Mexico as Clinton's Vietnam

...We have now taken on the responsibility for financial markets dominated by political cronies of a corrupt government without having any authority over it...

...With capital fleeing the peso, Ernesto Zedillo, Salinas's successor, suddenly found himself struggling to sell short-term bonds to keep turning over the country's debt...

...Te administration's answer to anxious Americans is, not to worry...

...Finally, as in Vietnam, the Mexican crisis reveals a Democratic administration pursuing a policy driven by a Republican view of the world—in this case the neoliberalism of multinational corporations...

...This will put further upward pressure on U.S...

...Because we signed NAFTA, went the argument, we were now committed to support Mexico's economy—something they had forgotten to mention during the debate over that treaty...

...Other, less quantifiable, potential damages to the American economy have been ignored in the debate...

...The business press talked ominously of a possible "global meltdown...

...goods and, implicitly, living standards like those of the U.S...

...But like all speculative bubbles, it broke, leading to a flight from the peso in December 1994...

...By locating the source of demand for U.S...

...Still, some argue that the administration is making a shrewd calculation to trade off its workingclass support for the money and clout of multinational business...

...No one in this administration seems to have thought out the impact of lecturing Americans that they will have to spend their lives on a treadmill of reskilling in a world in which they are constantly threatened with obsolescence...

...Only when the intellectual property rights of U.S...

...In about a week, the peso dropped against the dollar by 40 percent...

...was therefore handed a great deal of leverage on the Mexican oligarchy...

...Treasury looked the other way all through 1994 when then President Carlos Salinas spent down Mexico's $27 billion in hard currency reserves in order to maintain the artificially high value of the peso, which made American goods cheap...

...He promised that any trade agreement with Mexico would be accompanied by regulations guaranteeing rising labor standards in Mexico so as to reduce the downward pressures on U.S...

...When Clinton's vow to use trade sanctions to pressure China to improve its human rights act clashed with the demands of U.S...

...government has heralded a succession of rulers in the client country as reformers who will bring democracy and free markets, only to watch them sink into political bickering and ineptitude...

...In an American economy that was largely selfcontained, high wages generated economic growth by increasing purchasing power and stimulating labor-saving investment...

...The result is that, instead of addressing the anxiety of the middle class that Secretary of Labor Reich has eloquently described, White House Democrats seem hell-bent on aggravating it...

...Moreover, the unintended message from the administration to its own working-class constituency is that the reason your job is in jeopardy is that you do not have the skills to compete...

...We learned, as NAFTA opponents correctly pointed out, that the U.S...

...A few progressive voices—Ralph Nader, Jesse Jackson, a few labor leaders, populist congressional Democrats like Marcy Kaptur — opposed the deal...

...Had they refused again, the Clinton administration would have been justified in walking away from the table and leaving the PRI to face the consequences of its greed and incompetence...

...banks, security firms, and so on, to buy into Mexican industry...

...Responding to their Wall Street and big business constituency, most Republicans support the president's strategy...

...Aside from the likelihood that for the most part the subsidy will go to those already attending college, the fact is that the college educated already represent a much higher share of the labor force in the United States than among its major competitors—and still real earnings of employed college graduates have been dropping since 1987...

...Labor union activists —the people the Democrats rely on for phone banks, soft money, and precinct work—have soured on Bill Clinton...

...wage levels in order to attract jobs to Mexico...

...It raises the question of why we should bail out the mismanaged Mexican government when we refuse to bail out New York City or the District of Columbia—or, for that matter, Orange County, California, whose local government recently bet wrong on the derivatives market...

...A second economic problem is that trade-led growth concentrates on low-wage nations because Western Europe and Japan are much less willing to open up their economies to imports...

...But the way to approach it is similar to the way the European Community (EC) integrated Spain, Portugal, and Greece...

...We were also treated to a domino theory...

...they were able to deliver for their multinational constituency and also to be the most prominent opposition and thus on the side of the 81 percent of Americans who, according to the Los Angeles Times, opposed the bailout...

...SPRING • 1995 • 173 Right Turn This may be an exhilarating prospect for the nimble symbolic analysts who run Washington, but it is frightening for most people...

...They have the support of the multinational corporations who support Clinton's trade-led growth and can profit from the disaffection of Democrats who don't...

...capital were threatened by Chinese "knock-offs" of American video tapes and compact disks did the administration slap trade sanctions on China...

...before these countries could come in, they had to get rid of dictatorship and to build permanent credible democratic institutions...

...Wages, incomes, and productivity rose year after year...

...The 1994 election was one test of that thesis...

