The Spark

“The emancipation of the working class will only be achieved by the working class itself.” — Karl Marx

The Return of Dollar Diplomacy to Mexico

Feb 4, 1994

Over the last 12 years, faced with a crushing international debt and the most devastating economic crisis since the 1930s depression, the government of Mexico has made what appears to be a complete U-turn in its policy. The Mexican government has gone from an avowed nationalist policy, based on a more independent stance toward the U.S., to lining up firmly and consistently behind the U.S. This policy reversal culminated with the signing of NAFTA (North American Free Trade Agreement) which took effect on January 1. With this treaty, the Mexican government formally agreed to the growing integration of the Mexican economy into the U.S. economy. Given the fact that the U.S. economy is so much more industrialized and developed, and the U.S. GDP (Gross Domestic Product) is more than 20 times larger than the Mexican GDP, Mexico runs the risk of becoming more and more of an appendage to the Colossus of the North.

This change in policy will almost certainly be the major issue in the presidential elections this coming August. Generally, presidential elections have been pretty much a formality. The same party, the PRI (Institutional Revolutionary Party) has run the country in a quasi-dictatorship since the 1920s. Whomever the PRI has chosen as the presidential candidate has always been elected. And the president concentrates in his own hands almost all the power over cabinet appointments, the entire government budget, the military and the rest of the repressive state apparatus.

But this year, Cuauhtémoc Cárdenas, the son of former president Lázaro Cárdenas, is expected to mount a strong challenge against the PRI's official candidate, Luis Donaldo Colosio Murietta, the head of the PRI. Cuauhtémoc Cárdenas came out of the PRI hierarchy and had been a governor of the state of Michoacán. But in 1988, he led a split from the PRI and ran for president based on his call for at least a partial return to the PRI's old nationalist policies. Cárdenas almost defeated Salinas in the 1988 presidential election. (In fact, it is generally accepted that Salinas won only because of a massively fraudulent vote count.)

The other factor that could have an important impact on the elections is the peasant revolt in Chiapas, apparently led by a group calling itself the Zapatista Army of National Liberation. The Zapatistas said they purposely chose January 1 as the day to launch armed attacks against government forces as a way to show their opposition to NAFTA. They say that NAFTA will cause even greater misery among the peasants by driving most of them off the land.

It appears that the revolt in Chiapas met with widespread sympathy throughout the country, as was shown by a mammoth demonstration of 200,000 people in Mexico City. Obviously capitalizing on this sentiment, Cárdenas participated in the demonstration and denounced the Mexican government's policy in Chiapas.

Thus, the presidential election appears to be a dispute over the direction of the country, and over Mexico's nationalist heritage.

The Mexican Revolution – An Early Anti-Imperialist Struggle

The Mexican Revolution of 1910 to 1917 was a continuation in Mexico's century-long struggle for independence, and it marked the final phase in its bourgeois revolution. It was also a harbinger of the wave of anti-colonial and anti-imperialist upsurges and revolts that took place in the 25 years following World War II. Before the Revolution, Mexico had been a semi-colonial country, dominated primarily by the U.S. The country had been ruled for 35 years under the dictatorship of one man, General Porfirio Diaz. Under Diaz, the state tried to attract foreign investment with the aim of developing the economy. U.S. investment outstripped not only that of Britain, its nearest imperialist competitor, but also that of the weak Mexican bourgeoisie. But investment was not across the board – it went primarily into the extraction of raw materials, into transportation and communication, and especially into oil production.

The opening to U.S. and British imperialism at that time developed the Mexican economy somewhat. But most of the wealth was just drained out, leading to vast impoverishment for the peasantry and working class, and the eclipse of the Mexican ruling classes. All of these classes participated in the revolution. But of course, it was the lower classes that were its real driving force.

The revolution went through many initial phases, as large regional armies were raised to fight against the government. Their cry was "Land and liberty!" But once the government was defeated in 1913, the victorious revolutionaries were then split into two warring camps. The "radical" armies of Emiliano Zapata and Pancho Villa, who rested on the peasantry and poorest layers of society, fought against the "constitutionalist" armies of Carranza (an ex-governor under Diaz) and Obregón (a large landowner), who both represented a section of the Mexican bourgeoisie and landowners.

