Broken Promises

By Susan Ferriss

MEXICO CITY BUREAU – Austin American Statesman

Sunday, August 10, 2003

SAN GABRIEL CHILAC, Puebla -- In this tiny southern Mexican town that seems a million miles from nowhere, Ponciano Garmendia is searching for what economists call his comparative advantage in the global economy.

With oxen and wooden plow, Garmendia cultivates a native strain of corn he once sold easily to Mexico City markets because of its distinctive taste.

But sales have soured. Garmendia can't compete with cheaper hybrid corn flooding the market from bigger northern Mexican growers. They, in turn, are challenged by U.S. imports.

Garmendia tried to make up for his losses by selling more of the garlic he grows, but new Brazilian imports are undercutting that crop as well. He thought of exporting his garlic to the United States, but he hasn't a clue about how to begin.

Frustrated with farming, Garmendia's adult sons saw opportunity in a small local factory that assembles trendy blue jeans for U.S. consumers. The pay was low -- $35 a week to start -- so the sons decided two years ago they would seek their comparative advantage elsewhere.

They found it in Raleigh, N.C., where, as undocumented workers, they took jobs in factories and restaurants and made much more money in a day than they made in a week back home.

The Garmendias' situation represents the predicament millions of Mexicans face every day, and it illustrates the story of a nation caught between the negative changes wrought by globalization and an urgent need for economic development.

Mexico has spent a century searching for the right formula to help it modernize, develop and provide jobs for the 1 million people who enter the work force each year.

Nothing, it seems, has worked.

Not heavy-handed state control, which Mexico tried for decades. And not, thus far, globalization and free trade.

For roughly the past 20 years, Mexico, along with much of Latin America, has moved vigorously into the global marketplace, embracing free-market reforms and trying to use its proximity and relationship with the United States -- the biggest consumer market of all -- to its advantage.

The North American Free Trade Agreement, which took effect Jan. 1, 1994, was touted by its creators as a treaty that would boost the economies of the United States, Canada and Mexico and, in turn, increase the fortunes of each nation's citizens. But in many poor parts of Mexico, the most visible effect NAFTA and other economic measures has had is the increasing number of Mexicans who no longer live in these areas. The global marketplace isn't offering them enough at home, so they're crossing the border illegally in search of jobs in the United States.

A surge in illegal immigration was not part of the bargain when free-market proponents on both sides of the border sold economic changes in the late 1980s and early 1990s. On the eve of the U.S. Congress' narrow approval of NAFTA in November 1993, Secretary of State Warren Christopher told lawmakers, "As Mexico's economy prospers, higher wages and greater opportunity will reduce the pressure for illegal migration to the United States."

Yet over the past decade, almost every Mexican municipality, from remote Indian villages to urban working-class neighborhoods, has seen many of their residents head north as their economic situation worsened rather than improved. Between 1990 and 2000, the estimated number of undocumented Mexicans living in the United States rose from 2 million to 4.8 million.

Tens of thousands of men, women and children put their lives in the hands of ruthless smugglers who lead them into deserts and across rivers, or stuff them by the dozens into hot, locked truck trailers. Hundreds die every year, of hunger or thirst or suffocation.

But the potential rewards for those who make it into the United States are a powerful draw.

"People didn't use to leave like they do now. But look around. The only ones who are building homes here now are those with someone working in the United States," said Garmendia, 52. "Me, I'm still trying to hold out here."

Jobs and poverty

Fueled by multinational capital, Mexicans now assemble some of the most ubiquitous consumer items in the United States.

Chrysler's PT Cruiser and the new Volkswagen Beetle are pieced together in Mexico, as are several Ford and General Motors trucks and cars. Mexicans also assemble many of the stoves and most of the televisions and other electronic goods Americans buy. Mexican factories assemble Nike shoes and sew clothes for the Gap, Tommy Hilfiger, Levi's and many other popular American brands.

Mexico surpassed Japan in 1997 to become the United States' second-largest trading partner after Canada. Exports north tripled during the decade before NAFTA took effect, and tripled again afterward, slowing down only at the end of 2000 with the U.S. economic downturn.

