Blum – Mexico’s economic growth and the future of immigration

Roberto Blum, CIDAC
Regional Meeting of The Philadelphia Society
Los Angeles, October 16, 1999

Mexico’s economic growth and the future of immigration

Mexico and California share a common future. Mexico will not go away and
California will not become an "island state" anytime in the near future. Both
share common interests. California needs a wealthy and stable neighbor to the
south. Mexico needs all the help it can get to achieve sustainable economic
growth and social development

Mexico’s conundrum is Mexico’s dismal growth. Mexico’s economy is not
growing fast enough to accommodate its growing population. Since the early
1980’s, 16 million Mexicans have not found jobs in the formal economy. The
Mexican economy has grown barely 2% per year in average since the early
1980’s. Now some 50% of Mexicans work in the shadow economy.

Mexico will reach the 100 million inhabitants mark in the year 2000. By the year
2018, there will be some 130 million Mexicans. These growing numbers,
coupled with insufficient economic growth, will increase immigration — legal and
illegal — to the United States. Continued dismal economic growth in Mexico will
produce some very unsavory side effects: increased political instability,
increased drug trafficking, increasing public health hazards and epidemics,
increasing deterioration of the ecology, air and water pollution, desertification
and land erosion.

The Mexican economy will not grow at the necessary rates if Mexico’s present
political system is not overhauled. Corruption is ingrained into the system.
Rent-seeking structures and groups are at the basis of the whole political
system. Needed institutional reforms cannot be achieved under the existing
political system.

Mexico’s political system

Plutarco Elias Calles, president from1924 to1928, created Mexico’s current
political system in 1929. The assassination of president, recently reelected,
Alvaro Obregón in July 1928 detonated the creation of the "1929 compact"
among the revolutionary leaders. They realized the need of "sharing the spoils"
in a peaceful manner. Calles would become the "Jefe Máximo" but would
forsake reelection forever. The revolutionary leaders would form an orderly
queue to achieve power and share the spoils. Political conflicts inside the
"family" would be resolved peacefully. The "Jefe Máximo" (cappo di cappi)
would have the last word in solving conflicts.

From the 1940’s to the early 1970’s the political system achieved a stable
equilibrium.
During this period, the Mexican economy achieved an acceptable rate of growth
(around 6% per year). By the mid 60’s, the first signs of trouble began to
appear.

The political system and the Mexican economy

The agricultural sector showed grave distress signs after 1965 with increasing
fluctuations in agricultural production andiIncreasing migration of peasants to
towns and cities. In 1968 student unrest broke out. The government quelled it
violently. The "1929 compact" began to break down. By 1971, president Luis
Echeverría decided to solve the increasing political problems by distributing
money to the different interest groups.Economic stability began to fail. Inflation
rose from 3.5% per year in 1971 to 15.7% in 1973 and remained in the middle
teens till late 1976 when it surged rapidly. The foreign debt increased fivefold.
The peso was devalued from 12.5 to 22.5

President López Portillo (1976-1982) used the newly discovered oil wealth to
finance an aggressive development scheme, however, public corruption
increased rapidly. The public foreign debt quadrupled to 80 billion dollars. The
peso was devalued from 22.5 to 150.
Growth averaged 6.5% per year during the sexenio. President de la Madrid
(1982-88) began to restructure the Mexican economy.

By 1986 the economy was opened through the GATT agreement. The foreign
debt was restructured. Inflation reached 157% in 1987. Growth averaged barely
0.8% per year.
President Salinas (1988-1994) promoted a deep structural reform of the
Mexican economy. Inflation was reduced to 6% in 1994. Privatization of state
enterprises was speeded up. The banking system was privatized. Growth
reached an average of 2.7%/year.
Salinas failed to reform the political system.

The Zedillo years

Ernesto Zedillo became president after winning the cleanest and most
transparent elections since 1911. Zedillo won with 17 million votes (50.1%). His
candidacy was the result of Luis Donaldo Colosio’s assassination in March
1994. Zedillo was an unwilling candidate and was not prepared to become
president of Mexico

Zedillo was highly regarded. Ernesto Zedillo was an able technocrat. His
achievements in the Bank of Mexico and the Budget Secretariat were widely
known. As secretary of Education his lack of political savvy began to appear.
He was considered an honest and incorruptible person.

