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Mexico’s Economic Policies, Not American Capitalists, Hurt Its Workers

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Mexico’s Economic Policies, Not American Capitalists, Hurt Its Workers

A migrant from Honduras, part of a caravan trying to reach the United States, jumps a border fence to cross illegally from Mexico into the U.S., in Tijuana, Mexico, December 27, 2018. (Mohammed Salem/REUTERS)

Tore Olsson, a historian at the University of Tennessee, cleverly argues in the Washington Post that “if Trump wants to stem migration from Mexico, he should also consider keeping Americans out of Mexico.” What follows is a meditation on the supposed role that profit-seeking U.S. business enterprises have played in transforming the Mexican economy, and how said transformation has stimulated Mexican migration to the U.S. There is certainly some truth to Olsson’s account, and the notion that the lowering of Mexico’s agricultural tariffs and a resulting surge in subsidized U.S. imports brought about “a second depopulation of rural Mexico, pushing millions of former peasants into a migrant stream headed north to alleviate this newfound poverty” is familiar in left-wing circles (see, for example, David Bacon’s The Right to Stay Home). Olsson usefully points to the role of gender in the post-1960s history of Mexican migration. Because U.S.–owned maquiladoras often preferred to hire women over men, male migrants from central and southern Mexico who were drawn to northern Mexico by the promise of employment opportunities often found themselves in an awkward position. Having already left home, many decided to live and work in the U.S. as unauthorized migrants, where they were helped along by the systematic underenforcement of immigration laws. Nevertheless, Olsson’s attempt to blame American capitalists for the plight of Mexico’s poor is a bit too clever. To make his case, he neglects a number of pretty important facts that vitiate his argument.

For one, migration from Mexico to the U.S. has slowed down sharply. Is this because U.S. corporations have decreased their presence in Mexico, or because demand for illegal narcotics has plummeted? Hardly. During the height of the Mexican migration to the U.S., Mexico’s working-age population was growing rapidly. That is no longer the case. Indeed, the Mexican population is aging more rapidly than that of the U.S. As growth in the supply of working-age adults starts to slow down, so too does growth in the supply of potential migrants. You’d think the decline in Mexican migration would be germane to Olsson’s thesis, but he fails to mention it.

Further, the U.S. corporations that Olsson sees through such a jaundiced eye have also contributed to the ongoing modernization of the Mexican economy, which according to the World Bank has now achieved upper-middle-income status. With a GDP per capita of almost $9,000 in purchasing-power parity terms, Mexico has passed the threshold beyond which emigration typically declines. Indeed, Mexico itself is becoming a more desirable destination for migrants, to the point where its new leftist president, Andrés Manuel López Obrador, has moved to deter further unauthorized migration from Central America by stationing troops at illegal crossing points along Mexico’s southern border with Guatemala.

How is it that Mexico achieved upper-middle-income status? Like many countries, the Mexican population has urbanized and, relatedly, its workforce has shifted from subsistence agriculture to higher-productivity sectors. Even so, its productivity performance hasn’t been notably impressive in the NAFTA era. The real question is why Mexico’s economic progress hasn’t been more rapid and more widespread. Is it because of the depredations of Yankee capitalists, as Olsson suggests? Not really. If anything, a bigger problem is that large swathes of Mexico’s economy are dominated by a small number of inefficient local monopolists and its hydrocarbon sector has long been dominated by a lumbering state-owned enterprise, which has not done a terribly good job of adopting organizational innovations that have greatly improved productivity north of the border.

And according to economist Santiago Levy, formerly of the Inter-American Development Bank, Mexico has inadvertently hobbled its productive formal sector while keeping its large informal sector afloat. Formal businesses — think registered corporations with salaried employees that have little choice but to pay their taxes and abide by regulations, as they’ve achieved the kind of scale that makes it hard for them to operate below the radar — bear a heavy tax and regulatory burden, as if employing people in stable, salaried jobs were a bad thing. Self-employed individuals and businesses that pay people off the books, in contrast, face a comparatively modest tax burden, if they pay their taxes at all, and their workers can rely on an expanding safety net offering unconditional pension and health benefits. This is certainly not to suggest that Mexico’s welfare state allows its poorest citizens to live on easy street. Far from it. Rather, the issue is that the Mexican economy is plagued by the misallocation of resources: Instead of flocking to the most productive firms, workers are stuck working for stagnant mom-and-pops or hanging their own shingles in businesses that can never truly achieve scale. The most productive firms, meanwhile, find it difficult to grow, as the government puts all sorts of barriers in their way. If Mexico were to level the playing field between the formal and informal sectors, the country could expect more-robust productivity and employment growth and, relatedly, there’d be even less appetite for emigration.

Contra Olsson, it is not an invasion of Yankee capitalists that is driving Mexican workers northward. It is more accurate to look to Mexico’s own domestic policies as the culprit. By allowing its formal sector to flourish, Mexico would do a much better job of serving the interests of its workers and of closing the still-large economic gap with the U.S. Increased openness to the high-productivity foreign firms seeking to expand their operations in Mexico would be a help, not a hindrance.

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