JULY/AUGUST 2010
tracking the economy
Mexico’s Economic Collapse
By James Martín Cypher
T
he year 2009 was arguably the worst
year of economic downturn in Mexico
since the onset of the Great Depression
of the 1930s. The downturn came with great
forewarning, had anyone in the political and economic elite been willing to take a serious look.
As the core of Mexico’s economy was collapsing
at a frightening pace in late 2008, Secretary of
the Treasury Agustín Carstens, Mexico’s top economic policy maker at the time, tried to laugh it
off, unforgettably terming the downturn a “little
cough.” Then in January 2009 came the illustrious World Economic Forum in Davos, Switzerland, where President Felipe Calderón assured
one and all that Mexico had “one of the best
teams of economic advisers in the world.”
All this was occurring at the very moment
when the most trite cliché about Mexico and the
United States had never been more true: When
Uncle Sam sneezes, Mexico gets pneumonia. In
this case, however, it appeared that Tío Sam had
a very serious disease and that Mexico was sliding toward its deathbed. In the end, U.S. GDP
slumped in 2009 by 2.4% (on an annual average
basis), while Mexico’s fell by an estimated 6.5%
(in inflation-adjusted terms).1 When Calderón asserts, as he often does, that the crisis was
caused by “external” forces and factors, he is dead
wrong: As the great recession of 2009 showed so
clearly, Mexico has become an appendage of the
U.S. economy.
This state of profound economic dependency
was consciously constructed by the Mexican
business elite, which—through the workings
of the powerful Business Coordinating Council (CCE)—orchestrated the details of Mexico’s
asymmetrical economic integration with U.S.
capital through the NAFTA negotiations of the
early 1990s. The old idea of the “external” and
the “internal” makes no sense when we analyze
the new relation of dependency that Mexico chose
because of its faith in neoliberal salvation by way
of a so-called free trade agreement. In reality the
mumbo jumbo about increasing trade was really
a smokescreen to open up Mexico as completely
as possible to U.S. foreign investment.
The pillar of this neoliberal model of economic
development is the export-oriented, cheap-labor
assembly operations run primarily by U.S.-owned
transnational corporations. In 2009, 81% of
Mexico’s exports went to the United States. U.S.
demand has for decades been crucial to Mexico’s
economy, since the U.S. manufacturing sector
has been hollowed out and now relies on imports
for crucial parts and components. Mexico is the
number one foreign supplier of auto parts to the
United States. Even more important than the
shipping of parts and components to U.S.-based
factories (that will then incorporate them into
U.S.-sited assembly plants) is the export of finished consumer goods—the mainstay of Mexico’s
export-led economy.
As long as the U.S. housing market was hot,
foreign-owned factories located in Mexico could
ship a large variety of construction-dependent
durable consumer goods—like washers, dryers,
and refrigerators—to the U.S. market. Ridiculously easy credit pumped-up the housing market, but it did far more than that. U.S. homeowners who had already locked themselves into
30-year mortgages before the housing boom
began experiencing what economists call the
wealth effect, which traces the relationship between the increased value of assets (like houses)
to consumer spending. In this case, high asset
values led U.S. homeowners to consume at an
unprecedented and frenetic pace.
Mexico rode the impact of the U.S. wealth effect throughout the first decade of the 21st century, but this never translated into meaningful
wage increases for most Mexican workers. Had it
not been for monumental migration, which significantly reduced the rate of population growth
and led to a surge in migrant remittances, boosting Mexico’s income, average per capita income
growth would have been nil in the last decade.
When the housing bubble burst, and all that U.S.
wealth went up in smoke—there were almost
3 million home foreclosures in 2009—Mexico’s
manufacturing exports collapsed. Overall, Mexico’s exports declined 21% in 2009. Vehicle and
auto parts exports dropped by 33% in the first 10
James Martín
Cypher is Profesor
Titular, Programa
del Doctorado en
Estudios del Desarrollo, Universidad
Autónoma de
Zacatecas, Mexico.
His latest book is
Mexico’s Economic
Dilemma: The
Developmental
Failure of Neoliberalism (Rowman &
Littlefield Publishers,
2010).
51
NACLA REPORT ON THE AMERICAS
tracking the economy
months of the same year, as the U.S.
auto industry contracted. Average
wages also fell significantly—perhaps
to half of the 1982 level, as was the
case in 1998. According to the Economic Commission for Latin America
and the Caribbean, the regional UN
research center, more than 3.6 million
more Mexicans tumbled into poverty.
F
aced with the recession, the
Mexican government was
determined not to counteract it with a stimulus program. This
amounted to a tacit acknowledgement
of the profound dependency of Mexico’s economy upon that of the United
States: All hopes for Mexico rested on
President Obama and his neoliberal
economic advisory team. While the
United States lowered interest rates,
following a drastic, unprecedented
strategy of expanding the money supply to rescue failing investment banks
and insurance companies, Mexico’s
monetary policy has been flaccid at
best, and restrictive at worst.
That is, from October 2007—when
it was clear that the U.S. economy was
headed into a serious tailspin—until
August 2008, Mexico’s central bank
raised interest rates. Only in January
did the central bank lower the loan
rates, leaving them at 4.5%, even as
U.S. rates rested essentially at zero.
This impressively high rate is apparently designed to attract “hot money”
to finance Mexico’s bond and credit
markets, and to keep capital flight
under control. But with excess industrial capacity alarmingly high and
unemployment and poverty levels
soaring, it made no sense whatsoever
to maintain such a high interest rate.
