Term Paper on "Mexican Economy One of the Primary Reasons"

Term Paper 8 pages (2935 words) Sources: 8 Style: MLA

[EXCERPT] . . . .

Mexican Economy

One of the primary reasons given for the movement of illegal immigrants northward across the border between Mexico and the United States is the poor showing of the Mexican economy, leaving many people with no choice except to flee to the United States to find work. The long-term control of the country by one political party has been seen as one of the reasons why economic development has been so poor. For a time in the 1990s, it was hoped that an oil discovery in the region would change the economic situation, but any change has been too small.

Mexico also hoped that the implementation of certain global programs would change the economic situation, notably the North American Free Trade Agreement (NAFTA). In the United States, the new global perspective was brought to the fore in the public arena over the debate on the north American Free Trade Agreement. NAFTA disposed of investment barriers for each of the member countries and mandated equal opportunities to enable businesses to be competitive. Opposition to NAFTA, however, was considerable and focused on fears that the treaty will cost the country a lot of jobs and that environmental standards would be ignored. At some level, the push for NAFTA was energized by the perceived improvement in the Mexican economy in the early 1990s, but this did not last as the Mexican bubble popped in 1994, causing foreign investors to panic and pull out as a group. One cause cited for this collapse could be found in the global economy itself as actions taken at the Federal Reserve in Washington were to raise interest rates:

As this occurred, Mexico had to keep raising its own interest rates to continue its borrowing and, meanwhile, expended more and more of its scarce hard-currency reserves to cover the maturing debt paper held by foreigners. (Greider 261)

These events were noted, but many investors ignored the signs and so became caught in the crash in 1995 as the collapse spread beyond the confines of Mexico, creating a worldwide panic.

At the time of the NAFTA debate, Maxfield noted some of the problems that would be facing Mexico in the near future when she stated that Mexico's political future depends to a great degree on the country's national economic performance and the individual economic well-being of its citizens. However, as Maxfield writes, the more internationally integrated financial markets become, the harder it is to induce domestic capitalists to make long-term fixed investments... As the threat of exit becomes more credible and the potential damage greater, policymakers must pay more heed to the voice of capital if they expect to gain its loyalty -- in the form of long-term industrial investment. (Maxfield 215)

Mexico conducts as much as 90% of her trade with the United States. The premise of NAFTA is that free trade should be left exclusively to the free market. In practice, this means giving free rein to those who command the most power and the most wealth. The agreement also covers only things economic, such as financial matters, investment, intellectual property, and commerce as well as dispute resolution, banking, transportation, and services. It does not include other topics -- the political, the social, the environmental (at least not directly), the cultural. Castaneda and Heredia, writing for a Mexican magazine, found the agreement to be a bad deal for Mexico because it did not recognize the enormous disparities between Mexico and the United States. Special treatment for Mexico was removed by the Mexican government because the leadership wanted to see Mexico as a country joining the First World and not as a more backward economy needing special help. Castaneda and Heredia stated that a good agreement would include compensatory financing, or the creation of regional funds. In a free-trade process between two or more countries, there is always a long period of transition during which painful adjustments take place... The adjustment process has a cost that is, in theory, shared equitably between the parties... But in reality, the parties are never truly equal, and, in this particular case, they are profoundly unequal. (Castaneda and Heredia 14)

The per capita income in Mexico is eight to ten times lower than that of the United States; the distribution of income is skewed to a greater degree; and levels of wages, productivity, and technology are inferior in all respects. The cost of adjustment is thus much heavier for Mexico than for the United States, though some parts of Canada and the United States suffer disproportionately greater adjustment costs, even larger than in some parts of Mexico (Castaneda and Heredia 14-15).

The United States and Mexico have long been at odds over immigration policy and enforcement, and NAFTA has been presented by the U.S. As being an agreement that will help alleviate this problem by improving the situation in Mexico so that there is less economic incentive for crossing the border. The Mexican government is also counting on NAFTA to ease these economic pressures on the people of Mexico. U.S. supporters of NAFTA believe that the agreement will make it possible to attack Mexico's labor problems, but in truth this will not be possible without threatening the country's political stability or without jeopardizing the economic advancements achieved in recent years. The U.S. And Mexico have radically different views of workers' rights and proper working conditions (Robinson and Dabrowski 43-44).

Castaneda notes that the Mexican government has been using NAFTA as a way of addressing Mexico's severe economic problems and has been moving this way singlemindedly. The leaders have believed that the only way to attract the foreign capital necessary to stabilize the exchange rate and to fund the ensuing current account deficit would be to provide hesitant potential investors with guarantees of continuity through economic policy and access to the U.S. market through an agreement with the U.S. It was hoped that NAFTA would satisfy both requirements and that the sustained economic growth generated by would narrow income differentials by creating jobs (Castaneda 73).

At the time of the last census, Mexico had GNP rates that were sixteenth in the world, though 16% of the population still lived in poverty. The country by then was the world's sixth largest producer of oil and generated 2.79 million barrels a day, constituting 32 per cent of the total revenue of the government each year ("Mexico Factfile" 58).

David Fitzgerald notes that "Mexico has increasingly become 'a country of emigration'" (171), noting as well that the 7.8 million people of Mexican birth living in the United States in 2000 represented 8 per cent of Mexico's total population. The United States is the destination of almost 99 per cent of Mexican emigrants, and an additional 13.8 million persons born in the United States claim Mexican ancestry. This is clearly one of the causes of tension between Mexico and the United States and more and more the focus of political rhetoric in the U.S., especially in a presidential campaign year. The movement of people across the border is often linked with fears of terrorism, though that is not as closely tied to illegal immigration as many people believe. The vast majority of illegal immigrants do not cross the border to attack the United States but to become part of it, to find work and economic opportunity they cannot find in their homeland. The economic disparity between the two countries is simply too great to keep people in Mexico. The disparity between the U.S. And Canada is not as great, and there is very little illegal immigration from Canada to the United States.

Though Mexico has made strides in the time since the passage of NAFTA, but modernization in Mexico has only just started at the same time as the country faces a period of political democratic consolidation. The government is faced with outdated and undemocratic institutions and with the need to curb the rampant corruption. The country needs judicial reform and a way to deal with the powerful drug cartels. One half of the country's 100 million people live in poverty. In additoin, income distribution and development are extremely uneven, and the country further suffers from high underemployment, low levels of education among the poor, and an extremely low tax collection rate. At the same time, the Mexican peso has grown stronger even as the economy has remained stable, largely because of sound economic management. Much of the other half of Mexico's population, some 50 million people, is young, urban, and bilingual, creating a highly educated, innovative, and industrious workforce. The country is still one of haves and have-nots, though Mexico is moving forward in industry, manufacturing, and technology. Mexico could be an enormous consumer market for U.S. And Canadian products and services, and technological improvement could mean opportunities for partnerships and co-operation on a number of issues (Wilson-Forsberg 52).

Jeff Faux notes that during the NAFTA debate in 1993, it was believed by many that economic improvement in Mexico would stem the movement of people… READ MORE

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