Both the radicals and the constitutionalists took an anti-imperialist, anti-U.S. stance. For the U.S. to mount an all-out invasion and occupation, in order to impose a puppet government, would have been many times more difficult than the invasions it had carried out against much smaller countries of the Caribbean and Central America. Moreover, it didn't need and occupation. President Wilson offered the constitutionalists his support, and Carranza and Obregón took it. The U.S. government then channelled arms and money to the constitutionalists. The U.S., which had been occupying the main port of Vera Cruz, tried to cut off Villa and Zapata from receiving any arms and support from outside the country. And in 1916-1917, a U.S. expeditionary force of 6000 troops, led by General John Pershing, invaded Northern Mexico, in an unsuccessful attempt to capture or defeat Pancho Villa. Villa escaped. But the invasion still accomplished its main goals. It forced Villa to fight a war on two fronts. And, fearing a U.S. invasion in the south, some of Zapata's troops threw down their arms and sought amnesty from Carranza.

Carranza eventually isolated and exhausted both Villa's and Zapata's armies. In 1919, Zapata was assassinated, quickly leading to the demise of his army. Villa finally accepted a peace offer, and was assassinated in 1923.

The Constitution that was enacted under Carranza and Obregón in 1917 still was a radical document for its time, one which could only have been produced by a revolution. It was an expression of the aspirations of the Mexican bourgeoisie's nationalist interests in relation to imperialism. It seriously curtailed the powers of the Church. It provided for agrarian reform and for national ownership of all minerals and subsoils, including oil. It also gave labor more legal rights, including the right to strike and to form unions.

But the Revolution had left Mexico in ashes and bled dry, with almost 2 million people killed. And the real driving forces of the revolution, the workers and peasants, had been defeated. So for almost 20 years, the nationalist provisions of the Constitution remained only unfulfilled promises. The Mexican government granted little land reform, and it assured the U.S. and British oil companies that it would not nationalize any of their holdings.

But the U.S. ruling class and its government had no real confidence in a Mexican government that had issued from a revolution in a country still beset by social uncertainty and turmoil. So they took a distance from that regime. U.S. corporations looked to other countries to increase their investment. The U.S. oil companies stopped exploring for new production in Mexico. They simply pumped the oil out of the existing wells. Mexico went from producing almost 25 per cent of the world's oil in 1921, down to 3 per cent in 1938.

Consolidating the Nationalist Revolution under Cardenás

The second shoe dropped in the 1930s. The Mexican economy, still highly dependent on U.S. investments and trade, was hit hard by the Great Depression, with factory closings, falling demand and prices for commodities, etc. As the impoverishment deepened, a new generation of workers and peasants entered into struggle, with armed land takeovers and growing waves of strikes.

Behind the new president, Lázaro Cárdenas (1934-1940), a brigadier general and former governor of Michoacán, who had been a soldier in Carranza's army, the Mexican state took the head of these movements. Cárdenas allowed the peasants to take twice as much total land as had been granted in all the years since 1915. He allowed them to form peasant organizations, so long as the organizations were incorporated into the ruling party. And he allowed the workers to form unions... so long as the unions were incorporated into the ruling party. Finally in 1938, facing major strikes in the railroads and oil companies, Cárdenas ended the strikes – by expropriating the companies from their U.S. and British owners, and nationalizing them. Support for the nationalizations was almost universal in Mexico, including from the Catholic Church.

Cárdenas assured the U.S. and Britain that oil and railroads were special cases, and he would not nationalize any of their other holdings. But this was not enough to assuage the imperial powers: these nationalizations set a dangerous precedent that could encourage nationalizations in other countries. So the U.S. and British governments instituted embargoes on Mexican oil. The U.S. government canceled large contracts to buy silver.

