ECONOMIC DEVELOPMENT IN MEXICO

HISTORICAL TRENDS  history of dependence on the west, particularly the U.S.  sensitivity towards colonialism  governments pursued statist economic policies to create autonomous space from perceived western intrusion  pursued industrialization strategy called ISI (import substitution industrialization)  excessive use of parastatal sector to manage the economy  increased use of free market approach since the 1980s  economic development hampered by corruption and a stubborn parastatal sector

Import Substitution Industrialization (ISI)  to industrialize quickly, Mexico pursued an ISI strategy  in ISI, government poured funds into domestic industries while discouraging imports of foreign products  government-supported and government-owned industries, known as parastatals, created bulk of manufacturing jobs  led to entrenched interests that made Mexico’s economy inefficient and dependent on political connections

The Move Toward the Free Market  A series of economic crises forced Mexico’s government to pursue more free market economic policies. - global recession in 1980s reduced demand for Mexico’s exports … Mexico lost important source of foreign exchange revenue - rapid population growth strained government budgets - government spending increased which led to more borrowing and debt (in 1982, national debt was $80 billion … in 1987, debt grew to $107 billion - interest rates & inflation rose while economy began to shrink

Dangerous Belief  government believed that economic problems could be overcome with oil revenues … by 1981, oil revenues accounted for 75% of all exports & 45% of government revenues  when oil prices collapsed in 1985 and Mexico suffered a major earthquake, political elites realized that Mexico was in trouble  debate within PRI pitted the old guard (statist, entrenched) against the tecnicos, reformers, who envisioned the expansion of free market policies  the tecnicos emerged victorious and Mexico began its path toward a more free market economy

Mexico’s Free Market Approach  World Bank and U.S. reduced interest payments on debt in return for structural adjustments in economy  Mexico’s government cut spending precipitously (cut spending in half within three years)  Tax rates were raised while subsidies to consumers and businesses were slashed  government sold off most of the parastatals so that they were now privately owned  economy became more receptive to foreign investment … trade mushroomed when Mexico signed on to NAFTA in the mid-1990s  Maquiladora factories proliferated in border towns and cities Maquiladora

Results of Mexico’s Free Market Approach  Inflation and unemployment decrease while the GDP expanded  Entrepreneurialism expanded … by early 1990s, Mexico had 24 billionaires  The middle class grew by the millions Today, Mexico’s government is trying to deepen free market policies to continue Mexico’s economic growth Read: What's the Real Story with Modern Mexico's Middle ClassMexico's Middle Class

HOWEVER …  average wages for workers decreased by 50%  income distribution revealed a wide gap between rich and poor  millions still lacked adequate health and decent housing  number of Mexicans living in extreme poverty increased from 17 million to 26 million by the late 1990s Today, Mexico is deepening its free market approach to grow its economyfree market approach

Reinforcing Lesson: Maquilapolis: City of Factories Maquilapolis: City of Factories  Check out this impressive PBS documentary clip to enhance your knowledge of the market economy’s impact on cleavages in Mexican society.