July
1, 2003, 10:40 a.m.
Bush Can’t Help Mexico
It’s at
home where Mexicans need jobs.
By Nicole Gelinas
exican president Vicente Fox has been pushing President Bush to formally
open the American border to Mexican workers for two and a half years now.
A post-9/11 Bush won't sign off on the migration scheme. But Fox soldiers
on, for pursuing an open-border policy is easier than fixing problems
at home. Mexico is losing its NAFTA-created jobs by the hour to cheaper
labor markets, as initiatives to attract and keep foreign employers remain
stalled in the nation's deadlocked legislature. Unless Fox can win a victory
for his party in Mexico's midterm legislative elections next week, Mexicans
can expect more of the same.
The decade-old
North American Free Trade Agreement tied Mexico's fortunes to those of the
United States. Bilateral trade has nearly tripled since NAFTA was ratified.
But this growth has stagnated since 1999, and not just because of the weak
economy here. Mexico is hemorrhaging its jobs to China.
Mexico can no longer compete with China on cost. The average Mexican worker
makes $2.96 an hour in salary and benefits; the Chinese worker makes just
72 cents. Mexico has lost 200,000 jobs directly to China in the last 18
months alone, Fitch Ratings reported last month. China has surpassed Mexico
within the past three years to become the top apparel exporter to the U.S.
But the jobs erosion is not limited to unskilled labor sectors. Companies
that have exported jobs from Mexico directly to China in the past two years
include Philips, Sanyo, and Sony, according to a report released earlier
this year by Merrill Lynch strategist Robert Berges. Motorola has also cut
some of its Mexican production in favor of new factories in China. Even
SARS can't stop the Chinese juggernaut; Berges reported last month that
China continues to close the gap despite the virus' expected "marginal
positive impact" on Mexican exports.
China has also beaten Mexico in manufacturing markets. China continues to
gain ground in the mid-skilled telecom equipment-making industry, having
increased its share of that market from 12 percent in 1999 to 17 percent
last year while Mexico has stagnated, according Berges. At this rate, China
will soon surpass Mexico as the world's second-largest exporter of goods
to the U.S.
So how can Mexico save itself? Mexico excels in manufacturing and exporting
products that require close proximity to the U.S. market, like autos and
other heavy equipment. But Mexico risks losing these jobs to China as well
if it cannot improve its domestic investment environment.
International analysts from across the political and economic spectra agree
that President Fox must spearhead legislation to improve energy infrastructure,
to simplify tax rates, and to foster a more diversified labor pool in order
to attract jobs to his foundering nation.
A top-down reform of Mexico's electric-power system is central to attracting
foreign industrial investment. Today, industrial electricity users in Mexico
must choose from a complicated array of regulations to ensure reliable access
to the aging power grid. Investors who are willing to spend up to $500 million
of their own capital to build proprietary sources of power still can't avoid
years of negotiations with Mexico's federal power authority before they
can break ground on new power plants.
International corporations shoulder a disproportionate burden of corporate
taxes in Mexico, due to rampant domestic tax evasion. Although Mexico's
federal corporate tax rate will fall from 33 to 32 percent this year, Merrill
Lynch's Berges said, international investors in Mexico must dedicate significant
financial resources toward keeping up with constantly changing state and
local tax laws.
Mexico's lawmakers would do well to simplify the corporate tax structure
and to broaden the country's tax revenue base to reduce reliance on payments
made by foreign corporations. An increase in the national value-added tax
on consumer goods would diffuse the tax burden, Berges said. But he added
that he is "not optimistic on this one."
As for human capital: In addition to damage done over decades of union corruption,
the labor pool itself is shallow. Mexico has not done enough to reduce its
dependence on the oil industry and to create an educated middle class that
would attract the offshore customer service-oriented jobs that are buoying
the economies of India and west Africa. A decade into NAFTA, Mexico still
derives a full third of its federal tax revenues from the export of oil.
Progress on these fronts is scarce. Fox's National Action party (PAN) does
not control either house of Mexico's legislature. Fox's early attempts at
structural reform have been consistently blocked by the rival Institutional
Revolutionary Party (PRI), whose leaders in congress are unused to their
new role as the opposition after nearly a century of exclusive power.
Fox has just one chance to regain momentum before his single term allowed
under Mexico's constitution ends in 2006 — he must alter the balance
of power in the lower house of Congress via a midterm election victory for
the PAN in July. Fox's party must win 43 percent of the total popular vote
in the July 6 legislative election to gain a full majority of seats in the
house under Mexico's unique "governability clause" of proportional
representation.
Fox's PAN party has unveiled a reform-minded slogan for the election: "Vote
for the PAN; take away the brakes on change." But Fox must campaign
aggressively over the next week to make any headway against the PRI, whose
greatest electoral ally is voter apathy.
To win, Fox must repeat the high-turnout strategy that propelled him to
victory in the 2000 presidential election. According to Merrill Lynch political
strategist Carlos Peyrelongue, Fox must convince 70 percent of the electorate
to come out to the polls in July to counter the PRI's expertise in conducting
more selective get-out-the-vote drives. Recent trends work against him;
disillusioned by two years of paralysis, a majority of voters boycotted
statewide elections this year.
As of last week, Fox's PAN party trailed the PRI by five percentage points
in the polls, with 33 percent and 38 percent shares of the electorate respectively,
according to local newspaper Reforma. More ominously, the PAN has
actually lost four points against the PRI since an earlier poll was taken,
and is down 14 points from a December 2002 peak. Meanwhile, the PRI has
quietly picked up support, advancing from a nadir of 30 percent when Fox
won the national election to 38 percent today. Reforma reported that
polls show voter absenteeism could reach 50 percent. Young Fox supporters,
depressed from two years of political inaction, are the most likely to stay
home.
The good news? Fox doesn't need Bush's help to overcome these hurdles. At
best, Fox's fixation on free migration to the U.S. is a distraction. (One
can see why he sticks to it. Dollars earned by Mexican citizens in the U.S.
and wired to relatives at home serve as a de facto unemployment insurance
program in Mexico; entire towns subsist on Western Union transfers.)
For Bush to accede to Fox and sign off on open migration to help Mexico
would just delay the obvious and the inevitable: Mexicans need jobs at home.
Fox and his citizens must stop looking for a miracle across the desert.
—
Nicole Gelinas is a third-year candidate in the Chartered Financial
Analyst (CFA) program and is a frequent contributor to the New York
Post op-ed page.
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exican president Vicente Fox has been pushing President Bush to formally
open the American border to Mexican workers for two and a half years now.
A post-9/11 Bush won't sign off on the migration scheme. But Fox soldiers
on, for pursuing an open-border policy is easier than fixing problems
at home. Mexico is losing its NAFTA-created jobs by the hour to cheaper
labor markets, as initiatives to attract and keep foreign employers remain
stalled in the nation's deadlocked legislature. Unless Fox can win a victory
for his party in Mexico's midterm legislative elections next week, Mexicans
can expect more of the same.
