1
10
How Countries Globalize: The Variable Roles of Political and Economic
Elites
Malcolm Fairbrother
Introduction
Two key aspects of economic globalization - the growth of international trade and direct
investment as shares of economic production - have been fostered primarily by neoliberal
public policy changes, often in the form of new international agreements. Existing
research has identified two main actors driving these free market policy shifts: political
and economic elites. In other words, the circumstances, preferences, and behaviours of
elected politicians, unelected rulers, bureaucrats, and the owners and top managers of
private firms have figured large in explanations of the recent rise of globalization and
neoliberal international agreements.
While agreeing about the centrality of these actors, this chapter argues that the existing
literature has not acknowledged key differences in how they have contributed to proglobalization policy changes in different countries. This oversight has been a function of
the research designs used to study these policy changes. Many studies have examined
single country cases (Chorev 2007; Dreiling 2001; McBride 2001). Others have
compared a small number either of developed countries (Campbell and Pedersen 2001) or
developing countries (Haggard and Kaufman 1992; Teichman 2001). Some research has
attempted to cover the whole world or a large sample of countries at once, through largeN statistical analyses (Simmons and Elkins 2004), more theoretical discussions (Harvey
2
2005; Sklair 1995), or studies of international institutions (Woods 2006). But there has
been almost no research based on qualitative comparisons of First and Third World cases.
This chapter, in contrast, will use precisely this approach to examine the distinction
between globalization processes in the Global North and South.1
Reviews of the literature on developing countries’ pro-globalization policy changes have
remarked on the lack of initiative taken by domestic business (Haggard and Kaufman
1992; Ravenhill 2004). In contrast, studies of pro-globalization policy changes in
developed countries have specifically emphasized the influence of business mobilization
(on European integration, see Van Apeldoorn 2002). Yet neither set of arguments has
specified clear scope limits: the bounded range of countries for which each set of
arguments applies. And the distinction challenges existing explanations of why
globalization has happened, especially those that have generalized across the whole world
at once and have thereby implied that pro-globalization policy changes have unfolded
similarly everywhere. Just as Carroll’s contribution to this volume demonstrates enduring
national segmentation in the organization of global capitalism, the analysis here
illuminates national specificities in its formation.
Empirically, the chapter uses the case of North American free trade - that is, the
establishment of the 1989 bilateral Canada--U.S. free trade agreement (CUFTA) and the
1994 trilateral (Mexico, U.S., Canada) North American Free Trade Agreement
To avoid repetitiveness, given the focus of the chapter, I will use the terms developed, First World, and
global North interchangeably, and the terms developing, Third World, and global South interchangeably.
1
3
(NAFTA).2 For the purposes of this chapter, NAFTA’s usefulness lies in its spanning the
global North and South, permitting a comparison of the two contexts. North American
free trade also warrants consideration insofar as its establishment led to substantial
economic transformations in the three economies involved. Figure 1 illustrates how trade
as a share of total production expanded substantially for Canada and Mexico, and to a
lesser extent for the United States, as a result of CUFTA and NAFTA.
The first part of the chapter will describe the different roles of economic and political
elites in the three countries’ pathways to North American free trade. The second will
discuss three likely reasons for the systematic difference between developing and
2
The bilateral CUFTA was subsumed under the trilateral NAFTA when the latter went into effect.
4
developed countries. First, I argue that a country’s level of development shapes its private
sector’s policy preferences with respect to globalization. Second, a lower level of
development makes a country more likely to suffer an economic crisis and become
dependent on foreign creditors and the major international financial institutions (IFIs).
And third, a country’s level of development conditions the character of domestic state-capital relations generally, including the balance of power between public and private
elites.
The empirical claims made in this article rest on three types of data: first, 114 semistructured interviews conducted by the author, mostly with political and economic elites;
second, a range of documentary evidence (government and interest group publications,
transcripts of legislative debates, public opinion data, news accounts); third, the large
existing research and policy literature on CUFTA, NAFTA, and these countries’
neoliberal policy changes in the 1980s and 90s more generally.3
The Case of North American Free Trade: Three Pathways to Globalization
This section describes the three distinct pathways by which Canada, Mexico, and the U.S.
arrived at North American free trade. In the late 1970s, the U.S. was the first country of
the three to support the idea of continental free trade. At that time, however, both the
Using these three distinct sources allowed me to cross-check the validity of my claims. Interviewees (37
Canadians, 39 Mexicans, and 38 Americans) spoke to me on condition that their names would not be
connected to specific quotations or statements, but a full list of their names and positions is available from
the author. I use the interview data sparingly, given the chapter’s focus on macro-processes and very large
collective actors (largely states and national business communities) rather than micro-processes and
individual people. Interviewees were politicians, bureaucrats, diplomats, business leaders, business
association staff, legislative staff, academics, and various kinds of critics of North American free trade.
