LopezNai1

Neoliberalism and Mexico: A Structuralist Perspective Carlos Lopez Nai, SID #21536133

LopezNai2 1 Introduction Ever since the debt crisis of the 1980s and the rise of Reganism, Thatcherism and the fall of the Soviet Union, the worlds economic policies are governed under tenet of neoliberalism. As Emmanual Alvarado points out in his essay, Poverty and Inequality in Mexico after NAFTA: Challenges, Setbacks, and Implications, the main advocate of this ideology was Milton Friedman from the University of Chicago School of Economics. This theoretical framework calls for minimal intervention of the State while allowing free markets, particularly through international free trade, to naturally improve the lives of poor people (2008). Professor Ananya Roy, in her class Global Poverty Practice: Hopes and Challenges in the New Millennium, argues that neoliberalism is more than just an economic theoretical framework. Rather, it is an ethical framework where market exchanges act as guides for all human actions (2010). This is exactly what the government of Salinas de Gottari attempted to do as it negotiated Mexicos role in the newly proposed North American Free Trade Block. Further, the goal of poverty alleviation solely through a Mexican economic expansion is specifically articulated in NAFTAs Article 102 (Alvarado 2008). Mexico entered NAFTA negotiations with the purpose of attracting Foreign Direct Investment and also with the impetus to expand its export markets. This strategy, officials argued, was vital for the expansion of the labor market and to mitigate the continuing effects of the latest financial crisis (1982) and inflation. In this way by expanding the Mexican economy, millions of people would be able to find employment and more generally the Mexican state would reach an environment of political and economic stability conducive to even more expansion. Additionally, it was the hope of President de Gottari that linking the Mexican economy with that of the United States would help to smooth transition from an authoritative

LopezNai3 democracy (one party rule, while conducting faux elections) to a true democracy (Castaeda 1993; Cameron, Wise 2004; de la Luz Jurez, Snchez Daza 2007). But even though this was the articulated goal of policy makers, a review of literature points out that this was not NAFTAs current and actual outcome. Miguel D Ramirez writes in his piece titled: Mexico under NAFTA: a critical assessment, published in The Quarterly Review of Economics and Finance, that the Mexican economy has now been made very dependent on that of the United States. That this dependency in general, but free trade specifically, has managed to lock-in neoliberal policies, causing real wages to go down, while at the same time eroding the institutional support for rural and sustenance farmers (2003). Similarly, Joseph Stiglitz, one of the main proponents of the United Nations Millennium Development Goals, writes in the New York Times: NAFTA enhanced Mexico's ability to supply American manufacturing firms with low-cost parts, but it did not make Mexico into an independently productive economy (2004). He further makes the case that simply signing a free trade agreement is neither an assured nor the silver bullet that fixes the economic woes of this or that country. Interestingly enough, this happened in the context of surge of Mexican exports. In an article written by Alfredo Snchez Daza and Gloria de la Luz Jurez titled: Mexico Twelve Years After the Implementation of the NAFTA, the authors explain NAFTA [ensured] that the least restricted access possible to goods and services for all three countries be implemented (2007). They demonstrate that in addition to removing tariffs and other commercial restrictions among member nations, the agreement provided a modern dispute mechanism that would mitigate the effects Mexicos lack of an effective rule of law tradition. The authors point out that these interventions helped Mexico increase its foreign direct investment to the tune of $170

LopezNai4 billion from the time of NAFTA implementation to 2005 (Waldkirch 2010). But the purpose of this paper is not to regurgitate previous critical assessments of NAFTAs effect on the Mexican macroeconomic framework. Rather, by critically analyzing these assessments from a structural perspective, which also includes Marxs and Lenins theories on capitalism, this paper seeks to build an analytically framework that addresses the factors which have lead to a permanent lower class critically affected by lower real wages and an erosion of social protections. Using both Marxs and Structuralist theories this paper will analyze the rapid transformation and restructuring of the Mexican economy and its effect on the lower classes. For this purpose, given that Mexican policy makers purposely sought to expand trade and promote foreign direct investment, the paper will first deal with NAFTAs impact on rural agriculture mostly in the South of the country, and secondly with foreign direct investments in general but on the maquiladora industry specifically (Wilson-Elizondo 2008). These analytical theories are interpreted as follows: Marxist thought builds on the premise of historic materialism: meaning, that the mode of production determines the social and ethical structures of a society (Balaam, Veseth 2001). From this perspective, Marx sets forth three laws of capitalism. Lenin builds on these laws and puts forth a fourth law. Marxs laws of capitalism are: the law of disproportionality, the law of falling rate of profits, and the law of concentration. These laws stipulate that capitalistic systems of resource allocation are mired with overproduction and underconsumption, that this disproportionality causes a reduction in the ability of capitalists to profit, and that this reduction on profits is directly related to the accumulation of capital by capitalist themselves. Thus, Lenin argues that the realities of these laws serve as an impetus for the promotion of unequal development. As a result, Structuralist Theory sees capitalist economies as focused with the mobilizing of cheap labor and thus on the

