Today's date:
Fall-Winter 1984-1985

Mexico and the United States - On a Collision Course?

In the following article, adapted from an address delivered at the Symposium on Orozco and the Mexican Revolution at Dartmouth College in October, Wayne Cornelius makes a convincing case that US relations with Mexico ought to be at the top of our foreign policy agenda.

By Wayne Cornelius Director of the Center for U.S.-Mexican Studies at the University of California, San Diego

Domestic problems and policy choices in both Mexico and the United States have placed the two countries on a collision course. In the U. S. these policy choices have already produced a shift in public attitudes and official responses to developments in Mexico, from a general posture of "benign neglect" to one of "unilateral protectionism" coupled with a renewed interventionist impulse.

During the past 150 years, U.S.-Mexican relations have been marked by brief interludes of close cooperation (the period of the U. S. Civil War and the French intervention in Mexico; the World War 11 era), within a long-term framework of mutual disdain and conflict. Nevertheless, in the three decades following 1940, there were no serious disputes between Mexico and the United States which could not be resolved - or at least managed - through conventional diplomatic and political mechanisms. This was the era of the so-called "special relationship" between Mexico and the U. S.

All that has changed during the last 15 years. The Mexican economic crises of 1975-76 and 1982-84, coupled with reverses suffered by the U. S. at home and abroad, have significantly raised the level of tension and suspicion in U.S.-Mexican relations.

The health of the entire U. S. financial system now seems threatened by Mexico's insolvency and inability to service its $96 billion foreign debt. Illegal entries by Mexicans seeking work in the U. S. have increased by more than 40%. The apparent end to Mexico's long-running "economic miracle" even after the discovery of massive new oil reserves provoked widespread skepticism in the U. S. about the capacity of Mexico's economy to absorb the current and future generation of Mexican workers into productive employment that offers a viable alternative to employment in the United States.

Combined with these problems, Mexico's defense of revolutionary regimes and movements in Central America has raised doubts among U. S. officials concerning Mexico's political stability and the capacity of Mexican leaders to behave in ways which would not damage vital U. S. economic and security interests.

There will be powerful forces and sentiments on both sides of the border which will resist further fusion of the two countries as an unacceptable encroachment on national cultures, economies and political systems. In this context, the burning issue will be how to prevent major confrontations and punitive policy responses between two systems which are intertwined and interpenetrated to an extraordinary degree, but which mutually resent and reject such interdependence.

These are long-term structural problems deeply rooted in the political economies of Mexico and the United States, as well as the changing realities of the international economy in which both countries must operate. The web of interdependence fashioned through millions of personal, commercial, financial, and cultural exchanges remains intact, and growing; but in the forseeable future such ties will not prevent Mexico and the U. S. from pursuing public policies which are increasingly inconsistent in their objectives and damaging to the interests of significant segments of each society.

The Immigration Question

There is no issue that better illustrates this than illegal immigration.

The U.S. public and most officials see virtually all the benefits accruing to Mexico (which gets a "safety valve" for its surplus population as well as cash remittances from its workers employed in the U. S.) while the costs are borne by disadvantaged U.S.-born workers (whose jobs are taken away by undocumented Mexicans) and by middle-class taxpayers (who must pay for public assistance provided both to displaced citizen workers and, they believe, to undocumented families as well). Mexicans stress the subsidy to U. S. consumers and to federal government programs such as Social Security which is paid by undocumented immigrants.

The truth is that, in both countries, the economic benefits outweigh the costs. The jobs of many thousands of U.S.-born workers in the Southwest and Midwest are being protected by a buffer of small, immigrant-dominated firms. It is the clustering of immigrant workers in the small, lower-tier firms that protects existing, higher-paying, often union jobs. As international competitive pressures increase, many of these upper-tier jobs now held by U.S.-born workers would otherwise be moved off-shore or eliminated altogether through automation.

Moreover, due to the depressed birthrate in the US since the early 1960s, the pool of U.S.-born workers available to fill low-skilled jobs in the US economy will shrink drastically in the last half of the 1980s and the 1990s, while the U. S. economy continues to create large numbers of low-skilled jobs (especially in the service sector).