So intertwined is Mexican manufacturing with U.S. consumption that America's economic woes have cost Mexico a half-million jobs during the past four years. Many of the jobs lost have been in the textile, electronics and other assembly factories that NAFTA nurtured.

But the job losses go beyond the influence the U.S. economy has on Mexico.

The multinational corporations that once found Mexico's low wages so inviting now find cheaper labor elsewhere, primarily in Asia. China, with labor costs two to three times lower than Mexico's average maquiladora factory wage of $13 a day, has become a key player on the world's global assembly line. Within the past year, China has surpassed Mexico as the United States' top supplier of an array of assembled goods, including textiles, office computers, metal parts and prefabricated construction parts.

Even before the U.S. economic downturn and China's economic rise, however, Mexico's market reforms were failing to reduce poverty. Today, two decades after Mexico began to open its economy, a staggering 50 percent of the population can't afford the $3 to $4 per person per day needed to pay for basic food and health needs, educational supplies, clothing, housing and transportation, according to the government of President Vicente Fox.

The World Bank, the international development agency that urged free-market reforms in Latin America, acknowledges that about half of Mexico's 104 million people are poor -- just as half were poor in the late 1960s. At least 42 million Mexicans live on less than $2 a day, while 10 million are destitute, living on less than $1 a day, with little access to nutritional food and clean water.

Even those who earn double or triple the minimum daily wage of about $4 a day struggle to make ends meet.

"We tell ourselves that we have to live on 20 pesos ($2) a day for food. Five pesos for tortillas, five pesos for tomatoes," said Felicitas Rivera, 38, a Mexico City maid.

Rivera collects $8 a day, or about 80 pesos -- almost double the minimum daily wage. But her earnings are spent as soon as she makes them. Six pesos a day for bus fare for each of the three days she works. Twenty-four pesos a day for her youngest child's bus fare to school. Thirty pesos a day for the oldest child's bus fare to high school.

That leaves 20 pesos a day to buy food and clothing and pay for any doctor's bills or medicine, since her family is among the 63 percent of the population with no health coverage.

Most of the men in Rivera's Xochimilco neighborhood earn $12 to $25 a day as construction workers.

"Our children have a better chance at staying in school here in the city than they did out in the country," said Lina Garcia, 52. She moved to Xochimilco nearly 20 years ago and still has to fill jugs with water for her home from a neighborhood tap on a dirt street. There is no sewage system.

"We all know people who have gone to the United States from the provinces," Garcia said. "They might not have enough education. But they're better off than we are. We were fooled."

A widening gap

Mexico's reforms have generated great wealth, to be sure, and for most of the 1990s Mexico's economy appeared more dynamic than ever before. Doors swung open for foreign investment. Tariffs on an array of U.S. and other foreign imports began to fall, making them more affordable to more Mexicans. Factories geared for overseas markets boosted exports to 30 percent of Mexico's gross domestic product.

With open trading borders and a wealthy elite, Mexico now boasts several BMW, Mercedes-Benz, Ferrari and Jaguar dealerships -- luxury rarities in the past. There are more foreign-brand consumer goods to choose from and a growing number of expensive resorts and chic restaurants to visit. Yet the riches haven't trickled down to most Mexicans, and for all the conspicuous consumption among the well-to-do, tens of millions of Mexicans live day-to-day.

The continuing, indeed deepening, economic inequality has Mexicans furiously debating how to bring about the opportunities promised by NAFTA and other free-trade measures. A strong popular sentiment has emerged across much of Latin America that the rush to reform was foolish. Partly driving the debate is the Bush administration's hard push to complete a Free Trade Agreement of the Americas by 2005, which would end tariffs and barriers throughout the hemisphere.

For many Mexicans, though, the failure of the country's economic reforms goes hand-in-hand with the failed policies of the former authoritarian ruling government. The Institutional Revolutionary Party, or PRI as it is known by its Spanish acronym, committed serious errors as it pushed for free-market reforms. It botched, for example, the privatization of state-controlled banks in 1991 and 1992, which cost Mexican taxpayers $105 billion to save financial institutions from collapse. The privatization of highway projects was bungled as well, resulting in a $7 billion bailout. Mexico now has some of the most expensive toll roads in the world.

