Transcript Mexico economy - Mercer Island School District

Mexico Section 2
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Political Economy and Development
The State and Economy
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Early Industrialization: foreign investors control key industries
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State Capitalism: Capitalism with the state as a primary investor
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Agro-Export Model: Begin exporting major natural resources but
eventually import more than they export
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Import Substituting Industrialization (ISI): huge success for 30 years;
the government wants to make the imported products domestically
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When ISI fails in the 70s, it leaves a large disparity between the rich
and poor, foreign debt, and devalued peso
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Oil: In response, massive amounts were exported. The revenue funds
social and economic programs. When oil prices drop, Mexico has an
economic crisis.
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Deregulation: Government gives away its control of certain industries.
They are bought and controlled by few, wealthy investors. This shifts
power from central to local governments.
State Capitalism
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Response to prior foreign investors
The people wanted the government to have this control
and responsibility over the economy
Government encourages private investment by making
it “safer”
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Agro-Export Model –
used during the Porfiriato
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Export all agricultural
products, minerals,
petroleum
Import all other
manufactured goods
Import cost > Export
revenue
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Import Substituting Industrialization (ISI)
1940-1982
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Build up internal infrastructure
to manufacture goods
Use credit and tax incentives,
low inflation rates
Subsidize worker’s food,
transportation, housing, health
care to allow cheap labor
Government builds mills,
power generators, ports, oil
infrastructure which are
protected by tariffs
Successful campaign until oil
prices dropped
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Effects of the ISI
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Buildup of Mexican manufacturing
Un-proportional higher standard of living
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Oligarchs of Mexican agricultural economy = large, commercial
farmers
Oligarchs of Mexican business = corrupt politicians who abused
power
Policies are created in favor of certain powerful groups
who control large sectors of the economy
Less motivation results in a slowing of the economy
Migration to the cities (Mexico City 1.5 -> 8 million)
Population Increases dramatically
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Higher standard of living
Religion
Effects of the ISI Continued
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Informal Sector: the people selling churros and tacos
The people who suffer:
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Rural Guerrilla movements
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Peasant farmers
Ejido community farmers
Urban poor
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Unhappy with disparity in incomes, quality of social care
Advanced manufacturing = Foreign investment and imported
technology
Oil
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1970-1982
In early 1970’s, with increased
social instability “agro-export” model
gives way to “export-all-our-oil”
model.
International oil prices rise, Mexico
profits.
Private sectors borrow heavily.
Amassed huge foreign debt, peso
value declines.
Oil prices drop, sparking economic
crisis.
Wealthy Mexicans send money out
of the country, capital flight.
Mexico couldn’t pay interest on
foreign debt.
Cut off social programs,
dissatisfaction in government rose.
They try to set their own oil prices –
REBUKED by OPEC
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35
30
25
20
Oil Prices
15
10
5
0
1978
1981
1982
1986
“Mexican Miracle”
After Cardenas left office policy makers moved away from developing ejidos to developing a strong
entrepreneurial private sector in agriculture.
•Aimed to provide food stuffs for growing cities, raw materials for industry, and foreign exchange for
exports.
•Government encouragement through investing in transportation networks and irrigation plans;
assistance was provided to large land owners predominantly.
•1940-1950 GDP grew at an annual avg. of 6.7% and Manufacturing increased at an avg. 8.1%
•1950s manufacturing achieved a 7.3% growth and 10.1% growth in 1960’s.
Economic performance referred to as the “Mexican Miracle”
New Strategies and Democratic
Institutions
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1988 Carlos Salinas (PRI) elected.
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Economy deregulated, key industries opened to private
investors. Corruption decreases with less power in hands of
government officials.
Government decentralized.
NAFTA created.
Political accountability focal point of reforms.
PRI loses executive post for first time in 71 years.
Society and Economy
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Wealth disparity.
Urbanization.
Reduced quality and availability of social services.
Malnutrition.
Wages low, taxes increase.
Cost of living increases.
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Mexico and the International Political
Economy
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Changed foreign policy to attract outside
investors after oil crash of ’82.
General agreement on tariffs and trade
(GATT), to promote trade.
North American Free Trade Agreement
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Created in 1993, trade agreement between Canada, US, and
Mexico to open trade barriers.
Risks: Domestic producers in Mexico worry about competition
from US. Peasant farmers suffer from lower prices in US. Loss
of sovereignty. More risk from changes in US economy. US
culture influence Mexican culture. Susceptible to political
exploitation.
Benefits: $50,000,000,000 from US. Fostering political
accountability. Increased scrutiny by other countries of Mexican
affairs.
Mexican economy boosted, while poor still suffered.
Strong ties with US.
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