From David Harvey, A Brief History of Neoliberalism (New York: Oxford University Press, 2005)

Dispatches from the Frontlines

Mexico

The Partido Revolucionario Institucional (PRI) was the sole governing party in Mexico from 1929 until Vicente Fox’s election in 2000. The party created a corporatist state that proved adept at

organizing, co-opting, buying off, and if necessary suppressing oppositional movements among the workers, peasants, and middle classes that had formed the basis of the revolution. The PRI pursued a state-led modernization and economic development model mainly focused on import substitution and a vigorous export trade with the US. A significant monopoly state sector emerged in transport, energy, and public utilities, as well as in some basic industries (such as steel). Controlled entry of foreign capital under the maquila programme, which allowed mainly US capital to produce in Mexico’s border zone, using cheap labour unhindered by any tariffs or restrictions on commodity movements, had begun in1965. In spite of relatively strong economic development in the 1950s and 1960s, the benefits of growth had not spread very far.

Mexico was not a good example of embedded liberalism, but episodic pay-offs to restive groups (peasants, workers, middle classes) did redistribute incomes to some degree. The violent suppression of the student movement protesting social inequalities in 1968 left a bitter legacy that threatened the PRI’s legitimacy. But the balance of class forces began to shift in the 1970s. Business interests strengthened their independent position and deepened their links

to foreign capital.

The global crisis of the 1970s hit Mexico badly. The PRI’s response was to extend the public sector by taking over failing private enterprises, maintaining them as sources of employment to stave off the threat of working-class unrest. The number of state enterprises more than doubled between 1970 and 1980, as did the number of their employees. But these enterprises were losing money and the state had to borrow to fund them. The New York investment banks, awash with petrodollars to invest, obliged. Mexico’s oil discoveries made lending to it an attractive bet. The foreign debt rose from $6.8 billion in 1972 to $58 billion by 1982.

Then came Volcker’s high interest rate policy, the recession in

the US that diminished demand for Mexican products, and the slump in oil prices. Mexican state revenues fell and the cost of servicing the debt soared. Mexico declared bankruptcy in August 1982. The massive capital flight already under way in anticipation of a devaluation of the peso accelerated, and President Portillo nationalized the banks as an emergency measure. The business elite and the bankers disapproved. De la Madrid, who assumed the

presidency just a few months later, had to make a political choice. He sided with business. One could say this was inevitable, but the political power of the PRI did not necessarily make it so. De la Madrid was reform-minded, less embedded in the traditional politics of the PRI, and had close relations with capitalist class and foreign interests. The new combination of the IMF, the World Bank, and the US Treasury pulled together by James Baker to bail Mexico out of its difficulties put additional pressure on him. They not only insisted on budgetary austerity; they insisted, for the first time, on broad neoliberal reforms, such as privatization, reorganization

of the financial system in ways more consistent with foreign interests, the opening of internal markets to foreign capital, lowering tariff barriers, and the construction of more flexible labour

markets. In 1984 the World Bank, for the first time in its history, granted a loan to a country in return for structural neoliberal reforms. De la Madrid then opened Mexico to the global economy by joining GATT and implementing an austerity programme. The

effects were wrenching:

From 1983 to 1988 Mexico’s per capita income fell at a rate of 5 per cent

per year; the value of workers’ real wages fell between 40 per cent and 50

per cent; inflation, which had oscillated between 3 and 4 per cent per year

in the 1960s, had gone up to the mid teens after 1976, and surpassed 100

per cent in several of those years . . . At the same time, due to government

fiscal problems and the re-orientation of the country’s governing economic

model, state expenditure on public goods declined. Food subsidies

were restricted to the poorest segments of the population, and the quality

of public education and health care stagnated or declined.15

In Mexico City in 1985 this meant that resources were so scarce that expenditures on critical urban services in the capital plummeted 12 per cent on transport, 25 per cent on potable water, 18 per cent on health services, 26 per cent on trash collection’. The crime wave that followed turned Mexico City from one of the more tranquil into one of the most dangerous of all Latin American cities within a decade. This was a rerun, though in many respects more devastating, of what had happened to New York City ten years before. Much later, in a symbolic event, Mexico City awarded a multi-million-dollar contract to Giuliani’s consultancy

organization to teach them how to deal with crime.

De la Madrid saw that one way out of the debt dilemma was to sell off public enterprises and use the proceeds to pay down the debt. But the initial steps towards privatization were both tentative and relatively minor. Privatization entailed the wholesale

restructuring of labour contracts and this provoked conflict. Fierce labour struggles broke out in the late 1980s only to be put down ruthlessly by the government. The attack on organized labour intensified under the Salinas presidency that took over in 1988.

