Utah Alternative Conservative

On November 21, 2009 I was going to interview Ted Lewis from Global Exchange.  Unfortunately it doesn’t look like Mr. Lewis will be able to make it, so I would like to direct people’s attention to a debate on illegal immigration based on amnesty and enforcement.  I would then like to turn people’s attention to the solutions provided by Global Exchange.

The immigration debate in the United States has specifically been focused on three solutions:

1. Amnesty
2. A guest worker program
3. Enforcement

Note: Tamar Jacoby claims the high school drop out rate is 10% so there are not enough people to take manual labor jobs in the US.  According to the Department of Education’s own statistics the actual dropout rate on a per state basis had a low of 19.6% and a high of 42.6%.  Jacoby is either not telling the truth or is miss informed.  See Dropout Rates in the United States 2005 Page 17.

The Cato Institute’s article Have Mexican Dishwashers Brought California to Its Knees? they claim:

Low-skilled immigrants actually enhance the human capital of native-born Americans by allowing us to move up the occupational ladder to jobs that are more productive and better paying. In a new study from the Cato Institute, titled “Restriction or Legalization? Measuring the Economic Benefits of Immigration Reform,” this phenomenon is called the “occupational mix effect” and it translates into tens of billions of dollars of benefits to U.S. households.

Our new study, authored by economists Peter Dixon and Maureen Rimmer, found that legalization of low-skilled immigration would boost the incomes of American households by $180 billion, while further restricting such immigration would reduce the incomes of U.S. families by $80 billion.

If you watched the above video you heard what Vernon Briggs from Cornell University had to say about people who do manual labor in the US.  His best remarks are in clip 17 of the above playlist.  How does the Cato Institute propose people who have been pushed out of their jobs climb the elusive “corporate ladder?”  People need to take into account who funds and who benefits from the activities of the Cato Institute.

Global Exchange takes into account the impact of immigration on both Mexico and the United States.  Instead of looking at who’s going to benefit from immigration, they look at who’s suffering.  Global Exchange examines why people from Mexico are fleeing from Mexico to the United States.  This is the cause of the problem.  You can’t treat strep throat with aspirin and you can’t address illegal immigration by pointing at all the symptoms and not addressing the cause — why are people in Mexico so poor they are migrating to the United States?

One thing we should first look at is How the International Monetary Fund and the World Bank Undermine Democracy and Erode Human Rights: Five Case Studies.  This article covers five (5 ) countries starting with Mexico:

Mexico: A “model student”?

For nearly 20 years, Mexico has followed almost every economic policy mandate from the International Monetary Fund and the World Bank. Mexico’s compliance with IMF dictates has been so reliable, in fact, that in 1994 the IMF and the World Bank lauded the country as a “model student” that other Latin American countries should emulate. Some model. Since Mexico first adopted the IMF prescriptions of trade “liberalization,” privatization and deregulation, real wages have fallen, poverty and inequality have increased, and the country’s massive debt burden has grown.
Mexico’s experience with IMF policies offers a clear example of how the Fund sacrifices the well being of ordinary people to suit the interests of international investors. In an effort to head off short- term financial crises — and calm investors’ fears — the IMF has undermined Mexico’s chances of creating a stable, well-balanced economy.

The IMF Arrives in Mexico
Many US citizens assume that Mexico’s entry into the new global economy occurred when the country signed the North American Free Trade Agreement (NAFTA) in 1993. But Mexico’s economy was opened up to the forces of corporate-led globalization long before NAFTA went into effect. Before anyone had heard of NAFTA, the IMF was already setting Mexico on the structural adjustment path.
In 1982, a fall in international oil prices combined with a rise in interest rates in international financial markets forced Mexico to announce that it was on the verge of defaulting on its foreign debt. The “debt crisis” of 1982 also impacted countries throughout Latin America, Africa and Asia, giving the IMF the chance to determine the fiscal and monetary policies of countries around the world.

