Economic Growth Meets Weak Local Government

Natural disasters have a way of exposing the weaknesses of Mexico’s political system. The torrential rains and floods that hit central and Gulf Coast Mexico this month show how antiquated, inefficient and dangerous the system of governance is.

The tropical storm that swept across the states of Puebla, Hidalgo, Veracruz and Tabasco earlier this month was devastating enough. But what made the flooding that followed Mexico’s “worst disaster in a decade, in terms of lives lost” (in President Ernesto Zedillo’s words) can be illustrated by events in Teziutlan.

As much rain fell on this bustling mountain in three days this month as usually falls all year. But Teziutlan seemed wealthy enough to protect itself. The city has become an enormous sewing center and one of Mexico’s great success stories since the North American Free Trade Agreement went into effect. American Eagle jeans and Oscar de la Renta shirts are among the lines produced here.

As it turned out, flooding created the worst tragedy in the city’s history: close to 200 people killed in landslides, 500 homes destroyed, another 1,200 damaged, many more unlivable, thousands of people left homeless. A landslide at the La Aurora neighborhood, which is slapped onto the side of a hill, took dozens of homes and what investigators believe will eventually be more than 150 people with it.

People began building in the area about 15 years ago. But the NAFTA sewing boom sent a hodgepodge of houses scurrying up the hillside. It was all unplanned, without proper subdivision. Teziutlan officials were helpless to manage the growth or insist on proper construction. Nor did they have a budget to install storm drains, repair cracked water pipes or pave the streets.

The Teziutlan disaster is what happens when rapid economic growth meets a political system chiefly designed to manage poverty. Mexican local government, where this growth occurs, is unprepared to control, direct or benefit from it.

Mexican cities’ budgets, which are determined by Mexico City, are so minuscule that they cannot build and maintain infrastructure or hire capable civil servants. They have only slight taxing power. Moreover, mayors and city councils are barred from reelection: Every three years, they leave, and much of the city staff leaves with them. A newly elected slate must learn to govern from scratch. Mexican city government is thus characterized by constant improvisation and a lack of long-term planning.

This is one reason why economic growth in Mexico translates so slowly into economic development and higher standards of living. “Globalization grabs us. It develops us very quickly,” says Jose Luis Olvera, Teziutlan’s director of public works. “But as a government, we haven’t been able to take the measures necessary to keep up. This is a national problem. Many places in the country are like this.”

Teziutlan has had a sewing industry since the 1920s. When NAFTA lowered tariffs on clothing among its three participating countries--Mexico, Canada and the United States--Teziutlan boomed.

At least 100 plants have sprung up since 1994, when the treaty took effect. No one’s even sure how many plants there are, since small maquiladoras were set up in houses or shops and the city doesn’t have the staff to monitor them. The garment-industry work force, meanwhile, has swelled to about 35,000.

The maquiladoras gave rural folk from impoverished surrounding villages steady work, health benefits and the ability to educate their children. But the only places where the workers could live were on hillsides or in ravines. The choice was brutish: Starve at home or come to work in Teziutlan and live on the side of a hill.

Teziutlan’s economy generates money that could provide for the basic infrastructure the city lacks. The money just doesn’t stay in Teziutlan.

Under the Mexican system of government, all tax receipts go to the central government in Mexico City, which redistributes them to the states and cities. Cities get only 5% of revenues. The taxes that Teziutlan’s maquiladoras pay subsidize the central government rather than help finance the local infrastructure needs that their businesses and employees create.

What should be a huge boon to a local economy instead becomes a cause for disaster. Local government cannot take full advantage of the investment coming into Mexico. That, in turn, prevents Mexico from enjoying the full benefits of one of its greatest comparative advantages: Its neighbor is the wealthiest consumer market in the world.

For example, Teziutlan will have difficulty leveraging its sewing industry into more skilled and remunerative manufacturing. It has no civil service to envision or plan for such a development. It has no money for job-training programs. It can’t offer incentives to other types of manufacturing to relocate here. Its maquiladora owners have formed a committee to demand more infrastructure investment, but the city has nothing to respond with.

When wages hit a ceiling that garment makers can’t afford, or when the city becomes too congested, the sewing plants, which are notoriously easy to set up and to abandon, will likely go elsewhere. Sewing will no longer be Teziutlan’s stepping stone to something better.

Virtually every growing Mexican city is ringed with shantytowns that lack electricity, paved streets, drinking water and storm-drain systems. These cities generate money, but they don’t get to spend it. Their ad hoc administrations can’t prevent shantytowns and unplanned neighborhoods like La Aurora, but neither can they provide for them.

They are as anemic as Teziutlan. The only difference is that these other cities haven’t had a natural disaster come their way--yet.