3
5
Mexican and Canadian governments, with the support of their respective private sectors,
made it clear that they were opposed to the idea and not interested in discussing it.4 To
variable extents, both countries had been restraining their economic integration with the
U.S. for decades. The subsequent establishment of a North American free trade zone was
therefore a much clearer policy reversal for Canada and Mexico than for the U.S.
Nevertheless, Canada’s pathway subsequently became more like that of the U.S. In both
the U.S. and Canada, when North American free trade became a publicly contentious
issue and its political viability was in question, business played a substantial role in
organizing societal consent. In contrast, in Mexico, business was more ambivalent and
less active in publicly promoting free trade. Furthermore, the Canadian state’s support for
free trade followed from changes in the policy preferences of the country’s major
business associations. In Mexico, in contrast, the state proposed NAFTA without much
consultation with the private sector, and with much less previous mobilization by capital.
In that sense, the Mexican case is one of state-driven globalization, while Canada’s is one
of business-driven globalization. The U.S. pathway embodied policy continuity - since
the U.S. had long advocated deeper regional integration, with strong support from capital.
Figure 2 summarizes these key distinctions and similarities among the three countries’
pathways.
See Cook 1981; ‘Mexico rejects Reagan’s plan for a North American common market’, The Wall Street
Journal, 27 May 1980.
4
6
United States
Though strong and specific proposals only emerged in the late 1970s, the U.S. had long
advocated more economic integration than its neighbours wanted. That was true at the
global level as well, the U.S. being the world’s primary advocate of international
economic liberalism in the post-World War II period (Krasner 1977). The first explicit
and high-profile references to the idea of intensifying North American economic
integration emerged in 1979, from early contenders for both the Democratic and
Republican nominations for U.S. president. Most notably, Ronald Reagan discussed the
idea of a ‘North American accord’ at some length in the speech formally announcing his
intention to seek the Republican nomination (on 13 November 1979).5 As discussed
above, the Canadian and Mexican governments of the time released a joint statement
expressing their mutual opposition to ‘current informal proposals for trilateral economic
cooperation among Canada, Mexico and the United States’ (Weintraub 1984: 183). Given
this initial reception, in subsequent years U.S. politicians, officials, and businesspeople
The U.S. Trade Agreements Act of 1979 also directed the president to ‘study the desirability of entering
into trade agreements with countries in the northern portion of the western hemisphere’ and report back to
the appropriate congressional committees (USITC 1981: 1). In early 1980, the U.S. National Governors
Association called for trinational talks on the formation of a North American common market. (Globe and
Mail, 27 February 1980, p.12, ‘U.S. governors call for forum on common market possibility’, Associated
Press)
5
7
spoke little of North American integration, while they waited for Canada and Mexico to
change their stances on the idea. When Canada (in 1985) and Mexico (in 1990) did
eventually change their views, the U.S. state and private sector were quick to embrace
them.
Support for North American free trade was a consistently uncontroversial policy within
the U.S. federal executive branch. Approval for NAFTA, however, was much more
contentious. Unlike in Canada and Mexico, the U.S. executive could not count on the
automatic support of the legislative branch.6 Given the opportunity to defeat NAFTA in
the U.S., opponents of the agreement from all three countries - including organized
labour, environmentalists, family farm organizations, and Third World development
NGOs - concentrated their efforts in Washington DC (Kay 2005).7 This challenge in turn
prompted a concerted effort on the part of U.S. business to win the ratification vote. A
corporate coalition called USA*NAFTA, largely organized by the Business Roundtable
(an association of CEOs from large firms), promoted NAFTA to the U.S. public and to
legislators (Dreiling 2001; Rupert 2000). The available evidence confirms that American
business, particularly large associations like the U.S. Chamber of Commerce and the
National Association of Manufacturers, devoted substantial resources to promoting the
agreement (Center for Public Integrity 1993; Dreiling 2001). Without this strong, active
Canada’s parliamentary system and its tradition of party discipline meant that a majority government in
that country could count on support in the legislature. Mexico, at the time of NAFTA’s creation, was
governed by a dominant party with strong majorities in both houses of the federal congress. In that country,
like in Canada, legislators from the governing party were sure to vote with the executive branch. In the
U.S., in contrast, low party discipline and the greater autonomy of the legislative branch meant that the
president could not count on support even from legislators belonging to his own party.