Before Mexico's leaders began to open the economy, the PRI maintained the country's high barriers to investment and trade. During the course of its 71-year rule, which ended with Fox's election in 2000, the PRI seized private foreign oil companies, distributed land to peasants and built a protected manufacturing sector that produced cars and televisions, although they were often criticized for their poor quality.

Millions remained poor. But thanks in part to oil revenues, per capita income advanced by about 113 percent between 1960 and 1980, compared with only 11 percent between 1980 and 2000.

Mexico's economy began to tumble in the late 1970s and early 1980s when the PRI led Mexico into bankruptcy with corrupt and inefficient public spending. The national debt ballooned to 60 percent of gross domestic product at one point, and Mexico was forced to seek loans from the U.S.-dominated International Monetary Fund, make cuts in public spending and pursue free-market reforms.

When Carlos Salinas de Gortari became president in 1988, he impressed U.S. leaders with his fluent English and Harvard economics degree. He helped sell NAFTA on both sides of the border, and he raised Mexicans' hopes and expectations. Then the peso crashed as he was leaving office, slashing buying power by 50 percent and eliminating 1 million jobs. Salinas, the leading advocate of economic reform, is now a villain to most Mexicans.

Jorge Miranda, a former trade policy adviser to Salinas, says Mexico would be worse off now had reforms not been enacted. But he concedes that mistakes have been made.

"I don't want to call it a fairy tale," said Miranda, who now represents U.S. companies in trade disputes with Mexico. "But reforms were opened up and are not being steered."

International business executives fault Fox and Mexico's Congress for failing to pass reforms to help Mexico gain a competitive edge in the world economy. Mexico urgently needs to get rid of the reams of red tape that exist to start a new business, they say, as well as reform its foundering public education system and its inefficient and expensive state-run electricity industry.

"It's the fault of the Mexican government for being complacent and thinking these (trade) agreements were an automatic passport to wealth," said Rogelio Ramirez de la O, an analyst and adviser to foreign companies.

Mexicans bemoan the demise of Mexican-owned enterprises that were unable to compete.

"Globalization only favors the big multinational corporations," said Ruben Barrios, whose family in Mexico City built a once-thriving business making brake parts.

Barrios' company went from 25 white-collar workers to six, and from 100 blue-collar workers to 15 after NAFTA and other measures knocked down trade protections.

Foreign motor-vehicle makers operating in Mexico once had to ensure that Mexican companies supplied at least 60 percent of the parts used in assembly. These requirements are being swept aside.

Global competition has knocked out many Mexican industries that were customers for his brake parts, Barrios said. Now he's trying to survive by converting his business to a consulting firm on the science of brakes.

"The only historic role that businessmen in Mexico have right now is survival," Barrios said. "Exports can't provide for all the basic needs of Mexicans. The proof is the number of our people who are leaving to work in the United States."

Making ends meet

In San Gabriel Chilac, 150 miles southeast of Mexico City, Maria Luisa Ramirez hasn't left Mexico. But like Ponciano Garmendia, she is experiencing the fickle nature of the global economy.

Ramirez started working in assembly plants seven years ago. Last year, the owner of a small local shop where Ramirez worked cleared out all the machines one night, locked the doors and stiffed Ramirez and other workers for a week's pay, $65.

Today Ramirez works out of her one-room home with another woman. Together, as their children gaze on, they snip the threads off newly assembled jeans with the Paris Blue or L.E.I. labels for 3 cents a pair. If they can finish 200 pairs of jeans in a day, they'll earn $6.

"It took three hours to do 25 pairs of pants," said Ramirez, her scissors flying along seams bristling with yellow thread.

She has no illusions about why she's working at home now.

"There are lots of women in town now who do this work in their homes," she said. "It's more convenient for the companies because they pay less."

sferriss@coxnews.com