Wednesday, October 18, 2006

Has neoliberalism failed Mexico?

Economist Brad DeLong asks if neoliberalism has failed Mexico. (UPDATE: Marginal Revolution offered additional thoughts.) My view, half-assed neoliberalism has failed Mexico.

Having traveled in Mexico quite a bit before and after NAFTA, I can tell you NAFTA has definitely succeeded in creating a more prosperous middle class there, especially in the larger cities, and this in turn has actually boosted US exports to Mexico, where trade used to be mostly the other direction.

However, other NAFTA policies weren't such a great benefit, in part because they were incomplete and skewed toward American interests. For example:
  • Separate rules for maquiladoras left them unregulated and a source of significant labor exploitation that contributes to border instability.
  • US agriculture subsidies, particularly billions subsidizing corn and soy, have virtually depopulated hundreds of Mexican farming communities, forcing millions of young men either to move to the United States to find work, or for farmers to shift to marijuana or other illicit crops to survive.
  • Finally, but perhaps most importantly, NAFTA liberalized markets for (some) goods while failing to liberalize labor markets, which was a recipe for disaster. Markets don't respect national boundaries, so it behooves nations to create multinational structures to control them - that's especially true for the labor market.
So DeLong's incorrect, in my view, to abandon his faith in markets as a (partial) soution to Mexico's woes, though I'd argue that to be effective, neoliberal policies must be coupled with direct economic and infrastructure development assistance - essentially an industrial policy aimed at bolstering emerging industries the way we've done with high tech in the United States. That'd be better spent money than any fence. In the end, though, IMO the ultimate answers may rely on greater reliance on market solutions, or rather, solutions that respect market forces instead of ignoring the most important of them.


Gritsforbreakfast said...

A fair point, Frank, though I think perhaps you hear so much of it because of the flood of immigrants across the southern border over the last decade, in Mexico mostly from rapidly depopulating rural areas which were hit hardest by NAFTA's double whammy with US competitors getting new access to Mexican markets coupled with an unfair trading advantage.

Low commodity prices theoretically help the Mexican consumer, but a byproduct of that policy is a flood of uneducated, rural immigrants pouring into the United States by hook or by crook because their agricultural jobs in Mexico no longer exist.

That's certainly why I focused on it in this post.

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Unknown said...

wrong! neoliberalism economies have strenghten teh elite mexican class, not the middle class nor the poor class.