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Neoliberalism and Globalization


Project: Neoliberalism and Globalization
Open-Content project managed by AJB, mtuck

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This project will attempt to document the causes and effects of the neoliberal form of capitalism and its influence throughout the globe.

A combination of factors puts the Mexico into a major balance of payments crisis. US Federal Reserve Bank Chairman Paul Volcker’s decision to increase the Federal Reserve’s interest rate (see October 6, 1979) increases the amount of debt held by the Mexican government. In addition, a decrease in the global price of oil and a recession in the US (thereby decreasing US demand for Mexican goods) makes it harder for Mexico to pay off the debt on its own. The Mexican government decides to devalue the peso, its national currency, by 78 percent. (Hart-Landsberg 12/2002)

The Mexican government temporarily suspends payments of its foreign debt and requests that the US offer some form of emergency aid. It also devalues the peso again by 60 percent. (Hart-Landsberg 12/2002)

The International Monetary Fund approves of a $3.9 billion to the Mexican government. As a condition for receiving the loan, the Mexican government is expected to engage in a series of free market reforms. Such reforms include: fiscal austerity, privatization of state-owned companies, reductions in trade barriers, industrial deregulation, and foreign investment liberalization. (Farnsworth 12/24/1982, pp. D4; Global Exchange 9/2001, pp. 3 pdf file)

The IMF’s recommended reforms are widely viewed to have a negative effect on the earnings of the average Mexican. For example:
bullet In the period between 1983 and 1988, per capita income falls at a rate of about 5 percent per year.
bullet In the same period, the value of workers’ real wages falls from 40 to 50 percent.
bullet The share of national income received by workers declines from 49 percent in 1981 to 29 percent in 1990.
bullet Adjusted for inflation, the Mexicans’ real wages fall by 75 percent throughout the 1980s. (Global Exchange 9/2001, pp. 4 pdf file; Harvey 2005, pp. 100)

The Mexican government, in 1984, controls about 1,212 firms and entities. By December of 1988, this number will be reduced to 448 through a massive privatization program. (Hart-Landsberg 12/2002)

Financial sources inform media outlets that the Mexican government’s failure to cut its budget deficit in accordance with an IMF austerity program may jeopardize its access to $908 million worth of assistance. This news comes at about the same time as an earthquake hits Mexico that will require the government to spend even more on reconstruction, thereby increasing the deficit. The IMF says that it will not make any exception as a result of Mexico’s fiscal needs following the earthquake. (Kristof 9/20/1985, pp. A6)

The Mexican government, with technical assistance from the World Bank, sells off a profitable phone company called Telmex. In the months preceding the sell-off, the Mexican government increases the rate of calls by local users from 16 pesos per minute to 115 pesos per minute in order to make the company more attractive to potential buyers. This makes the privatization of the phone system detrimental to consumers. In a 1992 report, The World Bank will admit that “the privatization of Telmex, along with its attendant pricetax 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.” (Global Exchange 9/2001, pp. 4 pdf file)

Around $91 billion flows into the Mexican economy from foreign investors, allowing for a certain degree of economic growth. This growth slows down in 1992, however, as trade and current account deficits increase sharply. The deficits suggest a large deterioration in the country’s economic base during the 1980s. (Hart-Landsberg 12/2002)

In preparation for the North American Free Trade Agreement (NAFTA), Mexico opens up its financial services to foreign ownership. By 2000, 85 percent of the banking system will be owned by foreign entities and lending to Mexican businesses will have dropped from 10 percent of the GDP to 0.3 percent. (Jones 3/2007, pp. 3)

In early 1994, investors pull money out of the Mexican economy in response to an increase in US interest rates and political instability. This causes the Mexican government to lose massive amounts of reserves and lead it to allow the peso to float in December of 1994. In January of 1995 it again asks the IMF for assistance and receives packages from both the IMF and US Treasury. This time, massive privatizations of “transportation, banking and finance, railways and the petrochemical industries” were recommended as a way of paying off the loans. A devaluation of the peso in 1995 along with an IMF-mandated rise in interest rates triggers the worst depression in Mexico in 60 years. GDP falls by 6.2 percent, wages fall by 25 percent, unemployment doubles, and 12,000 Mexican firms file for bankruptcy. (Global Exchange 9/2001, pp. 4-5 pdf file; Hart-Landsberg 12/2002)