7
In each country, opposition to continental integration sometimes took on a nationalist character—
complicating efforts to build transnational solidarity. There were even some strongly right-wing opponents
of NAFTA in the U.S. (Rupert 2000), unlike in Canada and Mexico.
6
8
support by both specific industries and encompassing business associations, NAFTA
might well have been defeated by federal U.S. legislators under pressure from labour and
a range of civil society groups.8 As one U.S. business association interviewee put it:
‘That water was carried by the business community. It wasn’t the Clinton Administration
who got it done, it was the American business community that got it done. Because it
boiled down to a bare-knuckle fistfight between labour, environment, and business.’9
Business representatives also participated extensively in the formulation of U.S.
objectives for the CUFTA and NAFTA negotiations. On the one hand, that participation
led American officials to push for the inclusion of disciplines on investment and
intellectual property (Cameron and Tomlin 2000). A U.S. business association
interviewee explained that American businesspeople ‘didn’t want Mexico to backslide on
any of the openness and liberalization efforts that [Mexico had already adopted]. Mostly
on investment, but also in terms of trade openness. And they wanted to get better
protection on IPR [intellectual property rights], and better protection on investment.’
Without such pressure from large U.S. firms, and the willingness of U.S. officials to
represent them internationally, the controversial investment and intellectual property
provisions in NAFTA would never have come to be.10
The AFL-CIO, the major U.S. labour confederation, campaigned vigorously against NAFTA. Three
hundred grassroots environmental organizations and public interest groups expressed their opposition to
NAFTA (Hogenboom 1998: 221). And earlier the same year, Public Citizen, Friends of the Earth, and the
Sierra Club had tried to stall NAFTA’s ratification with a legal challenge saying the U.S. government was
obliged to prepare an environmental impact assessment before NAFTA could be sent to the congress for
approval.
9
The Bush Administration negotiated NAFTA (between 1990 and 1992), but it was the Clinton
Administration that promoted its congressional approval in 1993.
10
Some scholars have criticized the strict intellectual property rights included in agreements like NAFTA
as costly burdens on developing countries (Shadlen 2005), while NAFTA’s investment chapter has come
8
9
To summarize the U.S. case, insofar as the U.S. waited for the decision to pursue free
trade to be made in Canada and Mexico, American business did not contribute much to
the launching of negotiations. But American business was both a proactive and important
influence on the negotiations and a forceful, decisive advocate for free trade.
Canada
The Canadian state decided to negotiate a bilateral free trade agreement with the U.S. in
the fall of 1985.11 This decision reversed Canada’s previous policy of restraining the
country’s economic relationship with the U.S. Ever since the enactment of a protectionist
‘National Policy’ in 1879, Canadian trade policy had sought to foster the development of
indigenous manufacturing, a sector generally considered incapable of withstanding open
competition from the U.S. Canada’s tariff wall both protected domestic firms from
outside competition, and encouraged foreign - mostly American - firms to establish
branch plants in Canada to serve the domestic market. As a result, Canada’s economy
became highly penetrated by foreign, mostly American, capital.12 Despite its ambivalence
about integration with the U.S., Canada participated actively in the GATT from the
moment of its creation in 1947, and in the post-World War II period Canada’s economic
under fire for being a gift to corporations at the expense of democratic governance (Barenberg and Evans
2004).
11
Bilateral free trade with the U.S. had been proposed in Canada many times before, starting in the mid19th century (Hart 2002). However, free trade was considered a very politically risky policy even by its
advocates, given that a Liberal government was soundly defeated in an election in 1911 largely because of
its support for free trade. Until September 1985, no government was publicly willing to endorse the idea.
12
By 1980, Canada’s inward stock of FDI was 20.4 per cent the size of its GDP. To set that figure in
context, for the world as a whole FDI was 5.3 per cent of GDP; for the U.S. it was 3 per cent at that time.
Among the developed countries, only Ireland was host to more inward FDI relative to GDP (UNCTAD
n.d.).
10
policies were open enough to allow for high levels of trade relative to GDP (see Figure 1
above). The moderately protectionist stance of Canadian business on economic relations
with the U.S. changed little from mid-century through the start of the 1980s (Hart 2002).
As one Canadian business association leader put it, Canadian manufacturers were ‘always
sort of dragging their feet’ with respect to trade liberalization at the GATT, ‘and that was
true very much until the recession of the early 1980s.’ A 1981 report by the New Yorkbased Conference Board found that, among 167 business executives surveyed in the three
North American countries, ‘any increase in economic and political dependence on the
U.S. is viewed as a disadvantage by most respondents from both Canada and Mexico’
(Cook 1981: B1).