For the elite, though, this policy of attracting foreign speculators paid off in
March, when the Mexican stock market reached an all-time high.
Furthermore, although Mexico was
perhaps the country most strongly af52
fected by the Great Recession in 2009, gates even wider to transnational oil
it was also most likely the only nation giants. This will be no magic bulin the world to have voluntarily re- let: For every dollar of oil exports,
acted by increasing taxes. Of note was Mexico imports 67 cents’ worth of
the decision to raise the value-added petroleum products. In 2009 the net
tax, known as the IVA, from 15% to oil trade surplus was only 14% of
16% to help ensure that the federal Mexico’s overall trade surplus with
government would not run a signifi- the United States.
cant deficit. With no great margin of
In early 2010 announcements of
victory, the Calderón administration economic recovery were widespread,
was argued down from spreading the yet—as even the CCE acknowlIVA to necessities like medicine and edged—the fragile “recovery” was
food. Still, the rise in the IVA was a limited to the export market. Wages
cruel blow to add on top of the av- for average Mexicans continued to
erage per capita drop in income of drop, the internal market continued
nearly 8% in 2009.
to shrink, and the CCE anticipated
The IVA adds 16% to the cost of that more than 500,000 of the new
most everything that poor, working-, entrants into the labor market in 2010
and middle-class Mexicans buy in the would fail to find formal employment.
formal economy. It also, perversely Tamping down the pathological social
from the standpoint of policy mak- impacts of the export model has even
ers, pushes even more of Mexico’s inconvenienced the elite: More than
economic activity into
7% of their business costs
the gigantic untaxed un- For Mexico’s
go toward private security,
derground, or informal, elite the
an estimate that excludes an
economy. (For every 100
army of guards for their palaquestion
legally contracted worktial homes and family memers in the formal economy, seems to be,
bers. Indicators of rising
there are 88 operating in
social instability abound: In
“What crisis?”
the shadowy informal secMay, an armored-car maker
tor, according to an official
attempted to boost sales by
government labor market survey re- petitioning the government to offer fileased in May.) The idea that—in the nancial credits to Mexico’s miniscule
midst of the worst economic crisis middle class to enable them to pursince the Great Depression—the best chase armored vehicles, arguing that
Mexico’s policy makers could manage security is no longer a luxury item.
was to slap a regressive tax increase
Still, for Mexico’s elite the question
on Mexico’s impoverished masses is a seems to be, “What crisis?” Last year
telling sign of nation suffering from a they happily bought more than 2,700
profound level of moral and intellec- residential properties in the swankiest
tual bankruptcy.
areas of the greater San Diego region—
Beyond such quixotic measures, such as Rancho Santa Fe and La Jolla.
Calderón has also spoken in vague In this exquisite area, real estate sales
terms of boosting Mexico’s oil produc- to wealthy Mexicans leaped by 30% in
tion by as much as a million barrels 2009. Enjoying a record stock market
a day. Deepwater Caribbean reserves and the multiple benefits of cheap lacould make this a possibility, but bor, Mexico’s political and economic
only by way of a further incremental elite seemed as disconnected from the
privatization of the state oil company sad plight of the majority as at any
PEMEX, which would open the flood- time in Mexico’s long history.
JULY/AUGUST 2010
notes
Why Representations of Haiti Matter Now More Than Ever
Unfinished Business, a Proverb, and an Uprooting
1. S ee Gina Athena Ulysse, “Dehumanization & Fracture: Trauma at Home &
Abroad,” socialtextjournal.org, January 25, 2010.
2. David Brooks, “The Underlying Tragedy,” The New York Times, January 14,
2010.
3. Michel-Rolph Trouillot, Silencing the Past: Power and the Production of History
(Beacon Press, 1995), 72.
4. Anténor Firmin, The Equality of the Human Races (University of Illinois, 2002
[1885]), 398.
5. Mimi Sheller, Democracy After Slavery: Black Publics and Peasant Radicalism
in Haiti and Jamaica (University of Florida Press, 2000).
6. J. Michael Dash, “The Disappearing Island: Haiti, History and the Hemisphere,” the Fifth Jagan Lecture and the Third Michael Baptista Lecture, York
University, March 20, 2004.
7. Michel-Rolph Trouillot, “The Odd and the Ordinary: Haiti, the Caribbean, and
the World,” Cimarrón: New Perspectives on the Caribbean 2, no. 3 (1990):
3–12.
1. G
ina Athena Ulysse, “Haiti Will Never Be the Same,” huffingtonpost.com,
January 21, 2010.
2. Gina Athena Ulysse, “Haiti’s Future: A Requiem for the Dying,” huffingtonpost
.com, February 4, 2010.
3. See historian Kate Ramsey’s The Spirit and the Law: Vodou and Power in Haiti
(University of Chicago Press, forthcoming).
Mexico’s Economic Collapse
1. T his article is based on data from numerous official sources and daily press
reporting from El Financiero and La Jornada, as well as from Cámara Nacional
de la Industria de Transformación (Canacintra), Monitor de la Manufacturera
mexicana (various issues); James Martín Cypher, “La economía de Estados
Unidos: ¿Hacia el precipicio o en caída libre? Ola Financiera no. 3 (May–
August 2009): 41–49; Enrique Dussel Peters, “El aparato productivo mexicano,” Nueva Sociedad no. 220 (March/April 2009); and Norma Samaniégo,
“La crisis, el empleo y los salarios en México,” Economía UNAM 6, no. 16
(September 2009).
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