LopezNai5 unequal access to economic, political, and social opportunities by the lower socioeconomic classes (Balaam, Veseth 2001; Lueck 2010). Thus, the opening up of the Mexican economy through a free trade agreement negotiated under the tenet of neoliberalism (NAFTA) provided policy prescriptions, which analyzed through a prism of structuralist theory, served only to cement existing inequalities in Mexicos socioeconomic hierarchies. 2 Data The data for this paper was collected during the months of October and November of this year, 2010. These consist primordially of current expository examinations of the effects of NAFTA in the Mexican macroeconomy from the years 1993-2008. These documents were for a large part accessed through the University of California, Berkeleys collection of Academic Journals and online databases (JSTOR, PROJECT MUSE). The settings for these studies are mostly academic, with only a small part coming from news articles, and books. Though these expository examinations are mostly qualitative, this paper uses the quantitative data herein provided to further analyze the effects of NAFTA on poverty in general, but the rural agricultural and manufacturing sectors specifically. For this purpose, and with the incorporation of current statistical governmental data, this paper is able to triangulate the material researched (document reviews) to provide a critical analysis through a structuralism theory prism that incorporates Marxs and Lenins laws of capitalism. 3 Findings 3.1 Agriculture Sector Central to the structural analysis, which is the purpose of this paper, the vast majority of those living in poverty can be found in rural agricultural areas. These populations are mostly

LopezNai6 characterized by indigenous individuals who were denied ownership of lands they farmed and who fought the Mexican revolution of the early 1920s as a means to access land for sustenance agriculture (Alvarado 2008). This is exactly what structuralism theory argue happens to those who are powerless; they have unequal opportunities in the social, economic, and political arenas. What is particularly troubling about their precarious situation is that following their achievements through the revolution, the Mexican National government never gave them land titles, only access and the right to use land was afforded. Further, after 1992 when the National government finally decided to legitimize their use of land, the vast majority of farmers were only given titles to an average of five hectares (2008). Given this qualitative data, it becomes evident that even prior to NAFTA, the Mexican population suffered from traditional capitalistic forms of unequal distribution of resources. Particular to the arguments of structurarlist, those who have been traditionally marginalized continue to suffer the same fate even as the government argues that it is implanting programs to facilitate their upward social movement. This point is made by Wilson-Elizondo who explains that only subsistence farmers were harmed by the policy changes prescribed under NAFTA while commercial farmers thrived (2008; see also Sieppert, Rowe 2007). For, beginning in 1991 as a preparation for the implementation of NAFTA and continuing to this day, the Mexican Government implemented two subsidy programs for the purpose of mitigating the effects of the opening of the domestic market to heavily subsidized American agricultural goods. The programs are PROCAMPO, and Alianza Para el Campo (Alliance for the Countryside). These programs consisted in a cash transfer per farmed hectare, and assistance with the modernization of farms, respectably (2008; Alvarado 2008). These policies did nothing to help the poor sustenance farmers. Their lack of vast lands did little to provide them with an actual increase in

LopezNai7 real income. This was done with the specific purpose of helping large farming conglomerates take advantage of the now freer trade context with the United States (Sieppert, Rowe 2007). Through the structuralist theory prism it becomes evident that those who have been traditionally marginalized continue to lack access to opportunities that would actually help them and in this way cementing existing socioeconomic hierarchies. But this lack of help for sustenance farmers is not the only problem associated with the agricultural sector in Mexico. By using Marxs law of disporportionaly and Lenins law of unequal development, the purpose behind the dumping of heavily subsidized goods from the United States becomes apparent. According to USDA (source Wilson-Elizondo 2008) the Mexican government in 2004 budgeted 3.7 billion dollars for the purpose of funding its subsidy programsremember, these subsidies went mostly to large farmers. On the other hand the United States passed the Farm Security and Reinvestment Act of 2002 which granted by the budget year 2004 6.7 billion dollars for subsidies. This is almost double that of the Mexican government. This caused a disruption in the Mexican agro-market for the United States goods were sold at an estimated 30% bellow the cost of production (Sieppert, Rowe 2007). Combing Marxs law of disproportionality and Lenins law of unequal development can elucidate these aforementioned actions. Thus, in this framework, it can be understood that farmers wishing to maximize profits sought to overproduce more than the United States market needs (Marx), therefore American policy crafters sought to mitigate the negative effects of this strategy by shifting the burden of accommodating this over production to Mexico (Lenin). The result of this strategy was the displacement of both sustenance farmers and farm workers. Data shows that in 1995 this sector of the Mexican economy employed 5,642,897 people, but by 2004 this number was reduced to only 3,728,209 (data from Hernandez 2002, as

