Sam Stone: "You know, sometimes it’s nice to cut through the nuance and get back to fundamentals…
Well since your idea of a “fundamental” seems to be an absolute belief in laissez-faire, and your idea of “nuance” seems to be factual evidence that casts doubt on the latter, I think it would be interesting to test your hypothesis.
“…especially when knowledge of the fundamentals seems so sorely lacking, and ‘nuance’ is really little more than drumming up mountains of complexity…”
Sam, you may feel comfortable charging Nobel Prize winning economists such as Sen and Stiglitz with a “sorely lacking” knowledge of fundamentals. Let’s just say I do not.
As to complexity–let’s see if we can clarify things just a bit so that even a true believer such as yourself can grasp the empirical case against neoliberalism (i.e. the economic and policy dogmas currently applied by institutions such as the IMF in the name of “globalization,” “free trade,” et al.).
“Let’s talk about Mexico. …For instance, alarm bells go off in my head with statistics like, “Mexicans used to earn 23% of American wages - now they only earn 11%”. That sounds to me like data mining to make a point, because the statistic is meaningless. Perhaps the economy in Mexico would have grown less without NAFTA, and the wage rate would be less than 11%.”
First, no problem with alarm bells but second, no the data is not “meaningless”–though I understand that you’d like more data to interpret it. More nuance, not less.
On the first point–yeah, maybe Mexico would have done worse without NAFTA. Of course, the data suggests that they were doing better or the same prior to NAFTA in these areas–but there’s no way to know of course. In any case though, you’re now running head on into the fallacy disputed by Sen. Let me cite Sen again, just to refresh you:
Even if we were to assume–against the data–that without NAFTA real incomes would have declined more in Mexico than that they did with NAFTA, according to Sen:
**"Even if the poor were to get just a little richer, this would not necessarily imply that the poor were getting a fair share of the potentially vast benefits of global economic interrelations. It is not adequate to ask whether international inequality is getting marginally larger or smaller…
…It is not sufficient to understand that the poor of the world need globalization as much as the rich do; it is also important to make sure that they actually get what they need. This may require extensive institutional reform, even as globalization is defended."**.
“That statistic [about a decline in wages relative to the US] is also misleading, because it implies that the standard of living in Mexico has fallen, which it certainly has not.”
Implies it? I beg to differ. Let’s take a look at what you’ve found to prove the assertion that “standard of living” in Mexico has improved.
First, note that you cite a 2000 report, which **predates the full impact on Mexico of job losses to China and of continued recession in the US and elsewhere.
Second**, most of the data you provide testifies to rising exports (in the relatively flush pre-2000 period). The data I provided did not dispute that exports had risen. The gist of those data was that the benefits of rising exports were not proportionately shared by the Mexican workers so that their real incomes/purchasing power declined. So let’s see if anything you say here disputes that…
“Household Income: Top 10% of earners account for roughly 40% of all income or consumption; lowest 10% accounts for less than 2%. 58% of all income or consumption is earned by a middle class.”
Well here we have no comparative info for the pre-NAFTA period. But we do have is evidence that the top 10% consumes only 20% less than the rest of the entire country combined: 40% for the top 10 as opposed to 60% for the rest of the country. I suspect that were to see actual figures rather than percentages we would thus find that a very generous definition of “middle class” is being used to define the 80% of people who are neither in the highest or lowest 10%.
In fact some of your own evidence suggests it.
“about 35 percent of all workers in Mexico now earn the minimum wage.”
Well considering that the minimum wage in Mexico fell steadily during this period, it’s hard to say whether this isn’t actually very bad news for the so-called “middle class” that’s lumped into the 80% figure above.
According to the GPN’s report on Mexico:
"Despite GDP growth trends, income distribution has changed little" and household income inequality is (and has been) “extremely high.” In other words, within that middle 80% cited in your link, there’s a lot of variation with the bottom half of the middle looking a lot more like the very bottom than like the very top or even the top of the middle.
More important,
"Over the 1990-1999 period the labor income of wage and salary employees fell steadily. The minimum wage-which is set each year by official unions, employers, and the federal government-lost almost 50% of its purchasing power in the last decade."
So again–a serious decline in real income and, consequently, adverse distributional affects on what is supposedly a boon to Mexicans at large. And all this prior to recession and job losses to China. Hence, rising living standards? Maybe for the top 10%.