A subsequent change in the trade policy preferences of Canadian business led the
Canadian state to begin supporting free trade. Organizationally, business mobilization for
free trade was led by the Business Council on National Issues (BCNI), an association of
150 corporate CEOs established in 1976 and partly modelled on the U.S. Business
Roundtable (Langille 1987: 67). The other organization whose support was critical was
the Canadian Manufacturers’ Association (CMA). The CMA had historically, and even
recently, resisted trade liberalization. A change in the trade policy preferences of both the
CMA as a whole and of its individual members contributed to the changing position of
Canadian business in general. As one Canadian business interviewee stated, ‘the
manufacturing sector adopted a position fully and aggressively supporting the free trade
negotiations, which was diametrically opposed to the historical position of the
association.’ In the end, not only the BCNI and CMA, but also the Canadian Chamber of
11
Commerce, Quebec Chamber of Commerce, Canadian Federation of Independent
Business, and the Canadian Exporter’s Association all called for a comprehensive trade
agreement with the U.S. (Doern and Tomlin 1991: 310; Langille 1987: 68).
Despite this mobilization for free trade by business, however, support from the Canadian
state took time to emerge. Brian Mulroney, the prime minister who made the decision to
negotiate in 1985 and who strenuously championed free trade thereafter, had previously
avoided the issue. He did not mention it in the 1984 election campaign that brought him
to power, and by some accounts he had even criticized it before that - as late as 1983
(Ayres 1998). Many observers believe that, politically, Mulroney initially perceived free
trade as a losing, unpopular idea. There is little reason to believe, then, that the
enthusiasm for free trade originated with Canada’s elected politicians. Rather, their
support for free trade followed that of business. As for the bureaucracy, federal officials
began recommending bilateral free trade before the Tory government embraced the idea,
(Doern and Tomlin 1991; Golob 2003), but only once the preferences of business had
already swung around in support in 1983.
After the Canadian state had made its decision to pursue an FTA, Canadian
businesspeople participated heavily in the negotiations over the terms of the agreement,
like their American counterparts. The primary objective of Canadian business was broad
and secure export access to the U.S. market. The investor and intellectual property
protections sought by large American firms were a minor concern (interviews with
Canadian business association staff). From the point of view of the Canadian private
12
sector, the greatest attractions of CUFTA were U.S. market access generally, and
restrictions on the use of countervailing and anti-dumping measures more specifically.
The recession of the early 1980s had produced a small burst of these measures in the
U.S., and their threats to market access worried export-dependent Canadian producers.
As in the U.S., North American free trade became highly controversial in Canada.
Organized labour and a variety of civil society groups (feminist organizations,
ecumenical social justice organizations, cultural producers, and others) began mobilizing
against free trade in Canada in 1985 (Ayres 1998). During the CUFTA negotiations in
1986 and 1987, opposition mounted. In 1988, two of the country’s three major political
parties at the federal level declared themselves opposed to the initiative, and free trade
became the top issue in the fall 1988 federal election campaign. A loss for the incumbent
Progressive Conservative government would mean the end of agreement. To contribute to
the victory of the pro-CUFTA governing party, the Canadian business community - under
the leadership of large firms and the BCNI - established a Canadian Alliance for Trade
and Job Opportunities (CATJO), aimed at influencing public opinion about free trade.
Much like the USA*NAFTA coalition in the U.S., which sought to shape U.S. public
opinion ahead of the U.S. congressional ratification vote in 1993, CATJO organized a
large-scale public promotion campaign to influence the federal election in 1988. In the
end, the popular vote leaned against free trade: the incumbent party received only 43 per
cent of the popular vote, well short of a majority. But because the two opposition parties
split the anti-CUFTA vote, the Progressive Conservatives were returned to power with
another parliamentary majority, and they were able to enact CUFTA at the start of 1989.
13
As in the U.S., the public mobilization of private enterprise saved the project of
globalization from the threat of civil society opposition.13
Mexico
The Mexican state entered the 1980s subscribing to nationalist and mildly autarkic
economic policies, and exited subscribing to neoliberalism. Prior to the 1980s, the
Mexican state pursued a strategy of import substitution industrialization, and declined to
join the GATT, in an effort to foster an indigenous manufacturing sector (Story 1986). At
that time, the state also obliged foreign investors to meet a wide range of performance
requirements, thereby knowingly dissuading many from participating in the Mexican
market at all. Between the 1950s and the 1970s, this development model succeeded in
growing Mexico’s GDP per capita in impressive fashion.14
In the mid- to late 1970s, the discovery of large oil deposits in Mexico redirected public
policy somewhat towards the establishment of an energy-based economy. On the
assumption that oil wealth would soon prove abundant, the state borrowed heavily on
cheap international credit markets. That profligate borrowing quickly proved disastrous,
however, as interest rates rose and oil prices fell in the 1980s (Thacker 2000). The world
entered into a recession in 1982, and Mexico became the first of many developing
countries to suffer a serious debt crisis. Mexico’s real GDP per capita was no higher at
Subsequent to the implementation of CUFTA in 1989, the opposition of the previously critical Liberal
Party began to decline. By late 1993, the newly elected Liberal government of Jean Chrétien quietly ratified
NAFTA as negotiated by the Tories, despite previously promising to renegotiate it instead.