Several labour leaders were gaoled for corruption, and new and more compliant leaders were installed in key labour organizations under the PRI’s control. Troops were called out more than once to break strikes, and the independent power of organized labour, such as it was, was diminished at every turn. Salinas accelerated and formalized the process of privatization. He was US-trained and looked to US-trained economists for advice.17 His economic development

programme was couched in language close to neoliberal orthodoxy.

Opening Mexico up further to foreign direct investment and competition became one of the key elements in Salinas’s reform programme. The maquila programme expanded rapidly along the northern border to become fundamental to Mexico’s industrial and employment structure (Figure 4.3). He began and successfully completed the negotiations with the US that produced NAFTA.

Privatization proceeded apace. Employment in the state sector was cut in half between 1988 and 1994. By 2000 the number of stateowned firms had been reduced to barely 200 compared to the 1,100 that had existed in 1982.18 The terms of privatization were increasingly

set to encourage foreign ownership. The banks that had been so hastily nationalized in 1982 were re-privatized in 1990. To conform with NAFTA, Salinas also had to open up the peasant sector and agriculture to foreign competition. He had, therefore, to attack the powers of the peasantry that had long formed one of the key pillars of the PRI’s support. The 1917 Constitution from the Mexican Revolution protected the legal rights of indigenous

peoples and enshrined those rights in the ejido system that allowed land to be collectively held and used. In 1991 the Salinas government passed a reform law that both permitted and encouraged privatization of the ejido lands, opening them up to foreign ownership.

Since the ejido provided the basis of collective security among indigenous groups, the government was, in effect, divesting itself of its responsibilities to maintain that security. The subsequent lowering of import barriers delivered yet another blow, as cheap imports from the efficient but also highly subsidized agribusinesses in the United States drove down the price of corn and other products to the point where only the most efficient and affluent Mexican farmers could compete. Close to starvation, many peasants were forced off the land, only to augment the pool of unemployed in already overcrowded cities, where the so-called

Figure 4.3 Employment in the major maquila sectors in Mexico in 2000

Source: Dicken, Global Shift.

informal economy (for example street vendors) grew by leaps and bounds. Resistance to the ejido reform was, however, widespread, and several peasant groups supported the Zapatista rebellion that broke out in Chiapas in 1994. Having signed on to what became known as the Brady Plan for partial debt forgiveness in 1989, Mexico had to swallow, mainly voluntarily as it turned out, the IMF’s poison pill of deeper neoliberalization.

The result was the ‘tequila crisis’ of 1995, sparked, as had happened in 1982, by the US Federal Reserve raising interest rates. This put speculative pressure on the peso, which was devalued. The trouble was that Mexico had earlier taken to issuing dollar-denominated debt (called tesobonos) to encourage foreign investment, and after the devaluation could not mobilize enough dollars to pay them off. The US Congress refused to help, but Clinton exercised executive powers to put together a $47.5 billion rescue package. He feared a loss of jobs in those US industries exporting to Mexico, the prospect of increasing illegal immigration,

and, above all, the loss of legitimacy for neoliberalization and the NAFTA agreements. As a convenient side-effect of the devaluation, US capital could then rush in and buy up all manner

of assets at fire-sale prices. While only one of the Mexican banks privatized in 1990 was foreign-owned, by 2000 twenty-four out of thirty were in foreign hands. The exaction of tribute from Mexico by foreign capitalist class interests then became unstoppable. But foreign competition also began to be a problem. Mexico lost a significant number of maquila jobs after 2000 as China became a much cheaper and therefore preferred location for many foreign firms looking to employ low-wage labour.

The effects of all this, particularly the privatizations, on concentrations of wealth within Mexico were marked:

In 1994, Forbes magazine’s list of the richest people in the world revealed

that Mexico’s economic restructuring had produced twenty-four billionaires.

Of these, at least seventeen participated in the privatization

programme, buying banks, steel mills, sugar refineries, hotels and

restaurants, chemical plants, and a telecommunications firm as well as

concessions to operate firms within newly privatized sectors of the

economy, such as ports, private toll highways, and cellular and long

distance telephony.21

Carlos Slim, Mexico’s richest man, was twenty-fourth on the Forbes list, and he controlled four of Mexico’s twenty-five largest firms. His entrepreneurial interests spread beyond Mexico’s

borders and he became a major player in telecommunications throughout all of Latin America, as well as in the US. His strategy for cellphone service became renowned: capture and monopolize the high-density and affluent markets and leave the low-density and poorer markets without service. By 2005 Mexico ranked ninth in the world (ahead of Saudi Arabia) for its number of billionaires.

It is a moot point whether we call this the restoration or the creation de novo of class power. Plainly, the attack on labour, on the peasantry, and on the standard of living of the population had worked in Mexico. Their lot became markedly worse as wealth accumulated both within Mexico and beyond in the hands of a small group of magnates backed by their financial and legal apparatuses ofpower.