total population living in 1910.

The greatest part of the 19th century was catastrophic for Mexico. International wars and domestic revolutions plagued the country until 1876, when Porfirio Diaz became president of Mexico. Diaz was able to pacify the nation and began a slow process of national reconstruction. He successfully promoted economic growth through exports and foreign investment. However, the newly created wealth was not distributed among the population. A few families grew enormously wealthy while most Mexicans were barely able to survive, but Diaz’s greatest failure was not preparing the country for an orderly process of succession.

This century has not been much better for Mexico. It has been able to sustain economic growth only during 40-odd years in that time. Its per capita income tripled in 100 years while that of other nations multiplied by seven, eight or even 20 times. Income distribution did improve from the late 1950s to the beginning of the crises of the 1980s, but since then it has greatly deteriorated. Now, Mexico is finally promoting a growth strategy that may prove successful in the long run.

The debt crisis of the 1980s forced the Mexican government to revise its growth strategy. In 1986, the nation took the first steps to open the until-then tightly closed economy. President Carlos Salinas de Gortari designed a new strategy for Mexico: economic growth led by exports. He began negotiations to achieve a free-trade agreement with the United States and forcefully promoted its benefits inside Mexico. The pact was conceived to serve two main purposes: first, to open the U.S. economy to Mexican exports and second, to establish a credible and enforceable political mechanism to limit bureaucratic discretion in future economic policy decisions in Mexico. The authoritarian political system--without functioning checks and balances--was the real culprit of the recurring economic crises that had crippled Mexico’s growth for so long.

It seems somewhat eerie that Mexico’s successful growth during the Porfirio Diaz era in the latter part of the 19th century happened under policies similar to those now being tried. If those policies had not been interrupted after 1910, Mexico’s per capita GDP perhaps would now be much larger. More and more Mexicans understand that NAFTA and the other free-trade agreements that the nation has signed or is in the process of constructing serve not only to build a robust economic growth strategy but also to build a political system that is not arbitrary and discretionary. With these political mechanisms in place, Mexico can hope to grow uninterruptedly in the 21st century.