14
Between 1960 and 1981, Mexico’s GDP grew 6.9 per cent a year, compared with 4.4 per cent for the
world as a whole (World Bank n.d.).
13
14
the end of the 1980s than at the beginning, ensconcing it in Latin America’s ‘lost
decade.’ Following the 1982 crisis, Mexico dismantled many of its restrictions on
international trade and investment and joined the GATT in 1986 (Lustig 1998). Late in
the 1980s, the Mexican state began promoting foreign investment, particularly by
rewriting the regulations associated with the country’s previously restrictive 1973 foreign
investment law (Amigo 1991). It privatized hundreds of state-owned enterprises,
including major industries and enterprises such as airlines, telecommunications, and
eventually the banks in 1990-91 (Teichman 2001).15 Lastly, Mexico enacted a new
intellectual property law in 1991. All of these policy changes facilitated the decision to
negotiate a free trade agreement with the U.S. One Mexican official said that the
technocrats’ goal was to transform Mexico’s economy in a ‘fundamental’ way: ‘Not just
the surface paint. We should really go into the core, and redo the foundations, and retrofit
this economy, really, and not just paint the outside.’
Mexico’s neoliberal policy changes were above all the consequence of changes in the
professional identities of the bureaucrats and politicians running the Mexican state. From
the 1970s through the late 1980s, a new generation of free market technocrats took over,
as U.S.-trained economists replaced older officials with more traditional - nationalist and
statist - policy preferences (Golob 2003). In 1988, the inauguration of President Carlos
Salinas de Gortari, the holder of a PhD in political economy and government from
Harvard, only demonstrated the extent of this transformation. All of Salinas’ economic
Mexico had 1,155 state-owned enterprises in 1982, and only 433 by 1988 (Aspe 1990: 125). Other major
industries and enterprises, including the telephone service, the airlines, and the banks, were privatized in
the early 1990s.
15
15
cabinet ministers and many high-level staff in the Mexican bureaucracy at that time held
PhDs from prestigious U.S. economics departments (Thacker 2000).16
Unlike in Canada, Mexican business was little involved in the Mexican state’s decision to
pursue free trade. The composition of the Mexican private sector changed substantially in
the 1980s, the years after the 1982 economic crisis witnessing most notably the
emergence of a number of large, internationally competitive and export-oriented
conglomerates (Flores 1998). The economic weight and political influence of smaller,
domestically oriented manufacturers declined, while the composition of Mexico’s exports
evolved away from oil and towards manufactures. Some of the business leaders affiliated
with the large and growing export-oriented firms began calling for continental economic
integration in the 1980s. Nevertheless, the Mexican private sector as a whole never
mobilized in support of regional integration, and over the course of the 1980s the
Mexican state ignored what private sector calls there were for an FTA.17
Despite his and his team’s neoliberal background, Salinas initially shied away from the
idea of free trade. He says that was because he wanted to focus on other issues (Salinas
de Gortari 2000). Many observers in Mexico believe he feared the political challenge of
winning public support for the initiative - much like Mulroney before 1985. As late as
Economists made political inroads in many developing countries, especially in Latin America (see
Teichman 2001; Woods 2006). But, with the possible exception of Chile, the rise of economists was most
striking in Mexico. In 1990, at the time of the decision to negotiate free trade, Mexico’s secretaries for
budget, finance, and trade and industry all held economics PhDs from the U.S., as did the undersecretaries
of trade and industry (two Yale, two Chicago, one MIT). In contrast, the equivalent officials in Canada had
only one graduate degree in economics among them (a PhD from McGill and Cambridge).
17
Salas-Porras (2005) provide some general evidence of Mexican business support for free market policy
changes. The president of the Consejo Empresarial Mexicano para Asuntos Internacionales (Mexican
Business Council on International Affairs) called for free trade in February 1989 (Proceso, 2 April 1990, p.
7).
