Mexico, the U.S. and the Economic Crisis

By John Peterson
October 24, 2008

"Poor Mexico! So far from God, and so close to the United States!" - Porfirio Diaz

There's an old saying that when the U.S. economy gets a cold, the Mexican economy gets pneumonia. For example, between 2000 and 2001, when the Internet bubble burst and the U.S. economy slowed from 3.7 percent to 0.8 percent, Mexico's economy went from 6.6 percent growth to zero, with devastating effects on the lives of millions of people. So what happens when the U.S. economy itself gets pneumonia? The deepening U.S. financial crisis is already having a violent knock-on effect around the world, and Mexico will be among the hardest hit.

Mexican President Felipe Calderon – considered by millions of Mexicans as illegitimate due to the blatant electoral fraud that brought him to power – has said that Mexico is no longer economically dependent on the U.S. and will therefore not be adversely affected by the crisis. Confronted with rising social instability and falling oil revenues, Calderon needs to put on a brave face and find a way to justify his government's increasing use of repression to maintain itself in power. Social discontent in the country is reaching the boiling point and a further hit to the Mexican economy could unleash an even bigger wave of mobilizations by the masses, with revolutionary implications. Unfortunately for Calderon, the reality is a far cry from his optimistic assessment.

According to Alfredo Coutino, a senior economist for Latin America at Moody's Economy.com: “Mexico is the most exposed economy to the U.S. recession.” And according to George Grayson, an expert on Mexico at the College of William & Mary in Virginia: “I think Calderon is sort of like a deer caught in the headlights of four onrushing tractor trailers.” How could it be otherwise when 80 percent of Mexican exports go to the U.S., and U.S. consumers and companies are cutting back across the board? Already, the U.S. economic crisis is having a devastating effect on millions of Mexicans (and Central Americans) living at home and abroad.

For decades, U.S. corporations shuttered factories and “shipped jobs off to Mexico” in pursuit of higher profits due to the availability of cheaper labor and weaker labor and environmental protections. Now factories in Mexico are being shut down and the jobs are being “shipped off to Asia.” According to the United Nations, from 1970 to 2007, Latin America's share of worldwide domestic product remained more or less unchanged at 5.7 percent, while Asia's share grew from 18 percent to 29 percent. Mexico's share of the world economy has now fallen from a 1980 high of 1.4 percent to just 1.2 percent. In other words, the region has stagnated for nearly 40 years, and even before the recent crisis, Mexico was on a downward spiral.

But these figures do not reveal the entire picture. Over the same period, the amount of wealth concentrated in the hands of a tiny minority has increased astronomically. This has led to the most unimaginable impoverishment of millions of Latin American workers, peasants and urban poor. A recent study by the Organization for Economic Co-operation and Development found that the greatest inequality between rich and poor among OECD countries is precisely in Mexico, where the income of the wealthiest 10 percent of households is more than 25 times greater than the poorest ten percent. The world's third richest person, just behind Bill Gates ($56 billion) and Warren Buffet ($52 billion) is not someone from Germany, Japan, or the Saudi royal family. It's Carlos Slim, a Mexican, with an estimated $49 billion in assets – more than the annual GDP of dozens of small countries put together. Slim made his fortune when the formerly state-owned telecommunications monopoly was sold off and became a privately run monopoly – just as they now hope to privatize the state-owned oil industry.

International currency markets have been in turmoil over the last few weeks, and the Mexican peso has fallen to new lows. The drop is comparable or even greater than the 1994 devaluation of the Mexican currency. For the first time since 1998, the Mexican Central Bank has been forced to sell dollars ($11.2 billion worth) in order to prevent the total implosion of the peso. The official rate is now roughly 14 Mexican pesos per U.S. dollar, although in some parts of the country, especially along the border, it has fallen as low as 17 to 1 on the street. This represents a steep drop in value, especially after several years of relative stability at between 10 and 11 to 1. There was even talk of the “super peso.” This is now finished.

According to reports from the border, retail sales have plunged. In the border city of Matamoros, Tamaulipas, Genaro Alonso Tavera, the former president of the an association of money exchange outlets reported business was down 30 percent. This has also led to a dramatic decrease in traffic from Mexico into the U.S., which is already affecting businesses on the U.S. side who depend on Mexican shoppers to stay open. In addition, consumer prices rose 5.47 percent in September from a year earlier, and are expected to rise further in October and November.

In other words, Mexican workers' purchasing power is being squeezed by both devaluation and inflation. An item – for example a kilo of tortillas – that cost 10 pesos just a few months ago, now costs 15 pesos or more. That's a colossal increase in the cost of living. This alone is a recipe for a surge in the class struggle on an even higher level than in 2006, when the struggle against the electoral fraud, several major strikes and student mobilizations, and the Oaxaca Commune shook the country from top to bottom. Those momentous events are just a hint of what's to come in the coming period. Even more serious confrontations between the classes are being prepared: the backs of the Mexican masses are against the wall and they have no alternative but to struggle.