Mexico asked the IMF for assistance, and the Fund obliged with a $3.9 billion credit package. The IMF’s 1982 assistance package was strictly quid-pro-quo. To receive the new loan — and the Fund’s all-important seal of approval, which opens the door to other public and private credit — Mexico would have to embark on a series of market reforms. Public spending would have to be cut, government enterprises would need to be privatized, industry would have to be deregulated, and the country would have to open up to more foreign trade and investment. Subsequent agreements with the IMF in 1986 and 1989 further cemented this policy path.

In an effort to boost foreign investment in Mexico and decrease the country’s imports — which would hopefully lower the country’s trade (or current account) deficit — the IMF in the late 1980s sought to contract economic activity and stabilize wages. The IMF worked with the Mexican government and the country’s businesses and government-controlled labor unions to establish a set of social pacts, or “Pactos,” to keep wages in check. Workers’ earnings were indexed to “expected” levels of inflation. Unfortunately for Mexican workers, inflation rose more than expected. Between the implementation of the first Pacto in December 1987 and May 1994, the minimum wage increased by 136 percent, while the cost of a basic basket of consumer goods rose by 371 percent.

That sort of decrease in real earnings would lead Mexicans to call the 1980s the “lost decade.” During the 1980s, real wages (adjusted for inflation) declined by more than 75 percent, and between 1981 and 1990 workers’ share of national income fell from 49 to 29 percent. Government investments in education, research and development, and infrastructure were reduced. The IMF policies, which supposedly were intended to make Mexico more internationally competitive, were actually doing the opposite by limiting investment in the very areas needed to make a country more productive. It was a development “strategy” doomed to fail.

The Cost of Privatization
While ordinary wage earners saw their incomes plummet, they were confronted with increasing consumer prices. Since 1983, Mexico has sold off nearly 1,000 public enterprises. These privatizations were intended to inject come cash into government coffers. While the sell-offs did, in the short term, earn the government new money, the privatizations hurt ordinary consumers. The privatization of Telmex, the country’s phone system, is just one example of how the IMF privatization agenda hurt average citizens more than it helped them.

In 1990 President Carlos Salinas de Gortari sold off the country’s profitable phone system, Telmex. The World Bank provided substantial technical assistance to the Mexican government to help with the sale. The winners were multinational communication corporations Southwestern Bell and France Telecom. Mexican phone users were the losers. In the months before the sale — in an attempt to make the Telmex a more attractive buying prospect — the government increased rates on local calls from 16 pesos per minute to 115 pesos per minute.

In a 1992 report, the World Bank admitted that “the privatization of Telmex, along with its attendant price-tax regulatory regime, has the result of ‘taxing’ consumers — a rather diffuse, unorganized group — and then distributing the gains among more well-defined groups, shareholders, employees, and the government.” The Bank predicted that rates would decrease in the long run. But the long run still hasn’t arrived. Although rates on international calls have dropped, that decrease has been offset by a rise in the cost of long distance calls within Mexico.

Other privatizations have been equally distressing for average Mexicans. The World Bank has concluded that privatization contributed to a “worsening of the already skewed and concentrated pattern of ownership distribution in the economy.” A glaring example of this is corn, Mexico’s traditional staple crop. For years, small scale farmers have seen government support evaporate as the IMF demanded an end to tariffs and import quotas on the grain and an elimination of government assistance with marketing and distribution of locally grown products. In recent years, a flood of subsidized US corn has caused a 45 percent decrease in the prices corn farmers receive for their commodity. This has pushed millions of farmers off their land and into the urban ghettoes or toward the US. And yet — because of the monopolistic control of the Mexican corn processing industry — consumer prices have not gone down. In fact, tortilla prices have actually increased in the last 15 years.

A “Success” Built on Sand
By the early 1990s, after the “lost decade,” the Mexican economy started to show signs of improvement. Inflation came down, and some economic growth occurred. But it was a success built on sand. The Mexican economy was relying more and more on foreign capital flows, most of which were short-term portfolio investments. The increasingly volatile capital flows boosted the Mexican peso, a benefit for foreign investors, but it worsened the country’s trade deficit by making Mexican exports more expensive.