The "December mistakes"

The Zedillo administration began by committing some serious economic and
political mistakes. His initial cabinet was weak and inexperienced. Jaime Serra,
Treasury left 28 days after inauguration; Fausto Alzati, Education, was sacked
after 53 days; Esteban Moctezuma, Interior, left after just 6 months. The peso
was devalued just 19 days after Zedillo was inaugurated. The administration did
not take any effective actions for 3 months and the Mexican economy plunged.
In 1995 Mexico’s GDP fell 7%. In 1996 it began to recover. By 2000 the
Mexican economy will have grown an average of only 2.6% per year.

The "break" with Salinas

Zedillo blamed the Salinas administration for the economy’s woes. To achieve a
clean and definitive "break" with Salinas, Zedillo allowed for Raul Salinas’
incarceration on murder charges. With this, Zedillo broke a key rule in the PRI’s
compact: never to touch a former president or his immediate family.

Zedillo’s reforms

Zedillo successfully reformed the pensions system, got Congress’ approval for
Fobaproa,
advanced the independence of the Federal Electoral Institute, privatized
railroads & sea ports, but he has failed on the privatization of the petrochemical
sector and probably will fail on that of the electric company.

Politics under Zedillo have become more complex and elections have become
competitive.
The PAN and the PRD effectively challenge the PRI in 2/3 of Mexico’s states
and opposition parties govern 3 out of every 5 Mexicans. Zedillo’s relations
with his party have caused havoc inside the PRI. The PRI is undergoing a rank
and file rebellion. The "revolutionary family’s" compact has broken down under
Zedillo:
Zedillo did not enforce the "monopoly of power" clause
Zedillo did not "protect the former president or his close family" clause
Zedillo has not allowed "the family" to benefit of the spoil system
Zedillo has not acted as the "supreme arbiter" in Mexican politics

Mexico’s political system has changed but paradoxically, remains the same.
Mexico now has 3 competitive parties (PAN, PRI and PRD) and the PRI has
lost its former hegemony, but the system remains a "spoils system." Public and
transparent financing of the political parties helped the PRD, hurt the PRI and
transformed the nature of the PAN. Mexico’s politics is fast becoming local.
Extreme centralization is giving way to extreme regionalism. The North Border
Region is growing and undergoing "democratization" and the Gulf Border
Region, while also growing, is maintaining "traditional priísta" hold on power.
The South Central Region is consistently becoming more chaotic

Towards the year 2000 and beyond

The PRI is losing votes and it now commands only some 45% of votes. The
PRD is generally (but falsely) perceived as the winner in the 1998 and this year’s
elections (in fact it is in 3rd. place). The PAN is perceived as the "great loser."
It got some 28% of the votes and Vicente Fox is ahead in most polls.

Zedillo’s power to appoint his successor is being challenged inside the PRI.
Local successful politicians are no longer willing to submit to the president. If
Zedillo appoints a candidate, the PRI will become seriously divided. A divided
PRI will probably lose the 2000 presidential election and a divided PRI will
pose a serious threat of national violence

The year 2000 elections
Political violence among the various priístas groups is not any longer
inconceivable. The priísta compact has broken down, therefore, any and all
means can be used: dirty tricks and character assassination, political
assassinations, local groups support for "guerrillas" and terrorism, and the use
of army and drug traffickers as executors of political violence.

Scenarios for Mexico after 2000

Whether the PRI wins or loses the election, Mexico and the U.S. will face
difficult times
Growing immigration will continue to flow North. Drug trafficking will continue
to be a problem until the U.S. legalizes drug use. Mexico will become more
decentralized and unpredictable. No individual or institution will be able to take
important decisions by itself.
Decision making processes will be slower and paralysis in government may
seem to happen.

If the PRI wins the election, then reversal of some "neoliberal" policies may
happen. The new government will have to make a clear "break" with Zedillo and
the Mexican economy will suffer. The North border region will not accept such
developments and a gradual de facto "secession" will begin.

If the PRD wins the election, a more radical but symbolic reversal of Zedillo’s
policies will take place. The Gulf border region governors will take steps to
secede and the North border region will accelerate its de facto secession.
Groups of discontented priístas will try to topple the PRD government amd
some kind of coup d’etat may happen

If the PAN wins the election, PRI and PRD will make trouble for the new
government. An analogous scenario to the previous would develop. The key to
avoid the worse scenarios seems to be the political ability and the personality of
the individual who will win the presidency.

Conclusions

Mexico’s future is uncertain. California’s self interest coincides with a stable
and growing Mexico. Local politics in Mexico will become more and more
important as decentralization takes effect. A Californian attitude of openness to
Mexican immigration will help both parties in the near future.