16
16
1989, senior Mexican officials were openly rejecting the idea of free trade (see Noyola
and Serra 1990: 87). Either way, Salinas eventually decided to pursue an agreement
because he felt that doing so was the only way to attract the foreign direct investment
(FDI) that he and his advisors considered essential for long-term growth and employment
in Mexico (Espinosa and Serra Puche 2004). Unlike in the Canadian case, Salinas’
decision to negotiate an FTA was made very fast, with no public discussion ahead of
time. One American business association interviewee confirmed that, before Salinas
suddenly decided to pursue an agreement, U.S. businesspeople had not anticipated that he
would do so.
Mexico’s objectives in the NAFTA negotiations reflected the top priority of attracting
FDI. When U.S. negotiators voiced the demands of American big business for strict
investor rights and intellectual property protections, the Mexican negotiators - after
feigning some resistance, in hopes of using the issue as a bargaining chip - happily agreed
(interviews with Mexican and U.S. negotiators). They believed that the inclusion of such
measures would only increase the attractiveness of Mexico to foreign investors, both in
the U.S. and elsewhere. Nevertheless, there were many sceptical businesspeople about
foreign investment, since foreign firms represented additional, stiff competition that they
would have to confront in their home market. In order to win the support of sceptical
businesspeople the Mexican state established a large private sector representation
structure, and in that sense Mexican business was involved in the process in the same
way as American and Canadian business (Fairbrother 2007). But the Mexican private
sector included a much larger number of businesspeople sceptical about free trade, and so
17
the influence of domestic business on the negotiators’ positions was more defensive in
Mexico than in the other two countries.18
Given Mexico’s political system at the time, there was almost no chance of the initiative
being defeated. Nevertheless, public contention about the initiative was vibrant, and the
issue of NAFTA prompted the formation of a large coalition of labour and civil society
organizations, eventually known as RMALC (Red Mexicana de Acción frente al Libre
Comercio, or Mexican Action Network on Free Trade). RMALC developed strong ties to
NAFTA opponents in the U.S. and Canada (Ayres 1998; Kay 2005), even though most
Mexican critics sought a different kind of North American integration (more social
democratic, regulated, and European in style), whereas opponents in the other two
countries tended to be more critical of any and all forms of integration. Just as the
character of the civil society opposition differed in Mexico, with critics less opposed to
increased integration in general, and with Mexican business associations less actively
supportive, nothing like USA*NAFTA or CATJO emerged in Mexico.
Development, State--Capital Relations, and Cross-National Differences
As discussed in the introduction, existing research has implicitly identified a general
pattern: business has tended to play a small role in pro-globalization policy changes in
Third World countries, and a larger role in First World countries. The previous section’s
Flores (1998) and Thacker (2000) describe how Mexico’s postwar ISI development model generated a
large number of small and medium-sized domestically oriented manufacturing enterprises dependent on
government contracts and subsidies and on continued protection from foreign competition. Their policy
priorities differed substantially from those of the newer, larger, and more internationally integrated
conglomerates.
18
18
comparative analysis of NAFTA supports this view. This section now discusses reasons
for it, based on three key differences between the two First World countries and the one
Third World country involved in North American free trade, as well as between countries
of the Global North and South more generally.
First, especially starting in the 1950s, many developing countries sought to industrialize
behind a protective tariff wall. Many businesspeople in developing countries stood to lose
out from integration into international markets, and not surprisingly their preference was
usually to maintain protection instead.19 The preferences of First World capital differed.
The wealthy industrialized countries all joined the GATT upon its creation in 1947, and
they participated in successive rounds of multilateral trade liberalization thereafter,
signaling their greater support for international economic liberalism.20 Nevertheless, even
First World countries retained many restrictions on trade and investment, often because
of private sector concerns about foreign competition from other First World countries.
But by the 1980s, First World business support for international integration had
increased. In the case of North American free trade, then, business in the U.S. had long
supported more regional integration, and Canadian capital moved towards support over
time (prompting changes in the preferences of Canadian politicians, as discussed above).
Mexican businesspeople, on the other hand, were collectively never so confident.
This statement must be qualified, however, insofar as not all Third World countries pursued import
substitution industrialization in the postwar period. Some, especially very poor and small countries,
remained focus on exports of agricultural and other primary goods. Their distinctive political trajectory to
globalization could be the subject of future research. In Latin America specifically, however, trade
protectionism had been extremely high ever since independence from Spain (Coatsworth and Williamson
2004).
20
Some developing countries joined GATT early on, but many did not, and those that did join won ‘special
and differential treatment’ excluding them from many of the GATT’s obligations.
