ActUpInSask.org is pleased to present the second in John W. Warnock's two-past series on Mexico.
by John W. Warnock
ActUpInSask.org
There was very little coverage of the Mexican election in the North American media this past July. But editorial opinion after the results were reported was uniform: Andres Manual Lopez Obrador and the Party of the Democratic Revolution (PRD) should shut up, accept their defeat and wait until the next election. Nevertheless, a few newspapers did mention that the president-elect Felipe Calderon of the National Action Party (PAN) would have a difficult time dealing with a "deeply divided country" where around 50 percent of the population lives below the poverty line.
Wasn't the North American Free Trade Agreement supposed to fix this problem? According to the World Bank, 50 percent of the population is living in poverty and around one-fifth are living in "extreme poverty," with an income of less than one U.S. dollar per day. This World Bank standard may be relevant to some countries in Africa, but it is ridiculous to apply it to Mexico where no one can survive on one dollar a day.
In 2002 the Mexican government introduced its own definition of poverty. It distinguishes between rural and urban poverty. The three classification are as follows, converted from Mexican pesos to U.S. dollars:
(1) Food-based poverty. Income is not enough to cover basic food expenses. This includes 20 percent of the population. Individual income is $50 per month in rural areas and $67 per month in urban areas.
(2) Capabilities poverty. Income is not enough to cover basic food, health, and education. This includes 27 percent of the population. Individual income is $60 per month in rural areas and $80 per month in urban areas.
(3) Basic needs poverty. Income is not enough to cover basic food, health, education, clothing, housing and public transportation. This includes 50 percent of the population. Individual income is $95 per month in rural areas and $137 in urban areas.
Poverty levels in Mexico City
The average household in Mexico has five members. In urban areas like Mexico City, this standard family would be expected to survive of $685 per month. This is the official basic needs poverty line.
These government classifications have been criticized by independent scholars who put poverty levels considerably higher. For example, since 1978 the Centre for Multidisciplinary Analysis (CAM) of the Faculty of Economics at the National Autonomous University of Mexico (UNAM) has been collecting statistics on what is actually required to live in Mexico City. Their basic needs basket is very limited: 35 items which includes food, toiletries, public transportation, electricity, and gas for cooking. It excludes rent, education, health, clothing, recreation and culture. While the government's urban basic needs poverty level was set at $4.57 per day per person in 2002, the actual costs of the CAM basket of goods alone was $28.82 per day.
In 2002 the minimum wage in the urban areas like Mexico City was $4.87 per day. Because of inflation and devaluation of the Mexican peso in relation to the U.S. dollar, between 1982 and 2002 the real value of the minimum wage had fallen by 82 percent. During the presidency of Vicente Fox (2000-6) it declined by 22 percent.
A study by Patricia Munoz of the Faculty of Economics at UNAM found that "the minimum wage that entered into force on January 1, 2006 is only enough to obtain 16 percent of what a worker could buy two decades ago with the same salary." The minimum wage in Mexico "has suffered the largest, most serious and drastic deterioration in all of Latin America."
Official government statistics report that 10.78 million Mexicans work for the minimum wage or less, which is around 24 percent of those who have some kind of employment. Forty one percent of workers earn the equivalent of two minimum wages or less.
Finding a job
The average family in Mexico needs a number of sources of income to survive. But the opportunities for employment are limited. Of the population of 106 million, around 44 million are considered to be actively involved in the labour market. Of these, only around 20 million are in jobs that pay a wage or a salary, and in 2004 only 45 percent of these workers were covered by the contributory social insurance system.
According to government calculations, during the years of the presidency of Vicente Fox, around 1.4 million workers entered the labour force each year. However, the economy only created on average 524,000 new jobs per year over this period. Thus 68 percent of new workers have had to survive in the "informal economy,' remain unemployed and dependent on their families, or have fled to the United States. Around 1.3 million people work in the streets.
