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Figure 4.3. Mexico’s Exports and Imports as % of GDP, 1960-2016
Source: World Bank Database, 2017.
Exports of manufactured goods have continued growing during the past two decades, motivated by the implementation of NAFTA and other incentives offered by the government.
However, the continuation of programs destined to facilitate the imports of parts, intermediate and capital goods, including a strong support for the maquiladora industry, has resulted in a lack of effective supply chains in the country, and in the unfinished process of the third stage of industrialization, that of the technology-intensive goods (Figure 4.3). The only industries where growth has been sustained during these years, and where the existence of an effective domestic supply chain can be seen, are those where the state maintained certain protection policies, particularly the automobile industry. Mexico has become one of the major exporters of cars, and FDI has arrived in large amounts since the 1960s.336 However, as it has happened in electronics and other capital-intensive goods, the government was unable to endorse the creation of national champions, meaning that the production and export of those goods is carried under the brands of important MNCs.337
336 Enrique Dussel-Peters, “The Auto Parts-Automotive Chain in Mexico and China: Co-operation Potential”, in The China Quarterly, 209 (2012), 82-110.
337 Many Mexican national champions that eventually became MNCs, cannot not be found in technology-intensive goods, but on services and other light manufactures. Those companies are commonly known as
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The integrationist approach in Mexico, particularly during its deepening phase after the mid-1980s, has allowed the industries in the country to remain competitive internationally, making the country an important producer of manufactures and the largest exporter of those type of goods in Latin America. Nonetheless, there was an evident slowing down of economic growth, similar to those trends observed in the other large Latin American Economies during those years (Figure 4). The government has been successful in its strategy to increase exports, as a way to enlarge its foreign currency reserves, avoiding new episodes of financial distress as those seen in 1976 and 1982.
However, different from the countries following an independent approach, Mexico has not been capable of developing competitive domestic industries, specialized in the development of technology under local brands. Economic liberalization and the embrace of foreign capital was done in a time where the domestic market was contracting, hence debilitating the expansion and modernization of domestic industries The state changed its focus in industrial expansion, deciding to open its doors to foreign capital, as a way to ensure the absorption of better business practices, Western know-how, and advanced technologies.
Similarly, the unwillingness of the state to increase public investment, not only in infrastructure but in industrial development, has not been followed by a positive response from the private sector. Despite the increase in FDI during the past two decades, private investment in general has not occupied the position that public investment once had during the golden years of the Estado Desarrollista. This has been identified as one of the causes of the weak economic growth experienced after the deepening of the integrationist approach.338 The future of this approach will be marked not only by the future political developments in the country, but also by the economic and political moves in the northern side of the Rio Grande. With a new Trump Administration vowing to renegotiate NAFTA, and to put America First, there are growing voices in Mexico that are calling to focus again on the domestic market, probably making more room for new industrial policies, the like of those identified with the independent approach followed by the East Asian NICs. In the meantime,
Multilatinas, and they have tended to invest and expand their operations across Latin America. Those companies include: the firms owned by Carlos Slim, América Móvil and Telmex (in the telecommunications service sector);
Cemex (in the cement industry); Grupo Alfa (diversified manufactures); Mexichem (in the chemicals sector);
and, Grupo Bimbo, Grupo Modelo, and FEMSA (in food, beer, and beverages, respectively). See Álvaro Cuervo-Cazurra, “Multilatinas,” in Universia Business Review, 1:4 (First Quarter, 2010), 14-33.
338 Juan C. Moreno-Brid & Jaime Ros, op. cit., 195.
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it is difficult to observe a big change from the integrationist approach of the past thirty years, despite its mixed results.
Figure 4.4. GDP Evolution of Latin American Major Economies during the period of Integrationist Approach, 1980-2016
Source: Maddison Historical GDP Data, World Economics.
4.6. Concluding Remarks
Since its integration to the modern World Economy in the 16th and 17th centuries, Mexico was largely dependent on foreign markets for its economic development. Through the Spanish way of colonization, the country experienced high growth exporting minerals, due to its vast natural resources. Mexican silver became an international currency during the following centuries, and by the end of the 19th century, most of the countries in East Asia still
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used the so-called Mexican Dollars for their daily transactions.339 The organization of the colonial economy, different from that of other European powers in other parts of the world, including the Caribbean Sea, Sub-Saharan Africa, and Southeast Asia, enabled the country to develop its first industries, but still highly dependent on its exports of silver and other minerals. Nonetheless, due to the extractive model implemented by the Spanish colonial authorities, by the time of independence, Mexico inherited most of the debt compromises contracted during colonial times, making it hard for the government to create strong state institutions based on strong and sound finances. The 19th century saw the evolution of a relative weak state, who needed to continue integration as a way to ensure a sustained flow of capital, mixed with some institutions to start industrialization, as the case of the Banco del Avío. The final decades of the century, under the leadership of a strong man, new industries were developed in the country, with mild industrial policies in the hands of government bureaucrats, known as the “científicos,” and opening the country to foreign capital, promoting the exports of commodities and raw materials to the rest of the world.