19
19
Second, if business drove First World states to globalize, but Third World capital did not
play a similar role in developing countries, what motivated Third World states to make
similar pro-globalization policy changes? The existing literature on both Mexico
specifically and countries of the global South more generally is emphatic: With the rise of
global finance in the late twentieth century, and as a result of profligate lending and
borrowing, many developing states grew heavily indebted to foreign creditors, and
eventually found themselves dependent on private creditors and the major international
financial institutions (IFIs) - the IMF and World Bank (Babb 2001; Thacker 2000;
Woods 2006). These new external relationships reshaped developing countries’ political
and economic circumstances, and ultimately led states in developing countries to support
economic opening. In contrast, no First World state has been subjected to IFI dependency
since the United Kingdom (relatively mildly) in 1976.
In Mexico, the IMF and World Bank recommended neoliberal policies and endorsed
Mexico’s subsequent policy changes. But Mexico actually went beyond what the IFIs
demanded, meaning that it would be inaccurate to say that the IFIs imposed neoliberalism
directly by making loans conditional on specific policy changes (Thacker 2000: 6).
Nevertheless, existing accounts show that Mexico’s dependence on the IFIs - as well as
on private foreign creditors - contributed to the selection of the technocrats who then
implemented Mexico’s free market reforms in the 1980s and 90s, including NAFTA
(Woods 2006). Having to negotiate with external financial actors made neoliberal
officials with prestigious technical credentials an attractive asset to the Mexican state,
leading those officials to win promotions and posts from which they were gradually able
20
to take complete control of the policymaking apparatus. In the North, technocratic
takeovers such as this have not occurred.
Third, even if business wanted globalization in the First World, and states wanted it in the
Third World, why were they able to get what they wanted? Domestic business might not
want globalization because of concerns about additional competition, while states might
not want to pursue pro-globalization policy changes because of the political risks. In
Canada, for example, the Progressive Conservatives that negotiated both CUFTA and
NAFTA paid a severe price in the federal election of 1993, being reduced to two seats in
the federal parliament (out of 295). In the view of one Canadian business interviewee,
Mulroney ‘took what was generally seen as a political risk for the country as a whole. But
it certainly was not a political risk in terms of being in tune with the business community.
In fact, quite the opposite.’ In the U.S., many federal legislators feared the consequences
of supporting NAFTA in 1993, when labour, environmental organizations, and other civil
society grounds were mobilizing public opinion against the agreement. Even in Mexico,
with its authoritarian state only minimally constrained by voters, political elites feared a
backlash against free trade, insofar as they believed that any turbulence in Mexico would
reduce the chances of NAFTA’s passage in the U.S. congress.
In the absence of prior mobilization by business, states have independently decided to
pursue globalization in precisely those countries where they have more economic,
political, and social autonomy from, and power over, the private sector. Conversely,
domestic capital has mobilized for international economic integration in precisely those
21
countries where its political power vis-à-vis the state is greater. More concretely, in the
case of NAFTA, Canadian capital shared American capital’s dominant position with
respect to their respective states, despite their different positions in the world economy,
while Mexican capital was more internally subordinate. There are at least three facets of
state--capital relations that varied across the three countries, and which vary between
developed and developing countries more broadly.
First, at an economic level, Mexico was home to much more state ownership of industry
than the other two countries, making the Mexican state less dependent on the private
sector. Table 1 illustrates the relative weights of public enterprise in each country. As
noted by Thacker (2000), public enterprises give states more autonomy from business,
and thus variation in the public share of total investment reveals variable levels of public
vis-à-vis private power. Accurate comparative measures of public investment and public
enterprise are hard to come by, especially comparisons spanning the First and Third
Worlds. Nevertheless, the figures here allow for some comparison, insofar as the table
illustrates the much greater role of public enterprise in Mexico’s economy in the years
prior to its decision to negotiate NAFTA, relative to Canada and even more so the U.S.
One Mexican technocrat interviewee expressed his feelings about the Mexican private
sector in this, somewhat exaggerated, fashion: ‘We had just begun opening up the
Mexican economy. Mexican business depended basically on government give-aways, on
government contracts, government permissions to import, government permissions to
export. So Mexican business and businessmen didn’t exist!’
22
Table 1: State-Owned Enterprises
Gross Capital Formation of
SOEs (% of Total Gross
Capital Formation, 19751979 average)
SOE Share of GDP (%,
1978-1991 average)
Canada
15.7
*
Mexico
26.1
11.6
USA
4.7
1.2
Sources: OECD 1985; World Bank 1995
Note: SOE Share of GDP was not available for Canada.
These differences among the NAFTA countries are representative of broader differences
between developing and developed countries generally. Developing states’ efforts to
industrialize, especially starting in the 1950s, led them to replace many private firms with
state-owned enterprises, much more so than First World countries (Evans 1985). As a
consequence, relative to First World states, developing states grew less economically
dependent on and more autonomous from private enterprise (see Table 2). The disparity
in public ownership between First and Third World countries therefore demonstrates a
general asymmetry in the economic position of the state.
