Mexico Political Economy & Development AP Comparative Gov. Mr. Saliani

State & Economy Exports – coffee, cacao (cocoa beans), cattle, silver, & gold. Foreign control of various resources – land, country’s petroleum, railroad network, & mining wealth. (Impact?) Nationalism & Social Justice – state had the responsibility to generate wealth for all its citizens (state capitalism) Agro-export model led to a problematic reality

Import Substituting Industrialization (ISI) Goals & Plans 1.Develop industries to supply the domestic market by encouraging domestic & international development 2.Provide credit & tax incentives to industrialists 3.Maintain low rates of inflation 4.Keep wage demands low (subsidized food, transportation, housing, & health care for workers) 5.Foster industrialization by establishing state-owned steel mills, electric power generators, ports, petroleum production, and use protective tariffs

ISI Effects & Eco Development 1.Considered success – production of simple goods, consumer durables, intermediate goods, and capital goods grew! 2.Moved away from ejidos to privatization in agriculture (transition towards industrial state) – provide foodstuffs – led to support for Commercial farming (Government invested in transportation networks, irrigation projects, agricultural storage facilities) 3.“The Mexican Miracle” – GDP growth rate averaged 7% ( ) – See Table 1 4.Unionization was strong – Confederation of Mexican Workers (CTM), powerful voice within PRI and demonstrated the linkage to the government 5.Larger farm owners dominated the agricultural economy and owed allegiance to the government

Economic Costs Limited potential for further growth (fewer incentives due to government benefits and subsidies) High tariffs kept out foreign investment which hurt efficiency and quality Importing technology to support industrialization was a drain on the economy Worker benefits were difficult to maintain due to low tax rates Urban poor population grew and peasant farmers suffered –ejido system led to failure to compete High population growth rates were a challenge ISI had a temporary positive but later negative impact

Industrialization (Friend or Foe?) Idea was to lead Mexico away from dependence but it … 1.Highlighted new vulnerabilities 2.Increased foreign investment/import tech 3.Led to multinational companies moving in 4.Food importation 5.BACKFIRED!!!!!!!

Hard Realities of the 1970’s Budget deficit Inflation rose Foreign debt tripled Peso was devalued (encourage exports & discourage imports) IMF stabilization agreement – reduce spending, increase tax collection, & control inflation Then O-I-L came to the rescue!

Mexico turns to Oil Between Mexico was transformed into a major oil exporter Oil prices rose by $20 a barrel in 3 years Monoculture of oil – dependent on oil prices (77% of exports) U.S. raised interest rates- Mexican wealthy moved $ out – creditors demanded repayment

Economic Crisis (1980’s) Faith in ISI was destroyed Bankruptcy and recession took their toll Unions lost their bargaining power Cuts in government subsidies followed Wage value dropped 40-50% High unemployment rates Mexico City earthquakes (1985) – political empowerment grew as people realized they could solve their own problems without government involvement – political competition followed

Structural Reforms & NAFTA Free-market policies were put in place weakening dependency of industry on gov Deregulation = economic freedom Privatization of government industries Financial sector reforms led to new banks, brokerage firms, and insurance companies “New Federalism” – decentralization NAFTA – stronger links to American Eco

Society & Economy Overall standard of living has improved Middle class lifestyle – 1/3 of pop (1980’s) Mexico trails neighbors in some standard indicators of social development Rapid industrialization has led to pollution concerns (Mexico City) and environmental damage (oil exploitation) Widening gap between wealthy and poor (Two Mexico’s) Rural inhabitants suffer (Chiapas uprising) North – South differences Social conditions – wages ↓, unemployment ↑, informal sector ↑ Education and Health Care adversely affected Since 1990’s some gains have been made but much of these concerns continue

Mexico in Global Economy Mexico encouraged foreign investment (land ownership & easing of restrictions) Joined General Agreement on Tariffs and Trade (GATT) – promote free trade →WTO NAFTA - Mexico-U.S. integration – 89% of Mexican exports to U.S. and 74% of imports NAFTA risks – competition, loss of sovereignty, impact of U.S. economy’s ups and downs, “cultural imperialism” U.S. eco assistance package paid off by 1998 Globalization has forced Mexico to be transparent politically – Economic information has become more accessible through the internet, cheaper phone rates,