From your link:
“While serious global and regional uncertainties have created a variety of economic and political problems over the past couple of years, Mexico’s economy has nonetheless fared better than those of most of the other Latin American countries and, indeed, much of Western Europe. It remains one of the continent’s fastest-growing entities… In 1999 alone, net foreign investment amounted to $11.6 billion, or roughly 15 percent of Latin America’s share, and double what it was before NAFTA.”
Again, no one disputed that investment/exports/GDP increased during the NAFTA period–at least until 1999. The point is that the benefits of that growth were not broadly distributed in terms of real income–a point that makes the comparison to Western Europe, where average people already enjoy a high standard of living, rather tendentious.
Now let’s take current circumstances into account:
From the GPI report (which brings up to 2001):
"During 2001, the Mexican economy underwent a slowdown that lowered the rate of GDP growth to an estimated -0.3%. …As a result, per capita GDP fell.
…Despite the recession, which normally would be expected to improve the country’s trade deficit, Mexico’s structural dependence on imported inputs produced a trade deficit in 2001 that was greater than it had been in 2000.
…The prospects for 2002 are grim, particularly in terms of job creation, at least during the first three quarters of the year. GDP is expected to grow about 1.5% during 2002, but any delay in the recovery of the US economy could make the actual much lower."
From your link:
“Unemployment in 1999 was only 2.5%, and Mexico at this time was expected to produce 1 million new jobs per year.”
Ah yes, but what kinds of jobs and how is unemployment being measured? As always the devil is in the det…, um, nuances ;).
GPI’s report on unemployment is very detailed, with discussion of how official figures are stressing frictional unemployment while there are other kinds of unemployment and underemployment that are more distressing and are either being missed or underplayed by official figures. Overall…
“[T]he low unemployment rate in Mexico disguises the much deeper problem of precarious, poorly paid employment faced by a large share of the Mexican workforce. The prevalence of insecure, low-productivity jobs is reflected in the large number nonwage jobs in Mexico. These jobs are concentrated in very small economic units (i.e., those with less than five workers), including single-person establishments. In general, these establishments have extremely low levels of investment and low productivity, and not surprisingly, the average incomes paid tend to be low.”
As to rises in average per capita GDP income, emphasized by your link, as Paul Krugman is fond of pointing out, averages are completely misleading figures when there are huge inequalities between an elite top and a large middle/bottom. To borrow his example, when Bill Gates enters a bar, average income shoots up a great deal ;).
Also from your link:
“As foreign investment flows continue to multiply, especially from member countries of the EU with which Mexico has a newly-formed trade agreement, manufacturers may begin to experience shortages in skilled labor, making higher education and job retraining mandatory.”
Well that would be very nice and I’d love to see it happen: but there’s absolutely nothing beyond wishful thinking to suggest that it will. Obviously higher ed and job training is of crucial importance to any country’s development–but under the neoliberal status quo such training is left to the vagaries of the market where, in countries such as Mexico, it has yet to deliver. At the same time, we have plenty of unemployed skilled workers here in the US who are now working in Walmart. We even have high-tech professionals working in the Gap according to a much-cited article in the New York Times. Some of those unemployed and underemployed skilled workers could use retraining too–but the market is not delivering it.
“And sure, as Mexico’s standard of living and average wage increases, it will face competition from countries where wages are lower. This is as it should be. Mexico will just have to compete like other countries do - improve the infrastructure, educate the populace, create more political stability, keep its economic house in order, etc.”
How exactly is Mexico to do that by market forces alone when the Chinese are keeping their wages at .20c/hour and the Mexican wage has already dropped to $1.50? Note that the Chinese are not following neoliberal policies–issues of political repression aside, they are also highly protectionist, and they subsidize wages in various ways to keep them this low. Perversely, Chinese prosperity, under these circumstances, is responsibile for most global gains in antipoverty, and largely because China is not following neoliberal prescriptions.
So I’d say you might need to rethink your so-called “fundamentals” which, to me look a lot more like blinkered fundamentalism. And I’d say you need all the nuance you can get.
“Not quite the picture of disaster you painted.”
“Disaster?” I certainly didn’t use that term. This seems to me like the kind of rhetorical overkill that has plagued this thread from the start. Any call for change–no matter how reasonable or empirically well-founded–is chalked up as an overreaction. Yet the irony is that it’s often the defenders of the status quo who inject the histrionic rhetoric into the discussion–perhaps because there’s so little hard evidence in favor of keeping things exactly as they are, and so much evidence to suggest that reform is needed.
Remember, neither I nor anyone I’ve cited to support my position is against trade or globalization. We simply recognize that the market itself has not–either historically or in recent times–delivered the kind of distribution effects that lead to a healthy global economy.