But the Mexican government did not cave in. Up until World War II, Mexico sold its oil on the world market to the Axis powers. Finally, it reached a settlement with the U.S. and British oil companies, keeping their holdings but paying them several hundred million dollars.

These moves by Cárdenas were consistent with the nationalist interests of the Mexican bourgeoisie, and it is why that bourgeoisie supported them. First, Cárdenas was able to contain explosive social struggles, win over support from a big part of the population, and incorporate the bureaucracies of the popular organizations into the state. Second, in the name of the Mexican nation confronting U.S. and British imperialism, he was able to secure the ownership of two basic industries whose wealth could be used to subsidize the development of the Mexican economy. It was Cárdenas who finally came through on some of the promises of the Mexican Constitution of 1917.

The Accomplishments and Limits of the Nationalist Regime

The reforms enacted in the late 1930s allowed the Mexican bourgeoisie to take advantage of the possibilities opened up by World War II. For the imperialist powers, preoccupied as they were with the war, continued confrontation with Mexico was no longer a priority. On the contrary, the U.S. tried to bring Mexico in to aid the U.S. war effort. So Mexican industrial and agricultural production increased, due to increased demand in both the domestic and external markets.

The Mexican economy continued to expand in the post-war period, along with the general expansion of the world economy. The Mexican government began to pursue a policy of import substitution, that is, to produce domestically what had been previously imported. This consisted mainly of manufacturing consumer goods.

The weak capitalist class relied on the state which played a dominant role in running the Mexican economy, financed investments and ran companies. It was from this state the capitalists got much of their profits. The Mexican government began to invest in infrastructure and research and development. Sometimes when companies went bankrupt, the Mexican government took them over and began to run them as nationalized companies.

In many ways, Mexico became a success story, what was called the "Mexican miracle." From 1940 to 1960, agricultural production doubled, and industrial production increased by 120 per cent. Import substitution helped mechanize agriculture and replace imported manufactured goods with domestically produced ones. From 1940 to 1970, free schools reduced the illiteracy rate by 50 per cent. And price controls and subsidies kept food prices down.

In the process, Mexico was radically transformed. It went from a peasant society, in which agriculture was the foundation of the economy, to an urban one, where services, commerce, manufacturing and the petroleum industry far surpassed agriculture. In the 1940s, less than 40 per cent of the population lived in the cities. By 1990, 72 per cent lived in urban areas.

Yet while the Mexican bourgeoisie prospered, the agricultural and industrial development of the country came at a severe cost to the working class and peasantry. With the capitalist development in agriculture, and continuing consolidation of big landholdings, the peasantry was increasingly forced off the land, much more quickly than land was redistributed by the government. They formed an extremely cheap and plentiful source of labor that helped push workers' wages way down. By 1968, workers' average wage reached only the level of 1939, that is, still in the depths of the depression. (In 1938, the Russian revolutionary, Leon Trotsky, who was in exile in Mexico, wrote that the workers' wages in Mexico were lower than they had been in Russia before the 1917 Revolution.)

And still, most of the profits from production did not stay in Mexico – but wound up being appropriated by foreign imperialist powers, anyway. For although the Mexican state had erected high trade and legal barriers to protect Mexican industry and agriculture, it still needed the inflow of capital and technology that could come only from the advanced imperialist countries. More consumer goods were produced in Mexico. But the factories and capital machinery usually came from the U.S., even for example, to run the state-owned oil company, PEMEX. Or, if Mexico wanted a car industry, then GM, Ford or Chrysler had to build the cars, using parts and machinery that came from the U.S. By 1970, U.S.-based corporations controlled half the production of petroleum and coke (for steel), 76 per cent of rubber, 55 per cent of mining and metallurgy, 75 per cent of aluminum and copper, 50 per cent of industrial chemicals, 50 per cent of food and beverages, 85 per cent of electrical machinery, 90 per cent computers and office equipment, and so on. Of the top 500 U.S. manufacturers, more than half had Mexican operations in 1977. Of the top 100 U.S. companies, 71 per cent had Mexican manufacturing investments.