...The drug trade was so blatant that traffickers were landing reconditioned 747s to ship drugs from Colombia to Mexico, where they were shipped overland through the speeded-up customs stations on the border...

...These bubbles will burst as soon as the NAFTA issue is resolved...

...real earnings leveled off and fell...

...government was committed to maintaining the Institutional Revolutionary Party (PRI, which has imposed authoritarian rule on Mexico for over sixty years...

...The surplus is now projected to disappear in 1995...

...Even the multinationalist crowd has noticed the perverse politics of the administration's policy...

...NAFTA supporters gravely warn that Mexico will have an economic crisis if Salinas suffers a defeat...

...Trade was a small share of our GDP...

...The Chiapas revolt proved surprisingly hard to suppress, and the election was marked by the assassinations of the leading presidential candidate and the Speaker of the House...

...surplus with Mexico— the basis of the claims of hundreds of thousands of new jobs—was not a result of liberalization in Mexico, but of an overvalued peso...

...officials put American manufacturing at a disadvantage in order to get other nations to open up their markets to U.S...

...And why would a bailout of Mexico encourage them to invest in Argentina unless there was an implicit commitment that the United States is now prepared to bail out every other Latin American nation as well...

...In other words, you are the problem...

...Ironically, the corrupt "old guard" is still in charge...

...One did not have to be a financial whiz kid to raise a few questions...

...Why, if the loan was so secure, weren't private banks willing to put up the money...

...In the GATT treaty, U.S...

...NAFTA, for example, is a two thousand page document dedicated to protecting U.S...

...Most of his stops are in countries with serious human and labor rights problems...

...In the early 1970s, the steam began to run out of the engine...

...During the debate over de-linking human rights in China, the U.S...

...To motivate them, it has proposed a modest tax break for college expenses...

...government will have to rescue the Mexican economy in order to protect major American banks...

...The passage of NAFTA in November 1993 was both a political and economic signal...

...In the early 1980s, the United States helped the Mexican government avoid default by providing a two billion dollar loan...

...NAFTA makes it much easier for U.S...

...They opposed Clinton's reelection by 87 to 9. It is hard to see any light for Bill Clinton at the end of this tunnel...

...q variety liberal internationalist...

...The fundamental problem is that the Mexican political economy is dominated by an oligarchy that uses the country's credit to borrow from foreigners and enrich itself, and then periodically demands austerity from the rest of the country on the grounds that it has to pay off the foreign debt...

...products in foreign countries, they had a rationale for not reversing the earnings decline...

...An adequate level of investment in skills would be expensive, and the truth is that the administration just does not want to fight for more money...

...Ironically, they were also on the side of Mexican voters, who, according to a poll by one Mexico City paper, La Reforma, opposed the bailout by 74 percent...

...financial interests...

...The effect was to allow Republicans to surround the president...

...These same people then came back into the markets, buying assets at deflated prices...

...Faced with the exhaustion of Reagan's military Keynesianism, the Bush administration developed a new strategy—in effect, America would prosper by selling to other countries' consumers...

...But the Democratic congressional leadership muted criticism so as not to further damage a battered presidency...

...NAFTA and the General Agreement on Tariffs and Trade (GATT) became the administration's major priorities...

...Pundits warned that if the market collapsed in Mexico, it would trigger crises in every other Latin American country and even spread to the rest of the third world debtor nations, and perhaps beyond...

...They can win the trade wars by becoming better educated and trained workers...

...The EC insisted that political reform come first...

...Treasury officials pointed to weakness in the stock markets of Brazil and Poland as evidence that the financial sky was falling...

...The bailout will perpetuate that system, virtually assuring that we will have another crisis in the future...

...For the three decades after World War II, the American economy was powered by domestic private demand, buttressed by government investments in schools and highways, the military budget, and periodic countercyclical Keynesian spending...

...Politically it meant that the U.S...

...This created a great many jobs, but also drove up the value of the dollar, increased the trade deficit, and quadrupled the national debt...

...But the Republican right—Pat Buchanan, Jack Kemp, Rush Limbaugh, and the talk radio reactionaries— had a field day blasting Clinton for a giveaway to Mexico...

...the PRI won the election...

...Democrats abandoned Clinton's original proposal for universal on-the-job training and gave low priority even to the modest Reemployment Act, which died in the last Congress...

...Mexican investors with close ties to the government precipitated the run on the peso to save their own investments...

...His boss, Commerce Secretary Ron Brown, became the chief salesman for the program, traveling around the globe to open up opportunities for trade and investment...

...interest rates...

...A little more than a year later: • Mexico is headed for a deep recession, coming on top of a decade of austerity...

