The 1% Connection: Mexico and the United States, Crony Capitalism and the Exploitation of Labor Through NAFTA

Part of the Series

Truthout on the Mexican Border: Revealing What Is Behind the US War on Drugs

This is the ninth article in the Truthout on the Mexican Border series looking at US immigration and Mexican border policies through a social justice lens. Mark Karlin, editor of BuzzFlash at Truthout, visited the border region recently to file these reports. You can find links to the previous coverage at the end of this article.

The Richest Person in the World, Carlos Slim, Lives in Mexico

According to Forbes Magazine, Carlos Slim, 72, is the wealthiest person in the world, accumulating $69 billion in net worth as of March 2012.

Born and raised in Mexico City (of Lebanese Christian descent), Slim was well on his way to becoming a very rich man when he struck pay dirt. Under the Mexican presidency of Carlos Salinas, who served from 1988 to 1994, Slim jumped on the Milton Friedman-inspired south-of-the-border rush to privatization and led a buyout of the state run Telmex phone company.

It was crony capitalism at its finest. Salinas relied on the relatively small group of Mexico’s oligarchy to supply him with campaign (and perhaps personal) funds, in return for the sale of state assets at favorable rates and terms. (For example, Slim was essentially able to pay for Telmex out of the future profits of the company.)

So in 1990, Slim obtained (with some other backers) a monopoly on the telephone system in Mexico, guaranteed for years. The profit earned from the acquisition of Telmex was the fuel that allowed Slim to finance his telecommunications empire, still dominating the Mexican telephone landline market as well as the nation’s cell phone user business through a spin-off firm, Telcel. In turn, the enormous revenue generated by the original sweetheart deal has helped finance Slim becoming the developer and owner of the largest mobile phone company in Latin America, América Móvil.

All Is Not Well in “Slimlandia”

But for consumers and the economic growth of Mexico, some economic analysts have argued that many Mexicans have not fared well under the economic shadow of the world’s top plutocrat.

According to a 2007 Fortune article:

George W. Grayson, a professor of government at the College of William & Mary, coined the term “Slimlandia” to describe how entrenched the Slim family’s companies are in the daily life of Mexicans.

It’s not a reverential term. Many Mexicans hoped privatization, which began in the early 1990s, would create competition and drive prices down drastically. That hasn’t happened. “Slim is one of a dozen fat cats in Mexico who impede that country’s growth because they run monopolies or oligopolies,” says Grayson. “The Mexican economy is highly inefficient, and it is losing its competitive standing vis-à-vis other countries because of people like Slim.”

The Organization for Economic Co-operation and Development (OECD), an international agency that advises governments, found that Mexican consumers, under the telecommunications dominance of Slim, have recently (2005-2009) been overcharged $6.5 billion a year for landline usage alone. OECD estimates the total loss to the Mexican economy of Slim’s dominance in telecommunications at $129 billion over a five-year period, due to excess charges and poor investment in infrastructure. In its report on the lack of serious competitiveness in Mexico’s telecommunications industry (Slim’s formal monopoly has now expired), OECD bluntly stated: “Relative to other OECD countries, Mexico is ranked last in terms of investment per capita. Profit margins [are] nearly double the OECD average.”

In short, Slim is the richest man in the world in large part due to his profiteering by both overcharging consumers on the one hand and poorly developing and maintaining what was once a public utility owned by the citizens of Mexico on the other hand.

This year, according to Forbes, Slim “was fined $1 billion by Mexican regulators for monopolistic practices, but is appealing the decision.” But as with recent fines against Barclays and GlaxoSmithKline in the US, the profits of Slim and the US companies far exceed the fines, so it hardly discourages breaking the law when the penalties are far less than the profits.

Salinas Reversed Mexican Land Reform to Usher in NAFTA

Just as Carlos Salinas turned the assets of the people of Mexico over to his cronies and contributors – exemplified by Slim – he prepared for the economic tsunami of NAFTA (which became effective in 1994) by allowing for the expropriation of public land for big agriculture, transnational corporations, mining companies etc.

In 1917, land reform was written into the nation’s Constitution, guaranteeing public ownership (for individual farming use) of large areas of land, which became known as ejidos. This was a revolutionary act for Latin America, in that it took agricultural and ranch land from the hands of a few owners and distributed the large parcels to the many. This was particularly important in the rural southern part of Mexico, which has little industry, where many indigenous poor who have relied on self-sustaining farming.

As the advocacy group Witness for Peace describes it:

Entry into a free trade agreement with the United States and Canada required intense preparation for Mexico. To quell U.S. investors’ fears of political upheaval (and thus, possible confiscation of foreign property), the authors of NAFTA included an extensive section on expropriation and confiscation. Mexico was also pressured by the World Bank and the United States to re-write Article 27 of its Constitution – a pillar of the new government that grew out of the 1910 Mexican Revolution – effectively [whittling down] the ejido system of collective land ownership.

This opened up traditional Mexican territory for sale to foreign investors eager to buy up land. The ejido system had been a cornerstone of indigenous and peasant rights in the Mexican agricultural system. Eliminating ejido protections and privatizing traditional landholdings left the most marginalized populations even more vulnerable.