Thus, all the protectionist barriers erected by the Mexican government could only slow down the increase of U.S. imperialist investment inside the country and only slow down the increase of profits that were still being taken out of the country. Perhaps Mexico is more economically developed than many of the countries of the semi-colonial world. But it is still a country with vast distortions, in some ways similar to Brazil or India, two other large countries which had a certain amount of economic development, but never were able to get out from under the thumb of imperialism.

In Mexico, one of the consequences of imperialist domination is its inability to feed its own population, and the growing need to export labor outside the country. This began as early as 1951. In what was known as the "bracero" program, Mexican workers were contracted out temporarily to work on U.S. farms. Up to half a million workers participated in it every year. The remittances from these workers provided much-needed dollars for the Mexican economy. And U.S. corporations benefitted from the extremely cheap wages – and the fact that these workers had few rights.

The U.S. government terminated the bracero program in 1964, because more and more Mexican workers were flooding into the country illegally anyway. But the ending of the bracero program led to the beginning of something else. In 1965, using the rationale that more U.S. factories in Mexico could keep jobs for unemployed Mexican workers in Mexico, the Mexican government allowed U.S. industry to set up its own free trade zone along the border. These factories became known as the maquiladoras.

In fact, this free trade zone was nothing but an enclave of U.S. production, destined for the U.S. market, but located inside Mexico. Wages were much lower than U.S. wages. And it was subsidized by the Mexican government, which provided an infrastructure and services for the U.S. factories, even though U.S. companies paid little or no taxes. This was such a good deal that U.S. companies consistently increased the number of maquiladoras over the years. But for Mexico, the maquiladoras were a real drain on the economy. It was a return, in miniature, to the old enclave economy under Diaz, at the turn of the century. The maquiladoras foreshadowed the growing trend of direct imperialist domination of the economy.

The Collapse of the Nationalist Model

Mexico was not immune to the worldwide recession of the 1970s. Like other underdeveloped countries, it was hit hard, and production began to plunge. Nor could it escape the growing debt that enslaved most of the other underdeveloped countries to the international banks and imperialism.

But in the mid-1970s, the government of Mexico, as well as the international banks, gambled on what they figured was a trump card that could allow Mexico to escape the crisis. Huge oil deposits were discovered in the Bay of Campeche. Just when the price of oil had hit new highs during the second oil crisis, Mexico became the fourth largest producer of oil in the world, behind only the Soviet Union, the U.S. and Saudi Arabia. The growing income from the oil, as well as new loans from the banks, based on the expectation of this ever-rising oil income, buoyed the Mexican economy for a few years. By the early 1980s, 75 per cent of Mexico's exports consisted of oil. Like so many other underdeveloped countries, the Mexican economy had become dependent on the export of one commodity.

This could not last. In 1981, Mexico was squeezed by a precipitous drop in world oil prices. The price on a barrel of oil plunged from 33 dollars per barrel to 12. At the same time, interest rates skyrocketed to over 20 per cent, quickly adding to the debt. This danger was recognized by the Mexican bourgeoisie itself, which was taking capital out of the country in a flood. This capital, estimated at over 65 billion dollars, amounted to about two-thirds of Mexico's debt. Much of it wound up in the safest haven for investors at the time – the U.S.

By 1982, Mexico was broke and unable to meet the interest payments on its loans. There were two kinds of loans, one owed by the government, the other privately. The government then assumed most of the private sector loans, bailing out the very bourgeoisie that was bankrupting the economy with its capital flight. In order to stem this tide, the government went on to nationalize the 18 largest Mexican banks.

It then fell on the mercy of the international banking establishment, which more or less named its terms to reschedule Mexico's debt and inject fresh loans to meet the overdue interest payments. This settlement became the model for how the international bankers would handle the loans of the other debt-laden countries. Thus Mexico, one of the earliest nationalist models showing it was possible to defy imperialism, was turned into the imperialist model for meeting imperialism's outrageous terms to deal with the debt.