LopezNai8 cited by Wilson-Elizondo 2008). Again, using the structuralist perspective, this can be viewed as the only possible outcome given the convergence of the previously analyzed factors. However, policy analyst argue that this is the traditional outcome of modernizing economies; that there is a indirectly proportional relationship between modernization and amount of workers in the agricultural sector (2008, Alvarado 2008). Though this is an accurate observation, Mexican NAFTA negotiators presumed that these displaced workers would be absorbed by an expansion in urban manufacturing jobs. They estimated growth to be that of 6% a year mainly fueled by foreign direct investments (Alvarado 2008, Ramirez 2003). The next section will analyze this claim. 3.2 Foreign Direct Investment and Maquiladoras One of the main premises of structuralist thought is that capitalist economies [are] seen as a way of mobilizing cheap labor capital (Lueck 2010). This is particularly the case for foreign direct investment (FDI here on) in the context of NAFTA in general but Mexico specifically. With the implementation of NAFTA, as previously explained, the Mexican government sought to expand the Mexican economy through an export led growth model (Alvarado 2008; Castaeda 1993; de la Luz Jurez, Snchez Daza 2007; Stiglitz 2004). But what ensued was not just an increase of new investments in the region; rather it was a regional reorganization of labor where instead of seeing horizontal integration, only vertical integration occurred. Vertical integration is understood as a movement of existing operation to new regions to exploit the comparative advantages of these regionsread, exploitation of lower labor costs (Waldkirch 2010). The reason behind his change in location was mostly caused by the fact that Mexican wage earners only made 11% of their comparable American colleagues hourly wages (Siepper, Rowe 2007). Thus, from this perspective, analyzing the outcomes of these shifts in locations becomes crucial

LopezNai9 to the understanding the effects of NAFTA on the lower class of the Mexican population. As argued in the previous section, Mexican NAFTA negotiators anticipated that displaced agricultural workers would be absorbed by an expansion of manufacturing products in the Maquiladora industry (Alvarado 2008, Ramirez 2003), but this did not occur. Maquiladoras consist of the manufacturing industry that produces for export only (2003). In fact, Snchez and de la Luz point out that even though total job creation during the period 1993-2002 was that of about eight million jobs, the maquiladora industry only increased by about 550.00 jobs in the same period (2007). This number is insufficient for two reasons. As Blecker (2003) points out (as cited by Siepper, Rowe 2007) the Mexican economy needed to create about one million jobs per year in order to be able to cope with labor force growth. Thus, the combination of these two factors, labor force growth and displacement of agricultural workers ensued an abundance of labor that exceeded industry needs. Directly related to this abundance of labor is the fact that real wages have fallen 15.6% in the manufacturing industry in the period 1980-2004 (2007). This decrease in wages can be explained by examining these facts through the prism of structuralist theory. That is, those in the lower class are exploited and lack the access to opportunities be it in social, political, and economical arenas. This rapid restructuring of the Mexican economy caused by NAFTA in general, but FDI specifically, cemented existing Mexican socioeconmic class hierarchies. For, as Siepper and Rowe (2007) point out, the jobs created over the last decade suffer from low levels of unionization, high turnover, a lack of job security, and low wages (p. 10). But this is not the only issue that cemented existing Mexican socioeconomic class hierarchies. Moreover, because only the North of the country had the necessary infrastructure to accommodate the relocation of these manufacturing plants, the South was mostly excluded from the expansion in manufacturing