This resulted in a disastrous impact on the rural poor of Mexico, according to David Bacon, author of “Illegal People: How Globalization Creates Migration and Criminalizes Immigrants.” Bacon, a frequent writer for Truthout, noted recently in an article in The Nation:

In a 2005 study for the Mexican government, the World Bank found that the extreme rural poverty rate of 35 percent in 1992-94, before NAFTA, jumped to 55 percent in 1996-98, after NAFTA took effect [in 1994]….

By 2010, according to the Monterrey Institute of Technology, 53 million Mexicans were living in poverty – half the country’s population. About 20 percent live in extreme poverty, almost all in rural areas.

The growth of poverty, in turn, fueled migration. In 1990, 4.5 million Mexican-born people lived in the United States. A decade later, that population had more than doubled to 9.75 million, and in 2008 it peaked at 12.67 million. About 5.7 million were able to get some kind of visa; another 7 million couldn’t but came nevertheless … .

Raul Delgado Wise, a professor at the University of Zacatecas, charges that “rather than a free-trade agreement, NAFTA can be described as … a mechanism for the provision of cheap labor. Since NAFTA came into force, the migrant factory has exported [millions of] Mexicans to the United States.”

In essence, NAFTA (the model that other free trade agreements have been built upon) is an agreement in which corporations are given the right to seek the lowest-cost labor across international boundaries (in the case of NAFTA: the United States, Canada and Mexico). In addition, the corporations receive special protections that allow them to supersede sovereign laws, including environmental and labor protections, in areas such as agriculture, mining and lumber.

Small Mexican farmers have been forced out of business by big US agricultural firms that initially dumped corn and other produce on the Mexican market at artificially low prices. Meanwhile, the Mexican government restructured its agricultural subsidy program to comply with NAFTA, making it more beneficial to larger growers, according to a Woodrow Wilson International Center for Scholars report “Subsidizing Inequality: Mexican Corn Policy Since NAFTA.” The impact on subsistence farmers in Mexico was devastating.

With NAFTA, Corporations Formalized the Beginning of a New Global Infrastructure, One That Is Not Accountable to Any Electorate

In an analysis by the Economic Policy Institute in 2003, “The high price of ‘free’ trade: NAFTA’s failure has cost the United States jobs across the nation,” the precedent set by NAFTA for corporations creating a system of arbitrating bodies that have jurisdiction above national laws is explained:

NAFTA included unprecedented guarantees to protect the value of corporate investments and even the rights to earn profits in the future arising out of changes in government regulations or policy. In particular, NAFTA created specific clauses that provide for compensation for lost investments and loss of future profits due to regulations that are “tantamount to expropriation” (NAFTA Secretariat 2003, article 1110).

No other part of NAFTA has generated as much controversy as this “investor state” clause. To date, 27 cases have been reviewed under this clause by companies alleging that their foreign investments or their right to earn profits in other countries have been expropriated (Hemispheric Social Alliance 2003, 68-74). These claims, several of which have resulted in damages paid or regulations rescinded, have had a chilling effect on government efforts to regulate private businesses throughout the hemisphere.

In addition, signatories to NAFTA and other such treaties are required to adapt laws to conform with the protocols of free trade agreements to allow corporations and financial firms to maximize the conduct of business without being limited by national boundaries.

A recent article in Truthout, “America the Beautiful: A Fire Sale for Foreign Corporations,” emphasized that the forthcoming Trans-Pacific Partnership (TPP) free trade agreement is NAFTA on steroids in this respect:

But 26 of the 28 chapters of this (TPP) agreement have nothing to do with trade. TPP was drafted with the oversight of 600 representatives of multinational corporations, who essentially gave themselves whatever they wanted; the environment, public health, worker safety, further domestic job losses be damned….

Even if you are oblivious to environmental concerns, you should be outraged at the total circumvention of national sovereignty. Foreign investors could bypass our legal framework, take any dispute to an international tribunal and pursue compensation for being denied access to our resources at fire-sale prices – with much of the [United States] West on fire as we speak.

It gets worse. Those tribunals would be staffed by private-sector lawyers that rotate between acting as “judges” and as advocates for the corporations suing the governments.

Lower Wages and Increased Poverty on Both Sides of the Mexican-American Border

If there’s any question about free trade agreements such as NAFTA being a corporate race to the bottom in pursuit of the lowest labor costs and weakest workers’ rights, just look at the impact on industrial and retail workers in the United States.

According to the Economic Policy Institute’s report:

The growth in U.S. trade and trade deficits [resulting in part due to trade agreements such as NAFTA that make it easier for corporations to move jobs to much lower-cost settings] has put downward pressure on the wages of workers without a college degree, especially those who have no formal education beyond a high school degree. This group includes most middle- and low-wage workers, including the 68.5% of the total workforce with the lowest pay, those earning a wage that is equal to 200% or less of poverty level wages in 2001. In March 2000, the base year used for data, these workers earned wages of $16.93 or less per hour. These U.S. workers bear the brunt of the costs and pressures of globalization.