At the point that Mexico fell into the clutches of the international banks, the imperialist forces took out the knife and began to cut quickly. The interest payments on the loans came directly out of the standard of living of the workers and peasants, which was slashed in half over just a couple of years. This, of course, shrank the internal domestic market. By 1985, the Mexican government agreed to bring its trade and investment barriers down when it joined GATT. In return for this, the international banks agreed to cut some of the principal of the international debt. But they demanded one little concession in return, namely that foreign companies, mainly U.S. ones, be allowed to buy up chunks of the Mexican economy at bargain basement rates, in what the bankers call debt-for-equity swaps. Of course, interest payments kept piling on, bringing the debt principal back up to where it was before.

The de la Madrid government tried to soften the blows on the economy by buying up bankrupt firms and trying to keep them going at a loss. But this only increased the debt still further. Finally the stage was set for the supposed reforms of the Salinas presidency. Starting in 1988, Salinas began to sell off most of the nationalized firms, often to foreign companies. Even PEMEX, the state-run oil company, was broken up, and parts of its "downstream" operations sold off. By 1989, Salinas and Bush had agreed in principle to NAFTA. It only had to be worked out over a couple of years by a small army of negotiators.

The result was that the nationalist economic policy had been largely abandoned. Mexico had been almost completely opened up anew to U.S. imperialism.

This had an impact, not just in terms of Mexico's economy, but in terms of its foreign policy as well. Even as late as the mid-1980s, the Mexican government had tried to carry out a nationalist foreign policy. In that way, it distinguished itself from the consistently puppet regimes of many other Latin American countries. The Mexican governments made a point of supporting those other regimes that took a distance from U.S. imperialism, like Castro in Cuba, Allende in Chile, or the Sandinistas in Nicaragua. Mexico also refused to recognize the Pinochet regime in Chile. In 1982, Mexico began the Contadora process, trying to broker a settlement between the Sandinista government and the U.S.-sponsored Contras.

But the change of Mexico's economy caught up to its foreign policy. In 1989, it supported the U.S. invasion of Panama. In 1991, the Mexican government sent troops to Saudi Arabia to support the U.S. Persian Gulf War. The Mexican government became another lackey lining up to support U.S. imperialism.

In fact, the struggle between Mexico and U.S. imperialism was always a question of a relationship of forces. The Mexican Revolution and the big mass upsurges in the 1930s had bought the Mexican bourgeoisie space for a time. It then benefitted from similar upsurges in other Third World countries. But when the economic crisis hit in the 1970s and 1980s, the maneuvering room for its nationalist policy vanished. At that point, the bourgeoisie sabotaged its own state policy by trying to save itself through capital flight.

Elections will not improve the situation, even in the unlikely event that the younger Cárdenas wins this year, breaking the PRI's lock on power. After all, Cárdenas is a product of the same party machine. Before 1988, he helped impose the PRI's policies against the population. Cárdenas's own election campaign is a testament to these roots. He does not even bother to promise that his policy would be very much different than that of his predecessor, or to promise that he stands for a very different relationship with U.S. imperialism. In fact, Cárdenas's campaign is not based on mobilizing the population, but, on the contrary, merely channelling the discontent for purely electoral purposes.

The key to the situation rests with the Mexican working class, which has a rich heritage of explosive strikes and social movements. The question for the working class is what policy to follow. In this last period, debate has focused around NAFTA. But NAFTA was always a false issue for the workers. The workers need a policy different than that of the nationalists, an alliance with their own bourgeoisie. With or without NAFTA, the workers in Mexico are being forced, by imperialism and the Mexican bourgeoisie, to shoulder the burdens of capitalism's international economic crisis. Just as they have always been forced to shoulder the burden of Mexico's economic development. Even if old-style Mexican nationalism were still possible, the Mexican working class's interests do not lie in creating more profits for the bourgeoisie, neither Mexican nor U.S.

The working class's only road lies in defeating and destroying capitalism on the scale of the continent. For this, the Mexican working class needs an internationalist policy, that unites it with the working class in the rest of Latin America and in the U.S.