By mid-1994, foreign investors — assuming the Mexican government would devalue the peso to make exports more competitive — began pulling their money out of Mexico. In December 1994, Mexican officials were forced to devalue the peso. In January 1995, the government again asked the IMF for assistance. The IMF lent the country $7.75 billion, and the US Treasury loaned another $18 billion. A new round of privatizations were prescribed to raise quick cash and pay off the loans. Under the 1995 agreement with the IMF, transportation, banking and finance, railways and the petrochemical industries were all to be sold off. Once again, the IMF was offering policies that responded to the short term financial concerns of international investors rather than to the basic needs of or ordinary Mexicans.

The1995 peso devaluation — combined with an IMF-mandated rise in interest rates designed to lure investors back to Mexico — sparked the worse depression in Mexico in 60 years. Unemployment doubled. More than 12,000 Mexican businesses filed for bankruptcy. And millions of families dropped below the poverty line.

As the Mexican economy came virtually to a standstill, the IMF blamed the Mexicans, complaining that human error and mismanagement of financial variables had led to the crisis. The IMF’s attempt to shift blame for the economic collapse seemed to many Mexicans an insult. The country had followed all of the Fund’s prescriptions. The peso devaluation, after all, was due in large part to the short-term capital flooding the country, and that flood was precipitated by the deregulation of the country’s financial markets which the Fund had demanded.

Trading Away the Future
Even as its economy was shrinking, Mexico was implementing the other pillar of the IMF’s structural adjustment package — trade liberalization. In 1994, NAFTA went into effect, creating a giant “free trade” block among Mexico, the US and Canada. The agreement contained many “reforms” the IMF had long been asking for, among them a provision allowing 100 percent direct foreign ownership of Mexican companies. NAFTA also modified Article 23 of the Mexican Constitution, which had protected communal property, known as ejidos, from being broken up. The article was another long-time object of IMF and World Bank ire. The constitutional change removed many people’s guarantee that they would have access to land, thereby putting more people in financial jeopardy.

In the years following the 1995 crash, Mexico did enjoy some steady macroeconomic growth. But the benefits were not evenly spread. The number of Mexicans living in “severe” poverty (surviving on less than $2 a day) has grown by four million since NAFTA began. Wages, instead of increasing, have declined. Mexican manufacturing workers are today earning almost 10 percent less than they did before NAFTA. The 1990s, just like the ten years before, were a “lost decade.”

Today, after two decades of following IMF prescriptions and seven years of the NAFTA experiment, Mexico remains a country racked by poverty and inequality. A majority of Mexicans live below the poverty line. Even the World Bank concedes that 15 years of trade liberalization in Mexico have not succeeded in closing the gap between rich and poor. In almost every social sector — health, nutrition, housing, education — virtually all of the key indicators show serious deterioration over the last 15 years. Today one can speak not just of a lost decade, but of a lost generation.
The Same Old Policies
And what about the debt burden that started Mexico down the structural adjustment path? It has gotten even worse. In 1982, Mexico’s total foreign public debt was $57 billion. In 1993 it amounted to $80 billion. By 1997, the country owed $99 billion in public debt. This stranglehold of debt continues to force Mexico to attract foreign investment by any means necessary, including trading away the basic rights of its workers and failing to enforce environmental regulations.

Despite the failures of this “model student,” the World Bank and IMF are still prescribing the same old policies for Mexico. In May 2001, the World Bank offered specific recommendations to Mexican President Vicente Fox on the country’s labor policies. The Bank said that if Mexico wanted to attract more foreign investment, it would need to increase the “flexibility” of Mexican labor. The Bank suggested that Mexico eliminate its regulations regarding mandatory severance pay, collective bargaining, obligatory benefits for workers, company-sponsored training programs, and company payments to social security and housing plans.

President Fox said the recommendations were “very much in line with what we have contemplated.” But a leading Mexican industrialist, Claudio X. González, who heads Mexico’s most influential business organization, was surprised by the Bank plan.

“Some of these proposals of the World Bank are not made even to the most developed nations,” González said. “Why are they then being recommended for the emerging countries?”

More Information:

For a more in-depth examination of what has caused poverty in Mexico, see Global Exchange’s free online book The Right to Stay Home.