Carnegie Frames NAFTA For Slow Mexico Growth

Watch pointyheaded scholars concoct a new case against the North American Free Trade Agreement. According to Eduardo Zepeda, Timothy A. Wise, and Kevin P. Gallagher, the conventional wisdom "that Mexico was the undeniable winner from NAFTA" is wrong: In fact the trade agreement has been "a disappointment" for our friends south of the border.

Zepeda, Wise and Gallagher's Carnegie Endowment study Rethinking Trade Policy for Development: Lessons From Mexico Under NAFTA [pdf] is rarely in doubt. In this report, evidence doesn't just point, it points overwhelmingly. Every economic crisis is the most severe. All impacts are decisive. Reforms must always go deeper. And so on.

If you think you can guess what's causing all these Homeric epithets, don't keep it to yourself. Give up? Mexico has been done in by "prohibitions on policies for industrial competitiveness, such as selective promotion of industries, temporary preferences to national entrepreneurs in particular areas, and similar measures." It has also been hamstrung by "accelerated liberalization," by inadequate "standards for labor and the environment," and even by want of "a coherent national economic development strategy."

Since nobody's going to believe a report arguing for Mexico's halcyon days of 1993, when most citizens did not have telephones, the report defines "disappointment" the way bureacrats define "budget cuts." Nearly everything's up, just not up enough. So on page 5 you get this tonguetwister: "While poverty decreased due to multiple factors, inequality remained high." But then on page 15 you learn that remaining high actually means declining slightly: "Inequality, as measured by the Gini coefficient, showed minor improvement, from 0.550 in 1992 to 0.511 in 2004."

Other arguments fall apart on closer inspection. In a section dealing with Mexico's "jobs deficit," the authors point to the "rise in informal employment, which accounted for a remarkable 57 percent of the economically active population." What is informal employment? Down in the footnotes we find that it includes work done by employees who don't get health coverage, "which is mandatory for all wage workers." Leave aside whether a country where workers are willing to risk their lives to get north and pick lettuce should be imposing mandates that make it harder to hire workers. Just ask, how will a national economic strategy keep people from working under the table?

The report is full of whodathunkits like this one:

Mexico's gradual devaluation of the peso during most of 1994 and sharp depreciation during the 1994–1995 crisis contributed more to export growth than the liberalization measures included in the NAFTA text.

It also covers, without coming out and saying it, two areas where industry protection and economic strategy are responsible for lack of growth. Mexico's state-owned oil company manages to lose money during an oil boom, yet it remains under firm public control for reasons of "national pride." Sadder still is the damage being done by selective promotion of industries right in the United States:

With Mexico's unilateral liberalization of most agricultural sectors ahead of their NAFTA transition schedules, imports of subsidized grains and oilseeds have outpaced rising exports to the United States of fruits, vegetables, and meats. While the United States increased its farm subsidies in the post-NAFTA years, the Mexican government reduced its support, placing additional pressure on already-stressed farming conditions. Mexico's trade balance in agricultural goods with the United States has remained negative since NAFTA

It takes great force of imagination to look at a country with rampant government corruption and nearly a century of one-party rule in its past, then conclude that it needs more apparatchiks planning private sector activity. The report ends by decrying the usual laundry list of public policy sins, then says "None of these domestic policies was mandated by NAFTA, though they are largely consistent with the model in which NAFTA was a central component." You could go further and say Mexico is in much better fiscal shape than it used to be—with low inflation, low deficits and a smaller foreign debt—almost entirely thanks to NAFTA-mandated reforms. What you can't say with any honesty is that NAFTA's rough approximation of freer trade has hurt Mexico's economy. That's the kind of mierda del toro they only take seriously at Los Tiempos de Nueva York.