These important complementarities are virtually absent from the public debate over Mexican immigration.

Instead, the predominance of Mexicans and other Spanish speakers is viewed by most Americans as being the bearers of a language, a culture, and a set of social and political values which are undesirable. Thus, the current wave of immigration is viewed by many people as a direct threat to the dominant culture of the United States. Only when the U.S.-Mexico complementarities in labor demand and supply become more visible can we expect any dimunition of U. S. public concern about Mexican immigration.

Mexico's Economic Crisis and its Aftermath
Mexico's "oil bust" and the severe economic crisis which followed exposed more dramatically than any previous recession the weaknesses of Mexico's post-1940 development strategy as well as Mexico's extreme vulnerability to external economic shocks. While the government claims to have created more than 4 million new jobs during this period of fast-track, oil-based development (GDP grew in real terms at an annual average of 8% from 1978 to 1981), the economic contraction of 1982 to the present has wiped out most of these new jobs, and by 1983 real wages for the working-class population had declined to the level of 1966.
Oil export revenues in the next few years will total about $16 billion per year (barring any further price declines on world oil markets). but nearly 70% of that income - $11 billion per year - will be consumed by interest payments on Mexico's $96 billion foreign debt. Additional billions in foreign exchange must be used to purchase basic foodstuffs (mostly from the U. S.), to meet the persistent shortfall in Mexico's agricultural production.

Oil, which was supposed to be Mexico's ticket to economic independence from the United States - perversely ended up deepening Mexican dependence and increasing Mexican vulnerability to economic problems (e.g., high interest rates exported from the United States.

The de La Madrid government's strategy for economic recovery and future development rests heavily upon the stimulation of manufactured exports. With prices and demand for Mexico's primary product exports (mostly oil, some agricultural products) likely to remain flat or decline in the forseeable future, this is the only way for Mexico to earn enough foreign exchange to service its external debt and finance imports that are essential to industrial growth. But the success of this manufactured export-led recovery strategy will depend upon continued strong growth of the U. S. consumer markets than protectionist forces in the United States have been willing to grant.

Herein lies one of the most vexing conflicts of interest between Mexico and the United States in the 1980s. Fueled by a massive increase in the U. S. trade deficit (an estimated $130 billion for all of 1984, rising to $135 billion in 1985), and the hundreds of thousands of lost U. S. jobs reflected in these statistics, protectionism is on the rise in the United States.

The openness of the U.S. economy to Mexican and other Third World imports will probably decline in the years to come, thereby limiting the expansion of U.S.-Mexico trade which is essential to a renewal of economic growth and job creation in Mexico.

This points up a fundamental dilemma confronting policy-makers in both countries. Most economists contend that future expansion in the U. S. and Mexico will require extensive restructuring of both economies. In the U. S., traditional industries will perish and be replaced by more modern, higher-technology enterprises. On the Mexican side, major technological innovation as well as a gradual withdrawal of government subsidies and tariffs for inefficient industries will be needed to boost productivity and international competitiveness. These structural changes will be painful, resisted by powerful interest groups, and in some cases labor-displacing (at least in the short-term).

Foreign observers have pointed out than an "open economy" may be the price that Mexico may have to pay in order to achieve socially acceptable rates of economic growth and job creation; but the strengthening of the alliance between the Mexican state and foreign capital is certain to generate additional political tensions within Mexico as well as increased friction with the United States.

Mexico's Political Stability
Mexico's economic crisis of the 1980s and the harsh austerity measures adopted by the government to deal with it raised concerns in the United States about the possible breakdown of the Mexican political system.
In late September, 1982, 35 U. S. Congressmen sent a letter to President Reagan noting with alarm the "growing instability of Mexico that may lead to a communist takeover of the government unless the United States takes 'appropriate action' to ensure that ... President Miguel de La Madrid does not continue the socialistic program carried out by the previous two administrations."