LopezNai10 employment (Alvarado 2008). Additionally, the expansion of Mexican economy provided better opportunities for skilled workers than unskilled workers. Alvarado (2008) argues that those with access to educationonly higher income classeshave benefited from NAFTA. Thus, by analyzing these factors through the prism of structuralist theory, it becomes evident that NAFTA created unequal opportunities for Mexican citizens in general while also cementing existing Mexican socioeconomic hierarchies. As a result of this, income distribution has increased for the top 10% while the remainder 90% has seen either an erosion or no change (Siepper, Rower 2007). 4 Conclusion Mexico entered NAFTA negotiations with the purpose of attracting Foreign Direct Investment and also with the impetus to expand its export markets. This was vital in order to stabilize the Mexican economy and promote even more expansion. This was seen as essential to ensure poverty alleviation. But in reality the opening up of the Mexican economy through a free trade agreement negotiated under the tenet of neoliberalism (NAFTA) provided policy prescriptions, which analyzed through a prism of structuralist theory, served only to cement existing inequalities in Mexicos socioeconomic hierarchies. This paper critically analyzed current expository examinations as to the effects of NAFTA in the Mexican economy. However, instead of regurgitating the findings of these documents, this paper triangulated their qualitative and quantitative data and critically analyzed it through the prism of structuralist theory in order to build on their assertions and provide a clear understanding of these policy prescriptions effects on the lower Mexican socioeconomic class. Thus, given that the world continues to be governed under the tenet of neoliberalism (Alvarado 2008), an explicit purpose of this paper is to provide a criticism of neoliberal thought.

LopezNai11 For, a simple de jure articulation of poverty alleviation as a goal (see NAFTAs Article 102) does not automatically translate into de facto poverty alleviation. Building on the criticism provided in this paper, further research as to the actual results of neoliberal interventions is imperative as we try to address the problems of inequality, poverty, and general suffering around the world. As economic historian Karl Polanyi points out in his book The Great Transformation, the governing of human behavior through market exchanges does a disservice to the significance of human existence ultimately culminating in its eradication.

LopezNai12 Bibliography Avelardo, Emmanuel. "Poverty and Inequality in Mexico after NAFTA: Challenges, Setbacks and Implications." Estudios Fronterizos 9.17 (2008): 73-105. JSTOR. Web. 18 Oct. 2010. Cameron, Maxwell A. "The Political Impact of NAFTA on Mexico: Reflections on the Political Economy of Democratization." Canadian Journal of Political Science 37.2 (2004): 30123. JSTOR. Web. 18 Oct. 2010. <http://jstore.org/stable/2516543>. Castaeda, Jorge G. "Can NAFTA Change Mexico?" Foreign Affairs 72.4 (1993): 66-80. Jstor. Web. 18 Oct. 2010. <http://jstor.org/stable/20045716>. Lueck, Kerstin. "Introduction to Theories of World Development." University of California, Berkeley, Berkeley. 2 Sept. 2010. Lecture. Polanyi, Karl. The Great Transformation. London: Beacon, 1945. PDF. Ramirez, Miguel D. "Mexico under Nafta: a Critical Assessment." The Quarterly Review of Economics and Finance (2003): 863-92. JSTOR. Board of Trustees of the University of Illinois, 2003. Web. 18 Oct. 2010. Roy, Ananya. "Liberalism in America." Global Poverty Practice: Hopes and Challenges in the New Millennium. University of California, Berkeley, Berkeley. 28 Sept. 2010. Lecture. Sanchez Daza, Alfredo, and Gloria De La Luz Juarez. "Mexico Twelve Years After the Implementation of the NAFTA." Analisis Economico 1er Cuatrimeste 22.49 (2007): 2950. Print. Sieppert, Jackie, and William S. Rowe. "In the Wake of NAFTA: Economic and Social Outcomes of Free Trade." Revista Perspectivas Sociales Autumn 9.2 (2007): 6-29. Print. Stiglitz, Joseph E. "The Broken Promises of NAFTA." The Broken Promises of NAFTA. The New York Times, 6 Jan. 2004. Web. 18 Oct. 2010.

LopezNai13 <http://www.nytimes.com/2004/01/06/opinion/the-broken-promise-ofnafta.html?scp=1&sq=the%20broken%20promises%20of%20nafta&st=cse>. Veseth. "Marx, Lenin, and the Structuralist Perspective." Introduction to International Political Economy. By Balaam. Pearson, 2001. 67-84. Print. Waldkirch, Adreas. "The Effects of Foreign Direct Investment in Mexico since NAFTA." The World Economy (2010): 710-45. Print. Wilson-Elizondo, Alexandra. "Left in the Agricultural Dust: the Effects of the North American Free Trade Agreement on the Mexican Agricultural Sector." Thesis. Haverford College; Department of Economics, 2008. TriCollege Digital Repository. 1 May 2008. Web. 18 Oct. 2010. <http://hdl.handle.net/10066/1458>.