A 15-year period begins during which most trade barriers between the US, Canada, and Mexico will be dismantled in accordance with NAFTA. The New York Times comments: “The government has taken few steps, however, to prepare smaller and medium-sized companies, poor farmers, and inefficient industries for the new competition. Even after a wave of industrial restructuring that cost half a million Mexican jobs, worker re-training programs are almost nonexistent.” (Golden 1/1/1994)

Under NAFTA, Mexico reduces its protection of domestic corn growers. This leads to a massive influx of corn from the US, where its production is heavily subsidized. This has the effect of reducing the price of corn in Mexico by 70 percent and ruining the livelihoods of some 15 million Mexican farmers who depend on the crop for income. (Fanjul and Fraser 8/2003, pp. 23 pdf file)

Around 100,000 farm workers march to the main square of Mexico City to protest the removal of duties on farm imports that occurred just weeks earlier (see January 1, 1994). They demand that the government renegotiate NAFTA to better protect Mexican agricultural producers. (Moreno 2/1/2003; Fanjul and Fraser 8/2003, pp. 23 pdf file)

The Mexican government, after weeks of negotiation with protesting farmers (see January 30, 2003), signs the National Rural Accord (also known as the National Agreement for the Countryside and the Development of Rural Society). The accord announces that the government will make “sweeping changes to rural infrastructure and state farm policy to modernize Mexico’s outdated agricultural system.” As part of the agreement, Mexico will also ask the US and Canada to allow for protection of Mexico’s rural economy, and review the possibility of implementing mechanisms against dumping and unfair competition. (Jordan 4/28/2003; Fanjul and Fraser 8/2003, pp. 23 pdf file)

In response to a suggestion by Mexico that it will put tariffs on corn to protect domestic farmers from subsidized US corn (see April 28, 2003), the Chairman of the US Senate Committee on Finance, Charles Grassley, writes a letter to Mexican officials stating: “Mexico has recently undertaken a number of actions against US agricultural products that undermine the spirit, if not the law, of NAFTA. Mexico’s continued pattern of not meeting its international trade negotiations is unacceptable.” (Fanjul and Fraser 8/2003, pp. 23 pdf file)

A report by the Carnegie Endowment for International Peace finds that the positive aspects of NAFTA just barely compensate for its negative effects. Among its findings:
bullet The net jobs gain in Mexico has been surprisingly small. In fact, 30 percent of all jobs that have been created in the maquiladora sector (export assembly plants) have been lost as company operations have since moved to lower wage countries such as China.
bullet Despite growth in productivity, real wages in Mexico are lower than they were when NAFTA first took effect. Although this can partially be attributed to the Peso Crisis of 1994-1995. It is also noted that wages in Mexico are “diverging from, rather than converging with, US wages.”
bullet Income disparity has grown drastically, with the top 10 percent of households having increased its share of the national income while the remaining 90 percent has lost its share or has seen no change at all. (Papademetriou et al. 8/2003)

Members of the Local 22 of the National Education Workers Union (SNTE) delivers a list of economic grievances to Ulises Ruiz Ortiz, the governor of the Mexican state of Oaxaca. After receiving no official response, hundreds of teachers start to encamp themselves in the state’s historical center with the support of numerous anti-neoliberal organizations. The movement manages to block five access ways to the Oaxaca international airport on June 1 and attract a “mega-march” of around 80,000 people the next day. (González and Baeza 7/2007)

About 2,000 state police attempt to evict the striking teachers from the Oaxacan city square “wielding clubs and firing tear gas.” They fail as the protestors quickly resume their positions but manage to injure at least 66 people. The teachers accuse the police forces of killing four; the Mexican national human rights commission will allege that they also “beat sleeping teachers with truncheons.” (Agence France-Presse 6/14/2006; Tobar 6/19/2006; González and Baeza 7/2007)

The Popular Assembly of the Peoples of Oaxaca (APPO) is formed in response to the recent crackdown. It is “comprised of around 365 social, political, human rights, non-governmental, environmental, gender, student, and union organizations, the indigenous communities, and thousands of independent Oaxacans.” Its main goal is the ouster of “the fascism personified in the state governor,” Ulises Ruiz Ortiz. (González and Baeza 7/2007)

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