Table 2: State-Owned Enterprises
SOE Share of Gross
Domestic Investment
(%, 1978-1991)
SOE Share of GDP
(%, 1978-1991)
23
Developed
Countries
7.7
4.9
Developing
Countries
24.1
10.7
Source: World Bank 1995
Second, politically, among the three countries involved in NAFTA, Mexico stands out as
a case of highly centralized authority, with little democratic accountability, and a
historically marginalized domestic business community. From the 1920s to 2000, Mexico
was governed by a single party, the Partido Revolucionario Institucional (Institutional
Revolutionary Party, or PRI). The PRI ruled using a mix of state corporatism, frequent
recourse to revolutionary rhetoric, patronage, corruption, populist economic policies,
occasional repression, and crooked elections. Under the PRI, incumbent presidents
handpicked their own successors and controlled not only the executive branch, but also
the legislative and judicial branches, sub-national governments, and to a large extent even
the PRI itself. Elections were held, but they were a mere formality. In addition to their
economic weakness, then, private businesspeople in many developing countries have also
been more politically marginalized than their counterparts in wealthier societies.21
As part of its consolidation, the PRI formally incorporated workers, peasants, and
‘popular sectors’ (selected professionals). Businesspeople, however, were never included
in the same way. As Schneider (2002: 81) aptly summarizes: ‘The avenues usually
There are of course exceptions, particularly very poor countries where the state has little autonomous
capacity and minimal insulation from outside influences. The globalization of countries in such
circumstances may have proceeded differently, a possibility which warrants further investigation.
21
24
available to business elsewhere for open and formal political participation through parties
and top government positions were systematically closed to Mexican business.’ This
power of the state in Mexico, and its concentration of authority in the hands of one
person at a time, set it apart from the state in Canada and even more so the United States.
Canada’s parliamentary system unites the federal legislative and executive branches, but
the country has a very decentralized federal system, with strong and autonomous
provincial governments. The U.S. federation is not quite so decentralized, but the U.S.
state is still typically characterized as ‘weak’ because of its division of power between the
executive and legislative branches and the low level of party discipline (Ikenberry, Lake,
and Mastanduno 1988).
Third, in Canada and the U.S., public and private elites have historically been more
united through informal social networks, whereas in Mexico they have been two distinct
groups. On the basis of his noted biographical research, Camp (1989) argues that
economic and political elites in Mexico have long come from clearly distinct social
networks. This finding suggests that the Mexican state has been more insulated from
business influence than in countries with more formal and informal social network ties
spanning the public and private sectors, and/or where elites move easily from one sector
to the other over the course of their careers. Contrast Camp’s analysis of Mexican elites
with Clement (1977) on Canada and Mills (1956) on the U.S.: the latter document
extensive personal (e.g., familial) ties between corporate and state elites. Such ties were
much less common in Mexico under the PRI, further contributing to the state’s
willingness to impose its preferences on business.
25
Conclusions
This chapter has addressed variation in how pro-globalization policy changes have
occurred in different kinds of countries - and more specifically the variable roles of
political and economic elites in encouraging and making those changes. Studies of First
World countries have frequently emphasized the decisive power of private economic
elites, while studies of pro-globalization transitions in Third World countries have
typically argued that the initiative of political elites has been primary and that business
has not played a major role. The existing literature has not recognized this substantial
difference between the two contexts, nor offered much of an explanation for it.
Three cases discussed here have illustrated the range of pathways by which countries can
come to embrace globalization. The one developing country, Mexico, exemplifies the
state-driven pathway to globalization, with neoliberal public officials organizing the
support of domestic business (and the rest of society) for rapid international integration.
In the other countries, Canada and the United States, the domestic business community
was an active participant. Canada’s switch from nationalist to neoliberal and exportoriented economic policies reflected the evolving character and preferences of domestic
capital. In both countries, neoliberal policy changes prompted aggressive, committed
collective action on the part of the private sector. In Mexico, no such mobilization
occurred. This analysis suggests that policy shifts to globalization in First and Third
26
World countries are substantially different processes - made for different reasons and
driven by different actors.
That said, one significant commonality across the three cases was the heavy involvement
of business in the formulation of each country’s objectives for the negotiations. Nowhere
was the private sector any less than a major contributor in that regard, despite its variable
roles in instigating and promoting the policy shift to free trade. The less variable
participation of domestic capital in the international negotiations suggests that states face
similar incentives to satisfy business priorities at that stage, despite important crossnational differences in political institutions and in business priorities--a potential issue for
further political economic investigation.
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