This early integrationist approach, without regard of the development of a domestic market, created mounting social tensions which ultimately led to the revolution of 1910.
However, the Mexican Revolution weakened the country’s 19th century dominant classes, giving way to a fairly autonomous state with the capacity to mobilize large segments of the population, mainly workers, peasants, and state bureaucrats. The post-revolutionary Estado Desarrollista, under the rule of a hegemonic party, the Institutional Revolutionary Party (PRI), developed relatively successful industrial policies, leading to a period of rapid economic growth for more than thirty years (1940-1970).
Despite sharing a strong emphasis on the role of state-owned enterprises, and a state dominated by a single party, the ISI model followed by Mexico differed from that of Taiwan in the sense that the former could not implement a successful export-led growth strategy to compensate for the saturation of the domestic market, nor was in full control of banking and other financial institutions, hence encouraging public and private firms to look for investments and credits abroad. When the model began to show signs of exhaustion in the late 1960s, the Mexican government deepened the intervention of the state in the economy,
339 John McCaster, op. cit., 372-399.
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confronting itself with a capitalist class who was no longer as weak and docile as that from the 1930s.
The Mexican developmental state continued achieving high rates of growth for twelve more years, not without problems, since it had to face two major crises that increased the domestic and external pressures to liberalize the economy. The two administrations between 1970-1982 relied heavily in foreign debt to make the economy grow, expanding the sector dominated by the state, and starting in 1978, postponed the liberalizing measures by gambling on the rapid development of an exporting oil industry. When international oil prices dropped and interest rates in the US increased in 1982, Mexico became the first country to default on its huge foreign debt. The traumatic experience of furthering state intervention and confronting an increasingly vocal capitalist class led to the eventual imposition of government officials with a neoliberal mindset, popularly known as technocrats. This new generation of bureaucrats deepened what Amsden identified as an integrationist approach.340 Since the Mexican state has historically characterized for its low ratio of tax to GDP, the government was unable to control the banking system as other developmental states did, and welcomed foreign capital to invest in the country, although with important restrictions during the years of the Estado desarrollista. The lack of effective controls made capital flight a common malady to the country, particularly during the 1976 and 1982 crises, further weakening the position of the state when negotiating with its foreign creditors.
Therefore, a deeper integration with the world economy was seen by the technocrats as the only solution to the many problems accumulated in the country for almost fifteen years.
Despite being nationalized in 1982, a new government moved to deregulate the financial sector and to gradually re-privatize the banks. In 1986 Mexico entered the GATT, and hundreds of state and para-state companies were privatized. The limits to foreign ownership of enterprises was dropped in most of the industries, under the idea that transnational corporations would push domestic firms to modernize, enabling to be more competitive by absorbing their superior ways and more effective practices.
As a way to ensure that the new neoliberal policies could not be reversed by any successor, hence showing the Mexican government commitment to macroeconomic stability and a welcoming environment for FDI flows, the new generation of technocrats conceived
340 Alice H. Amsden, The Rise of the Rest, op. cit., 278-283.
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the idea to negotiate a free trade agreement with its northern neighbor and largest consumer market in the world, the United States. The Mexican state was in no position to develop an independent approach to globalization, having few resources to dedicate to domestic R&D, the way developmental states in East Asia did in the past.
Therefore, FTAs were seen as a better way to import technology from other countries, although few mechanisms were designed to encourage technology transfer to domestic producers.341 However, by following an integrationist approach, it is more correct to talk about industry in Mexico, rather than Mexican industry; in other words, the process of deindustrialization was avoided, but not the process of industry denationalization. It means that, despite the important industrial growth seen in the country during the last two decades, most of it was related to multinational firms who were mostly interested in using Mexico as an export platform to the United States, lured by its low wages and proximity to the largest consumer market in the world, rather than contributing to the development of indigenous technology or to promote the strengthening of the domestic market, which was also result of the inability of the Mexican state to develop effective and mature financial markets.
341 Juan C. Moreno-Brid & Jaime Ros, op. cit., 247.
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