And it has gotten worse, much worse for US middle- and low-wage workers since 2000. The cumulative effects of having an ever-increasing number of consumer and industrial products manufactured and assembled in low-cost labor countries (such as in the maquiladoras in the Mexican free trade zone) has been devastating to the blue-collar worker in the United States.

The Economic Policy Center points to the increasing negative impact of NAFTA in the US on workers: “The loss of these jobs [in the US] is just the most visible tip of NAFTA’s impact on the U.S. economy. In fact, NAFTA has also contributed to rising income inequality, suppressed real wages for production workers, weakened workers’ collective bargaining powers and ability to organize unions, and reduced fringe benefits.”

Workers on Both Sides of the Borders Lose Out in NAFTA as Corporations Pocket Increased Profits

Truthout asked Bacon, who travels to Mexico frequently to write about the impact of NAFTA, how he responds to critics who argue that NAFTA is bringing jobs to Mexicans in need through the maquiladoras. “The Mexican government … prevents union organization, undermines workplace safety laws, undermines the rule of law on the border by not enforcing labor laws and so on. So the jobs in the maquiladoras (over 2 million working in the assembly plants), they come at a very high price.” He also pointed out that prices of products assembled in Mexico have not necessarily resulted in a lowering of consumer costs in the US.

A recent McClatchy Newspapers article is entitled, “Mexico’s ‘maquiladora’ labor system keeps workers in poverty”:

By day, Sergio Martinez labors in a modern air-conditioned factory a few miles from the Texas border, a human cog in the global supply chain that helps build pickups and tractor-trailer cabs. He wears a smart uniform at work.

At night, he comes home to a dirt-floor shack with a bare light bulb and no indoor plumbing. Mosquitoes buzz incessantly. He and his family live like poor dirt farmers.

His salary of $7.50 a day is enough to provide for the family dinner table, the cost of bootleg water and electricity, and an occasional article of discarded clothing for his wife or two girls, but rarely anything else.

Martinez, 35, is emblematic of the industrial sector of Mexico, a magnet for foreign investment hitched to a strong U.S. locomotive. Factories in Mexico pump out plasma TVs, BlackBerry smartphones, kitchen blenders, airplane components and automobiles. Yet millions of workers, like Martinez, can only dream of climbing from the lower class to buy the appliances, smartphones and cars they help manufacture.

Even the pro-globalization New York Times recently took note of the economic disparity in Mexico that NAFTA has exacerbated:

Mexico – after nearly 20 years of expanded free trade and minimal economic reform at home – has essentially become a country of the stuck-in-place glaring at the upwardly mobile. While a minority of educated, skilled workers benefit from the dynamics of global trade, many more Mexicans work long hours, often at several jobs, without progressing. Census figures show that 57 percent of the Mexican labor force earns less than $13.50 – not in an hour, but in a day.

With a change in the statistics adjusted for wages, couldn’t the same be said for the impact of globalization on the US? It benefits the few, while devaluing the value and dignity of labor for the many.

Free Trade Agreements Mean That There Are No National Boundaries for Corporations, Just People

In recent years, Slim has been expanding his time and business presence in the United States. He has recently spent about $180 million of his fortune on a townhouse and office building, both on Fifth Avenue in New York. Slim has also lent money to and become a minority stockholder in The New York Times.

As top dog of the global financial elite, his corporate interests cross national boundaries on a red carpet laid out for the titans of international commerce.

Meanwhile, the stock market is going strong, corporate profits and cash are piling up, and the private jets whisk around the world in search of ever cheaper expendable workers.

Free trade, such as NAFTA, is a way of exploiting labor without national boundaries and ravaging the environment in pursuit of higher corporate profits. Borders only exist for poor migrants seeking money to keep themselves and their families alive.

The victims of this trade policy – and its synergistic companion, crony capitalism – eke out an existence on both sides of the Mexican-United States border.

In reporting on the rise in poverty despite the gross domestic product of Mexico actually increasing in the last two years, the director of Amnesty International in Mexico told The Los Angeles Times: “Behind these figures are people with stories of injustice, dispossession, discrimination and insecurity.”

So it also goes in the United States. There is no border wall for economic injustice.

Previous installments in the Truthout on the Mexican Border Series Include:

“How the US Government, Banks, Prison-Industrial Complex, Corrupt Officials, Businesses, Law Enforcement, Racists and the CIA Profit From Illegal Drugs”

“The US War on Drug Cartels in Mexico Is a Deadly Failure”

“The Border Wall: The Last Stand at Making the US a White Gated Community”

“Murder Incorporated: Guns, the NRA and the Politics of Violence on the Mexican Border”

“A Poet’s Pain Launches a Peace Movement in Mexico”

“The School of the Americas, the CIA and the US-Condoned Cancer of Torture Continue to Spread in Latin America, Including Mexico”

“Who Is Killing the Journalists in Mexico?”

“Latina Leaders of Texas Colonias Help Remake Shantytowns Into Empowered Communities”

With special thanks to David Bacon, author of “Illegal People: How Globalization Creates Migration and Criminalizes Immigrants,” for his ongoing research on NAFTA’s harmful impact on Mexican and US workers.