Tuesday, December 31, 2013

Jorge Castañeda and the wrong lessons from Liberalization Reforms

Jorge Castañeda, ex-advisor to the left of center candidate Cuauhtémoc Cárdenas, and ex-foreign affairs secretary in the right wing administration of Vicente Fox has written here about the need for further reforms in Mexico. He sings the praises of NAFTA.
"NAFTA brought with it a spectacular increase in Mexican exports, as well as a dramatic shift in their composition. But it proved to be a great disappointment in terms of foreign investment inflows and economic growth, which has averaged 2.6% per year over the last two decades – slower than Peru, Chile, Colombia, Brazil, and Uruguay. As a result, Mexico’s income gap with the US and Canada has barely narrowed."
The change in exports was basically associated to an acceleration of the 'maquilization' process, manufacturing exports with low local value added content. No comments on the massive immigration* and the fact that neither growth nor income distribution have improved after NAFTA (both claims often made about what to expect from it from the free trade crowd).

So what should Peña Nieto do? According to Castañeda:
"Energy reform opens up electricity generation and oil exploration, extraction, and refining to private foreign or domestic investment through licenses, concessions, production sharing, or profit sharing. The oil workers’ union has been banished from the board of directors of Pemex, the national oil company, and new contracts for shale oil and gas, together with deep-water prospecting and drilling, will be signed with a government agency, not with Pemex. 
Once the myriad legal and political obstacles are cleared, Mexico will be able to increase oil and gas production, drive down the price of electricity, and stimulate growth in an otherwise lethargic economy."
In other words, deregulation, weakening of unions to attract foreign capital (more secure environment for capital, since Mexico is such a paradise for workers), and that would lead to growth. No changes from the old Washington Consensus mantra.

You would expect that the failures of "Free Trade", liberalization and deregulation were incorporated, as much as the lessons from financial deregulation in the US after the 2008 crisis, but the resilience of Neoliberal ideas, in the face of adverse evidence, is impressive indeed.

* On lack of convergence with the US and immigration Blecker and Esquivel say: "the data show that there has been no economic convergence whatsoever between Mexico and the United States since NAFTA’s enactment. As a result, the historical Mexico-US economic gap in percentage terms has not been reduced after 15 years of free trade, and the incentives to migrate are probably even greater than before." Read their assessment of NAFTA here.

1 comment:

  1. Mexico has a long history of following "orthodox" economic policy advice; indeed, this was supposed to make it a rich country during the Porfiriato, a century before it was supposed to make it a rich country under the Washington consensus. This is somewhat odd, given that just to its north, the US grew rich under the Hamiltonian regime that forcefully rejected the orthodox view (and particularly, grew rich following two of the most radical measures in its history, the Homestead Act and the uncompensated abolition of slavery). But it's only somewhat odd, since Americans themselves are strangely unaware of these aspects of their country's history.



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