During the period between 1961 and 1980 the average per capita real economic growth in Mexico was 3.4 percent, higher than in either the United States or Canada. The rate of inflation was very low, and the industrial sector of the economy grew. So did formal employment and wages. At the time, the World Bank and other institution described this as Mexico's "economic miracle."
But this changed with the world recession of the early 1980s and the collapse of the price of oil. The Reagan-Thatcher free market and free trade model was forced on Mexico. Between 1981 and 1990 the average real rate of economic growth fell to -0.3 percent and rose only to 1.9 percent between 1991-2000.
While other middle income countries, like Hong Kong, South Korea, Taiwan and Singapore have been steadily narrowing the gap between their wages and those of the United states, this has not been true of Mexico. For example, in 1975 manufacturing wages in Mexico were 23 percent of those in the United States; this fell to 11.5 percent in 2001.
A study by Enrique Dussel Peters of the Faculty of Economics at UNAM found that between 1988 and 2001 those industries that were most affected by the trade liberalization policies represented by NAFTA showed a downward trend in real wages but had the highest rate of productivity increases. Employers in the export industries were getting much more out of their workers while paying them less in wages and benefits.
Nevertheless, with the internationalization of production, and the open economy, the major companies are shifting work out of Mexico. For example, the average wage for electronics workers in Guadalajara in 2004 was $US1.80 per hour; in Shenzhen, one of the high wage areas in China, it was $US0.77 per hour. Workers in the maquiladora factories in the border zones in Mexico complain that the shift in production to Asia and Central America has led to a downward pressure on wages during the Fox presidency.
Persistence of inequality
Official government figures show that between 1963 and 1985 inequality steadily declined. With the onset of the "lost decade" of the economy and the shift to the policies of neoliberalism, inequality again began to worsen. Some improvement has been seen since this low point. But in 2005 the top 10 percent of households averaged an income of $US4,261 per month; the bottom 10 percent of households averaged US$166 per month.
The U.N. Economic Commission for Latin America and the Caribbean points out that Mexico, a middle income country, "competes with other Latin American countries for the first places on economic, social and gender inequality." Very powerful business organizations preside over a hierarchical class and social system. Mexico is also described as a "pigmentocracy," for those families at the top stress their "whiteness" and Spanish blood while those at the bottom of the social hierarchy are the dark skinned indigenous peoples, who are also the poorest.
The Mexican government has introduced a new anti-poverty program, Progresa-Oportunidades, which is targeted to those living in extreme poverty. With a budget of $2.8 billion, it provides financial support for school supplies, expanded health services, and a payment of around $US15 per month to women for the purchase of food. By 2005 it provided cash subsidies to around five million families, or 24 percent of the total population. The program has faltered under President Fox.
One of the most serious obstacles to combating poverty is the fact that all Mexican governments have hesitated to impose taxes on corporations, wealth and those in higher income brackets. Between 1988 and 2002 social expenditures dropped as a percentage of gross domestic product from 11 percent to two percent. Government spending in general accounts for less than 20 percent of Mexico's gross domestic production, compared to over 40 percent in the developed countries.
The most important contribution to the reduction of poverty in Mexico is the remittance of earnings from family members working in the United States. The Mexican government reports that there are nine million Mexicans living and working in the USA; this increased by 2.5 million during the presidency of Vicente Fox. They are now remitting over $20 billion annually, most important to low income families.
Felipe Calderon has proclaimed that he will make the reduction of poverty and inequality the primary aim of his new government. Mexicans do not expect much to change. The structure of the economy will not change. The general policy shift away from serving the domestic market and emphasizing exports has led to lower rates of economic growth, relatively lower wages, the creation of few jobs, and increased inequality. Across Latin American similar trends have promoted the shift to the political left. Mexico is no exception.
John W. Warnock is a Regina political economist and author of The Other Mexico: The North American Triangle Completed. He was a member of the Canadian team of observers for the 1994 and 1997 Mexican federal elections. In February 2006 he did research on the maquiladora zone industries in Matamoros, Ciudad Juarez and Tijuana.
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