The two most important sources of income for the Mexican economy are PEMEX, the nationalized oil industry, and remittances from Mexicans living and working in the U.S. However, oil prices have fallen from $147.27 a barrel in July to under $70 in mid-October. This, combined with falling demand and overall production due to crumbling infrastructure, corruption, and mismanagement, means a fiscal disaster is looming. Other export commodity prices are also falling and tourism is expected to drop as well. Calderon is moving might and main to force through the privatization of PEMEX, as a way of injecting cash into the economy – and above all to further enrich the Mexican capitalists and foreign oil companies. From Wall Street to Mexico City, within the limits of capitalism, whether it's nationalization or privatization, it's all about stealing from the poor to give to the rich.

As for the other pillar of the economy, Mexicans living in the U.S. sent home 12 percent less money in August than a year ago, the largest drop since the Bank of Mexico began tracking remittances 12 years ago. This amounted to $1.9 billion as compared to $2.2 billion a year earlier. In the first 8 months of 2008, $15.5 billion was sent home, 4 percent less than the same period in 2007. Some 11 million Mexicans live in the U.S., forced to emigrate here in search of work as whole swathes of the country have become an economic wasteland. Entire families, neighborhoods, and even towns are entirely dependent on these monies for their very survival. Now that source is drying up.

In times of economic crisis, immigrant workers are among the hardest hit. Already badly paid and with few if any labor or legal protections, they are among the first to be laid off, are increasingly swindled out of money owed for work performed, and are being rounded up like animals and deported by the thousands in increasingly aggressive Immigration and Customs Enforcement raids. Immigrant workers are being used as scapegoats for the economic crisis, to divert attention away from the real cause of the economic crisis, of the millions of foreclosures and layoffs: the capitalist system itself. They are also being punished for daring to rise up against decades of super-exploitation and discrimination in the “immigrant spring” of 2006.

From Oct. 1, 2007 to Aug. 31, 2008, Immigration and Customs Enforcement conducted 1,172 work-site raids across the U.S. Hundreds of raids on homes and neighborhoods are not included in these figures. One raid alone, in Postville, Iowa, resulted in the detention of 389 immigrant workers. This single raid cost more than $5.2 million to prepare and conduct, not including the expenses incurred by the Department of Labor or the federal attorney general (more than $13,300 per detainee). This is nothing less than a campaign of state terror (using workers' tax money) against one of the most vulnerable layers of the working class.

And yet, millions of Mexicans and other Latin Americans have no choice but to emigrate to the U.S. Simply put, the situation facing them at home is even more dire. As the crisis deepens, millions more will be forced to flee the dead end that capitalism has led to in most Latin American countries. The raids, deportations, increased border patrols, layers of walls and checkpoints, and massive detention centers are also a pre-emptive blow against the Latin American revolution, which will not respect the artificial borders drawn up by imperialism. There is nothing the capitalists on both sides of the border fear more than the united international working class.

So while Wall Street panics and the billionaires receive billions in tax-payer dollars to bail them out, millions of working Americans are losing their homes, jobs, and hopes for the future. But for people living just across the border in Mexico, things are even worse. And for the millions of undocumented immigrant workers and their families already living in the U.S., the walls are closing in – literally. The “immigration crisis” and the general economic convulsions are at root part of the same problem: the organic crisis of the capitalist system. All workers' interests are the same, no matter where we were born. In the coming period, the ruling class will do its best to divide the working class along lines of race, ethnicity, nationality, gender, etc. The only solution is working class unity and militant organization and mobilization against the real enemy: the capitalists and their system.

With a global economy comes global economic crisis. The U.S. and Mexican economies are tightly interconnected, and what happens in one country has a direct and profound effect on the other. The Mexican working class has been ground down for decades by the death agony of the system. Entire areas of country are out of the government's control and thousands of civilians killed every year in the crossfire between the government and the narco-traffickers – it's often hard to tell which is which. Some bourgeois analysts even warn the country is on the verge of becoming a “failed state” like Afghanistan or Pakistan. This, right on the border of the most powerful country on earth. The choice facing the Mexican masses is truly one between socialism or barbarism.

But there is another side to the story. The epoch of world capitalist crisis is also the epoch of world revolution. The Mexican masses have shown time and again that they have not forgotten the heroic revolutionary traditions of the past. In recent years, millions of Mexican workers, peasants and youth have mobilized to improve their lives, to defend Social Security, to defend public education, against electoral fraud, to stop the privatization of oil, and for better wages and conditions. In the coming historical period, the Mexican working class, along with their U.S. class brothers and sisters, will move again and again to change society. Together, we will succeed in ending the horrors exploitative system of capitalism once and for all.

John Peterson