A Stable Mexico Still Grappling With Change

Is Mexico chronically unstable? Is there something really wrong there?

It may seem that way to many Americans and to even more worried Mexicans as the country has been hit with one breakout of violence after another, culminating last week in the killing of Luis Donaldo Colosio, the presidential candidate of the Party of the Institutionalized Revolution, or PRI, which has ruled Mexico for 65 years.

The irony is that the PRI, set up to represent a consensus of farmers, workers and other major groups, has ruled since 1929 in the name of stability. Now that stability is breaking up because change, as it must, is coming to an economy that has been run on political patronage.

For clues to what is really happening, look at the Soviet Union, another society that was ruled for seven decades by a single party and where today 15 separate republics are struggling with economic reality.

Mexico’s PRI, to be sure, has not been a vicious, totalitarian ruler like the Communist Party. But just as the party in the Soviet Union ruled every village and town through local bosses, so the PRI official in every town in Mexico had part ownership in most of the industry and power over practically all the jobs.

Mexico’s industry for decades has been heavily state-influenced, and often state-owned. And the country has remained grievously underdeveloped.

Fewer than 30% of Mexico’s people are even listed in the labor force--where more than 40% of most developed countries’ people are in the work force (the U.S. figure is 47%).

It has been an economy of farm labor and small manufacturing, with a river of subsidies from the central government keeping people in jobs but not really employed. Official statistics say that one quarter of Mexico’s workers are underemployed.

Still, coming off a feudal system of landed estates and serf labor that was overthrown in 1910, Mexico knew spurts of progress. But the economy stalled out in the 1960s. Change might have come then but oil was discovered in the Bay of Campeche. Mexico had an oil boom in the 1970s, at which time it also borrowed heavily from U.S. and international banks.

Then, after world oil prices fell, Mexico had a spectacular bust in 1982. That’s when change began, with the economic modernization programs of President Miguel de la Madrid, who served from 1982-88.

There were 1,155 state-owned companies in Mexico when de la Madrid took office; today there are about 200, and they are being sold into private hands under President Carlos Salinas de Gortari.

Mexico’s companies are being forced to compete with global industry--a change underlined this year as Mexico entered the North American Free Trade Agreement with the United States and Canada.

Change can be painful. “This is the first recession in 50 years in which Mexicans actually lost their jobs,” says Jorge Castaneda, a political scientist and author who teaches at universities in Mexico and the United States.

In the past, jobs were financed by tax revenue. Now subsidies are being phased out and there is pain in Mexican villages. Muttering is heard that Salinas’ market-oriented reforms, like those of Boris Yeltsin in Russia, are leaving the poor behind.

Many Mexicans fear unrest in those villages. They recall Mexico’s history after the 1910 Revolution, when the country was torn by bloody civil strife. The PRI was set up in 1929 to bring an end to that strife.

But such fears are overblown. Modern Mexico has been adapting to change for more than a decade. The industrial improvement is well along, helped by more than $4 billion a year in foreign business investment--part of a far larger annual total of foreign investment in Mexican stocks and bonds.

The current hard times result in part from the long recession in the United States, which is the best customer for Mexico’s exports and also a haven for Mexican laborers who come north for work and send money back home. Now that the U.S. economy is growing again, Mexico will benefit.

Still, questions arise. Why isn’t Mexico growing on its own; why haven’t years of foreign investment created jobs to replace those displaced by reform?

The country wasn’t ready to receive the investment. Mexico still lacks infrastructure for modern industry. The road where Colosio was killed was unpaved, as are so many roads in Mexico because successive governments have not made the necessary infrastructure investments.

Instead money went to subsidies. Agriculture was subsidized to keep food prices low for industrial workers in the cities. Poland, under communism, tried the same scheme--which failed in Poland as it has in Mexico. Now both countries are trying to reform.

In other ways, the Mexican economy never grew up. Land was distributed to the peasants in 1910 but as a sacred trust. They couldn’t borrow against it to set up a business, nor could they sell their small holdings. So credit never grew, small business finance was stunted.

A simple contrast to South Korea and Taiwan speaks volumes. In those successful Asian economies, private industry has funded almost all research and development. Companies have developed technology and are globally competitive. In Mexico, private industry has contributed almost nothing to R&D; government has done the spending, but it has been an ineffectual pittance.

But if all this is so, why are U.S. companies, and all of world business, so interested in Mexico? Because of the country’s imminent promise. The Organization for Economic Cooperation and Development, noting the investments that have been made to modernize Mexico’s economy, predicts surging growth for the country in the mid-1990s.

The Mexican government has made some smart moves--such as investing 13% of its budget in education. As a result, almost 90% of Mexico’s population is literate--a far higher ratio than the United States.

Mexico’s 88 million people have the potential to become a tremendous consumer economy. Do the math. Mexico today has economic output per person that is only one-sixth of such smaller countries as Spain or New Zealand or tiny Ireland.

Yet unlike those countries, Mexico has a special relationship with the United States thanks to NAFTA--and that means open access to the world’s largest market and flows of investment from the world’s largest financial system.

Is Mexico unstable? No, it is going through the pain of entering the modern world economy, which may be less forgiving than the subsidized system of the past, but will be far more rewarding and more secure.