Would the Left Be Better for Mexico?

Americans should be skeptical of their politicians’ hostility to the political changes sweeping Latin America.

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Article created by The Center for Economic and Policy Research.

With the news Thursday that conservative Felipe Calderón was declared the winner in Mexico’s presidential election, the leaders of the U.S. foreign-policy establishment no doubt quietly toasted their good fortune. After several years of fretting over a leftward shift in Latin American countries, U.S. business and political leaders were probably thrilled that the status quo had, for now, held in our neighbor to the south.

The results, of course, were still in dispute. As of publication time Friday night, left-of-center candidate Andrés Manuel López Obrador was vowing to challenge the win in court, alleging fraud and demanding a recount of the ballots. According to the government’s tally, López Obrador, a former Mexico City mayor who presented himself as a champion of the poor, lost the presidency by about half a percentage point in Mexico’s closest presidential race ever.

Given Mexico’s long history of electoral fraud and the razor-thin margin separating the candidates, López Obrador’s demand for a recount will probably resonate with many Mexicans.

But even if Calderón were to win, that is not necessarily good news for most people in Mexico or the United States. While Calderón is expected to be friendly to U.S. businesses, he is unlikely to resolve the economic problems that are keeping nearly half of Mexicans in poverty — and driving their emigration to the United States.

Mexico’s most pressing economic problem is to restore economic growth. Like the region as a whole, the country has suffered a profound economic growth failure over the past 25 years. From 2000-2005, Mexico’s income per person — the most basic number that economists use to measure economic progress — grew only 2 percent. From 1980 to 2000, it grew just 15 percent. If we compare this to the 1960-1980 period, when income per person grew 99 percent, it is easy to see that this last quarter-century is a failure of disastrous proportions.

Supporters of Mexico’s current economic policies point to the North American Free Trade Agreement as a success, but the country’s average annual growth since NAFTA was implemented in 1994 — again looking at income per person — has only been about one-third of its pre-1980 growth rate. This is in spite of the fact that foreign direct investment increased from $4.4 billion in 1993 to a peak of $22.7 billion in 2001, and Mexico’s exports nearly doubled as a percent of GDP, from 16.8 percent to 29.9 percent, from 1994-2005.

If Mexico had simply continued to grow at its pre-1980 rate, the country would have about the same per-capita income now as Spain. There would not be millions of Mexicans willing to take the risks of illegal immigration to the United States for a wage that would not be much higher than what they could get back home.

Calderón promises to continue the policies of the past, including making the country more attractive to foreign investors. But as we have seen, this by itself does not necessarily lead to growth. A Calderón government would also continue the current monetary policy, which targets a low inflation rate but is too willing to sacrifice growth in order to achieve very low levels of inflation.

And current fiscal policies may be too tight when the Mexican economy slows. The United States, for example, reversed our budget surplus in 2000 and moved hundreds of billions of dollars into deficit in order to stimulate the recovery from our recession of 2001.

López Obrador, by contrast, has recognized the failure of past policies and proposes to have the government play a more active role in stimulating growth and job creation by, for instance, undertaking large transportation projects.

López Obrador has also proposed a stipend for the elderly and universal health care to help the poor. And he has said he will renegotiate parts of NAFTA that have hurt millions of rural Mexicans by flooding Mexico’s markets with subsidized U.S. corn and other food crops.

Mexico’s long-term economic failure mirrors the same phenomenon in the region.

The past 25 years have been so exceptionally bad in terms of economic growth for Latin America that in order to find anything comparable, one has to go back more than 100 years, and pick a period that includes both World War I and the start of the Great Depression. This is the main reason for the widespread poverty in the region, and for the continuing revolts at the ballot box, and sometimes in the streets.

The past 25 years have also seen the implementation of a number of economic reforms in the region, some of them implemented during the Latin American debt crisis in the 1980s. The reforms included: an indiscriminate opening up to international trade and investment flows; privatization of public enterprises; higher interest rates set by central banks that are less accountable to elected governments; tighter fiscal policies; and the abandonment by governments of overall industrial policies or development strategies.

These reforms are often described as “neoliberalism” in Latin America, or “the Washington consensus,” since they were strongly backed by the United States.

Voters in Latin America have increasingly concluded that these reforms have had something to do with the region’s unprecedented economic failure. If López Obrador were to win Mexico’s election after a recount, he would become the seventh Latin American presidential candidate in the past eight years to challenge the “Washington consensus” on economic policy and win. The others were in Argentina, Brazil, Bolivia, Ecuador, Uruguay and Venezuela.

But Washington’s stated fears that these electoral revolts would lead to economic disaster have proved unfounded. Instead, they have produced left and populist governments, most of which are doing quite well.

In Argentina, for example, President Nestor Kirchner was elected in 2003 after the economy had collapsed under a succession of IMF (International Monetary Fund) and Washington-backed programs. He had an unprecedented battle with the International Monetary Fund and foreign creditors and owners, but stuck to a number of economic policies that Washington economists predicted would lead to ruin. For example, the Argentine government rebuffed pressure to pay back most of its $100 billion foreign debt and targeted a stable and competitive exchange rate instead of just inflation.

The economy has grown at about 9 percent annually for more than three years, pulling 8 million people (more than 20 percent of the population) across the poverty line.

In Bolivia, the leftist indigenous leader Evo Morales was elected in December with a strong mandate to improve the condition of the country’s poor and mostly indigenous majority. The government has announced an ambitious land reform to redistribute an area the size of Greece to about a quarter of the population.

So far, the economy appears to be holding up. The government raised the royalties it charges foreign oil and gas companies, increasing government revenue from the country’s natural gas by about 3.4 percent of GDP — an amount equivalent to most of our federal budget deficit in the United States. On May 1, the government also renationalized the gas industry and is negotiating terms with gas producers that will further increase the government’s revenue. So far, no major gas producers have left the country. The government also seems committed to keeping its promises to the poor.

And then there’s Venezuela, which gets mostly bad press here. President Hugo Chávez has a running war of words with President Bush — mostly as a result of the Bush administration’s support for a military coup that briefly ousted the Venezuelan leader in 2002 and other efforts at “regime change” against this democratically elected government.

Despite bad relations with the United States, Venezuela is tied with Argentina for the fastest-growing economy in the hemisphere. In addition, the majority of the population — mostly poor people who never before shared in the country’s oil wealth — has free health care for the first time. They also have subsidized food and greatly increased access to education.

Some think that Venezuela’s current economic boom is a result only of high oil prices, but the country had high oil prices in the past and the poor never shared in the windfall. Furthermore, Venezuela’s per capita income actually declined in the 1970s despite very high oil prices.

Given those economic realities, Americans should be extremely skeptical of their politicians’ and pundits’ hostility to the political changes sweeping Latin America. Much of it is based on ideology and a desire to maintain Washington’s influence in the region. But most people on both sides of our southern border will be better off as Latin America becomes more politically independent and finds new ways to restore economic growth.


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