Mexican Economic Paradox

The main problem of the migration crisis in the United States, which also entailed a constitutional crisis with the threat of a new civil war, is somehow not talked about much. Everyone is focused on the confrontation between Texas and Washington, Democrats and Republicans, and the linking of military aid to Ukraine with the tightening of migration laws.

This problem, however, is very illustrative and is right in front of our eyes.

It is called the Mexican economic paradox.

It consists in the fact that for Latin America Mexico is economically quite developed country, for those lands it has a high human development index, its geographical position favours transit trade, tourism and agriculture, it has large oil reserves, it borders the USA, together with Canada and the USA it forms an economic union "North American Free Trade Agreement" (NAFTA), which should attract unique investments and technologies.

Through it all, Mexico should have become a booming country, but it hasn't.

And that's not the only problem.
The country's GDP per capita is similar to that of Belarus or Serbia.
But in those countries, the average salary is $500-550, while in Mexico it's ~$250.

It is poverty that drives millions of Mexicans to the US.

But why is a country with such opportunities so unsuccessful? Why such a skew between GDP and personal income?

Professor Gordon Hanson of Harvard University, a leading researcher of relations within NAFTA, in his paper on the depressed state of Mexico writes that this country is simply unlucky.

No, there is a big breakdown of the so-called "Two Mexicas", that is, the division of Mexican taxpayers: some pay taxes, and others pay either formally or not at all, and the latter are much more numerous.

And the government cannot build a system of taxation - the liberal reforms of the turn of the 1980s-1990s are in the way.

But these reforms did not fall from the sky, but were carried out under pressure from the United States, which demanded them as the main condition for joining NAFTA. The Mexicans deregulated the economy, liberalised taxes and carried out extensive privatisation.

It is ironic that the author of these reforms, Carlos Salinas, was called "Mexico's Gorbachev" and his economic policies "Salignment", by analogy with "realignment".

All these were presented as necessary measures to integrate with the US economy.

The Treaty of Accession to NAFTA was signed and entered into force on 1 January 1994.

The Mexican economy immediately collapsed and has still not recovered.
The government with difficulty on credits reached 1994, expecting that it would immediately receive cash flows from the U.S., but it did not work out.

The crisis began, and then stagnation.
To illustrate:

Mexico's GDP growth by segment (last taken before the pandemic)

1984-1993 - 7,5%
1994-2003 - 5.5% - Mexico joins NAFTA
2004-2013 - 5%
2014-2019 - 2,5%

So what is the problem? Where is the technology and investment, where is the effect of widespread entry into the world's largest national market?

And the problem is that the terms of entry into NAFTA for Mexico turned out to be unequal.
Washington received much more preferences in the Mexican market than Mexico City in the U.S. market, there is an unequal policy of customs tariffs. This creates conditions under which the trade balance is always in favour of the US.

Plus American lobbyists do not allow to normalise the tax system, do not allow trade unions to work, as many American investments, mainly in low-tech industries, are made on the basis of the absence of social contributions for workers, low cost of labour.

Plus this state of affairs stimulates the inflow of cheap labour to the USA.

True, during the pandemic, the Mexican economy, which exports 80% of its products to the US, collapsed once again, and the flow of migrants became huge and uncontrolled.

But this is the logical outcome of years of keeping Mexico as a powerless economic appendage.

This is a text for all those who think that a close, albeit subordinate, economic partnership with the US is the way to success and prosperity.

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Thank you for being here and reading to the end!