Congressional testimony during 1984 by General Paul Gorman, commander of U. S. military forces in the Central American region, and other statements suggest that at least some elements of the U. S. military and foreign intelligence community share a view that the Mexican political system is little more than a corrupt dictatorship, led by men who are incompetent even to run their own country, let alone take a responsible position on the conflicts in Central America. In late September, 1984, the New York Times reported that the Central Intelligence Agency's senior analyst for Latin America had resigned in protest when CIA Director William Casey insisted that he rewrite a report on the Mexican situation to stress the potential for political destabilization.

The tendency to define "the Mexican stability question" as a U. S. national security problem has been evident since the last two years of the Echeverria administration in Mexico (11975-76), when an economic crisis far less severe than the current one provoked large-scale capital flight and rumors of a military coup. The virtual collapse of the Mexican economy in 1982 and the nationalization of the country's banks by outgoing President Jose Lopez Portillo in September of that year were taken by some observers as proof of a dangerously unstable regime in Mexico, and by others as evidence of a radical policy shift in Mexico toward socialism.

A Crisis in the Development Model
All three of Mexico's most recent presidents - not just Miguel de La Madrid - inherited a political system under seige. Echeverria and Lopez-Portillo managed to deal with the immediate political and economic challenges which faced them upon entering office, but by the last year of their terms both had apparently lost control over government spending, private capital was fleeing the country, the peso's value was plummeting, and rumors of a military coup or some other interruption of constitutional processes spread through the country.
What lay behind this inability to govern is what Carlos Tello, a former budget minister and head of the central bank, has called "a crisis in Mexico's style of development and an exhaustion of its model of economic growth that has been unable to resolve the country's vast social inequality." According to Tello, these include the unproductive agricultural sector; the bias of industry toward durable consumer goods; the poverty and unemployment, or "economic marginality", of large segments of the urban and rural population: the premature expansion of the service sector and the limitations on foreign exchange. He argues that what is needed is a "thorough-going restructuring of the relations between the State and society".

Most members of the U. S. political and economic establishment seem unwilling to engage in such fundamental questioning of the structural inadequacies of Mexico's post-1940 development model. Instead, the Mexicans fear, the U. S. will be tempted to take advantage of this situation to turn Mexico into a virtual ward of the U. S., denying the need for structural changes to correct imbalances in the Mexican economy and society, and rejecting the legitimacy and domestic political importance of a Mexican foreign policy that is independent of Washington.

The Future
The de La Madrid administration, in its last three years of office, is unlikely to have the political capital and financial resources necessary to satisfy demands for sweeping redistribution of wealth. But the administration may try to create a safety valve for popular frustrations by expanding the 1, opening" of the electoral system which was begun in 1977 and continued (but only for six months) during de La Madrid's first year in office. Other "symbolic outputs" of the political system (de La Madrid's 'moral renovation' campaign against corruption in government, a crackdown on human rights violations committed by police) will probably be stepped up. It will be left to de La Madrid's successor to launch a serious attack on the fundamental problem of social inequality in Mexico, which has not only been building since 1940, but which has been exacerbated by the highly uneven development of the "oil bonanza" period.
Most independent analysts of modern Mexico concur that this problem must be addressed forthrightly and effectively by future Mexican governments, if serious social disorders and militarization of the political system are to be prevented. But precisely because a frontal attack on the problems of inequality, poverty and unemployment will require a fundamental shift in Mexico's development strategy, such a course will undoubtedly be feared and resisted by both domestic economic elites and foreign actors - including the United States government and many elements in the international business and financial community. Renewed capital flight, on a large scale, would be almost inevitable. Domestic opponents of the policy shift would find considerable support abroad. The U. S. government could hardly ignore the situation, and there would be strong interventionist pressures.

Business-as-usual in Mexico during this period will not be socially tolerable nor politically sustainable, regardless of the political management skills of the Mexican incumbents. If serious conflict in U. S. relations with Mexico is to be averted, major policy departures from the status quo in Mexico must become politically acceptable in the United States.

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