...After ten years of austerity, real wages in Mexico will drop even lower...

...This had a number of virtues for a Republican administration and its Wall Street supporters...

...When asked about this recently, one administration official—with reasonably liberal credentials— shrugged his shoulders and said that working people facing job stress will just have to invest in themselves...

...It worked...

...But Mexico is going to have a crisis with or without Salinas, and with or without NAFTA...

...It could have used this leverage to demand the labor rights and environmental standards that Mexican leaders had successfully resisted during the NAFTA negotiations...

...America would prosper through trade-led growth, with little concern for the niceties of labor rights and standards...

...The jobs claims, like the "body counts" of dead Vietcong, were inflated...

...But after the failure of his initial budget stimulus proposal and Clinton's subsequent embrace of Wall Street's deficit reduction agenda, the administration adjusted to the bond market's and George Bush's vision of a new world order...

...None of this means that the United States should wash its hands of Mexico's economic troubles...

...Their argument rested on the premise that economics had replaced military action as the basis for national security in the post-cold war era...

...It will send a signal to the world's financial markets that Mexico is theirs to exploit because the U.S...

...Washington Post columnist Jim Hoagland wrote that the Mexican peso crisis was to Bill Clinton what the Gulf War was to George Bush and urged the administration to use financial weapons to "preserve an ally whose collapse would be politically and economically disastrous...

...mutual funds and pensions began to roll big dollars into the Mexican stock market, and stock salesmen from Maine to Hawaii made calls to the dentists, lawyers, and other small investors hyping Mexican securities...

...wages...

...And, as in the debate over Vietnam, the Republicans are poised to take advantage of both sides of the issue...

...This was the Keynesian rationale for unions...

...a generalized belief in free trade came with the territory...

...The vision of foreign markets also gave the Wall Street bond dealers a powerful argument for keeping real interest rates high as a way of suppressing inflationary forces that might drive U.S...

...Political violence and drug trafficking have escalated...

...After NAFTA, U.S...

...Another was a recent poll by Business Week of the political preferences of the CEOs of the nation's largest corporations...

...The U.S...

...Treasury extends to Mexico City, the writ of the Security and Exchange Commission, the Federal Reserve, and other financial regulators stops at the border...

...surplus with Mexico would continuously expand after the passage of NAFTA and create hundreds of thousands of net new jobs, that illegal immigration would slow down, that NAFTA would assure political stability in Mexico, and that the ruling party in Mexico was dedicated to competence, modernization, and true democratic reform...

...Such massive short-term speculative investments supported Salinas's strategy of keeping the peso high...

...Finally, and for the Democrats, more ominously, the Clinton administration's multinationalist strategy has allowed the Republicans to walk both sides of the political street...

...Why would investors flee from good investments in, say, Argentina, because the Mexican government mismanaged its economy...

...His transparent purpose was to reelect the divided and shaky PRI by sustaining the illusion that its successful advocacy of NAFTA would generate a cornucopia of U.S...

...The economic signal was to the financial markets...

...income becomes more dependent on selling to the world's poorest, most indebted nations, who tend to be the least democratic and therefore the least stable...

...In 1994, a male high school graduate with up to five years of work experience was making 27 percent less than the same worker made in 1979...

...In our now integrated economy, this will make the jobs and incomes of large numbers of Americans who work in competing industries even more vulnerable...

...involvement in the Mexican economy that the new policy will solve the problem—defined as Mexico's huge debt, which stifled economic growth and, therefore, sent large numbers of Mexicans across our borders...

...Later came the plan by Bush's Secretary of Treasury Nicholas Brady, who organized Mexico's creditors to refinance some of Mexico's debt...

...Already we have seen the dollar weaken against other hard currencies as it becomes clear that the United States is ready to take responsibility for the peso...

...The history of our relationship with Mexico has revealed some of the economic and political dangers in the trade-led growth strategy...

...Having made its own working-class constituency fearful of the future, the administration then turned its back on them...

...Jim Hoagland, who likened the peso bailout to the Gulf War, later acknowledged: From imposing trade sanctions on China to helping Mexico out of its financial jam, from fighting the budget deficit in his early presidential days of economic recovery to presenting his new, mildly reflationary budget, the president has steered a steady course of placating American business interests and seeking the financial markets' authenticating approval...

...For example, there is the risk of integrating Mexican financial institutions, regulated by a corrupt one-party regime, with an already fragile U.S...

...investors, rights went overboard...

...investment in foreign countries and export growth...

...Economists do not agree on the reasons this happened, but there is now fairly widespread agreement that they included a shift in employment from high-productivity manufacturing to low-productivity services, the decline in the strength of labor unions, the decreasing value of the minimum wage, and the combination of a rising trade deficit and a spectacular increase in imports from low wage countries...

...While the largess of the U.S...

...The major casualties tend to be the securities markets and the government's popularity with the business class...

...government stands ready to limit losses...

...New York investors forced him to pay 20, then 50 percent interest rates to take the risk...

...Bill Clinton came to office as a garden SPRING • 1995 • 171 Right Turn You Read It Here First From "No to NAFTA," by Jeff Faux, Dissent, Summer 1993...

...costs up and make us less competitive...

...The American experts promoting the bailout were by and large the same people who assured us during the NAFTA debate that Mexico's economy was headed for explosive growth, that the U.S...

...Nor that we can never have economic integration among the three nations of North America...

...As in Vietnam, the academic and professional establishment was trotted out to rationalize the policy and was therefore unwilling to examine its assumptions...

...There is a case to be made for an economic interpretation of the national interest in an international system increasingly dominated by global commerce...

...Indeed, its refusal would have reflected its own judgment that talk of economic meltdown was exaggerated...

...There is no free lunch," he added, for those not familiar with the writings of Milton Freidman...

...The PRI is split into several warring camps, with the followers of Zedillo and Salinas blaming each 170 • DISSENT Right Turn other for the debacle...

...But the official policy is to "de-link" these questions from trade...

...The third problem is that a trade-led growth strategy ultimately commits the United States to keep these markets stable with bailouts and subsidies...

...SPRING • 1995 • 169 Right Turn As in Vietnam, a bipartisan leadership in Washington assured Americans that our previous commitments left us no choice but escalation...

...This means that U.S...

...But during a campaign in which he charged that Americans were "working harder for less," he professed to understand the pressure on American living standards from low-wage competition...

...In fact, currency crises have been a recurring experience in Mexico...

...The Reagan answer was simply to stimulate growth with deficits generated by tax cuts for the rich and military spending...

...For the typical middle-class American worker with family responsibilities, there is little in the way of public assistance for the lifetime of learning the administration says is needed...

...Next was the North American Free Trade Agreement (NAFTA), which was supposed to transform Mexico from a poor debtor nation into a rich exporter—to all the world except the United States, which we were assured would run a trade surplus with Mexico for decades...

...financial system...

...Since this group is the core of the Democratic constituency, this has obvious political implications for Clinton and the Democrats...

...But in a global marketplace, with American workers sometimes competing against workers making a dollar a day, business had a credible rationale for keeping wages down and undercutting unions— international competition...

...and Canadian investors in Mexico, with zero pages dedicated to protecting Mexican workers against the wage suppression policies of their government, openly aimed at undercutting U.S...

...The peso is overvalued, and real estate and financial markets are going through speculative excess...

...This creates the possibility that when the next debt crisis hits, the U.S...

...Thus, the U.S...

...In one sense, the history of American economic policy over the past 20 years can be seen as a desperate attempt to avoid dealing with the decline in incomes, because facing the problem would require a much greater degree of government intervention than the ruling elites are willing to accept...

...Along with their American counterparts, they became the chief beneficiaries of the bailout of the peso...

...As in Vietnam, the mistakes of elites will be paid for by the ordinary people of both countries...

...As in Vietnam, we are assured at each stage of the escalation of U.S...

...q 174 • DISSENT...

...This leads to the bizarre economic policy in which the United States subsidizes the consumption of the upper and upper-middle classes of less developed countries—in the hope that perhaps 10 percent of their income will be spent on imports from the U.S.—while at the same time it is slashing aid to poor and lower-middle-class people at home who spend 90 percent of their marginal income on goods produced here...

...Export-led growth is now the theme of the administration's economic policy...

...At the Commerce Department, Under-Secretary Jeffrey Garten produced a strategy paper touting the "emerging markets" —third world countries that represented immense opportunities for American investors...

...business press repeatedly quoted the head of AT&T to the effect that a billion Chinese were potential buyers of telephone sets, without reference to 172 • DISSENT Right Turn the fact that, aside from some specialty items, American companies have shipped virtually all of their telephone manufacturing to low-wage countries...

...And as in Vietnam, the U.S...

...One economic problem is that, because it is driven by business concerns, the strategy inevitably generates conflicts between U.S...

...But the better military analogy to the peso crisis was Lyndon Johnson's escalation in Vietnam, when Washington's "best and brightest" led the nation step-by-step into disaster...

...Illegal immigration is now being forecast to rise and the government has already decided to spend even more money to beef up border patrols...