On Salaries and Unsustainable Models

Por: MA. Clara Franco Yáñez
Master en Asuntos Internacionales, por el Instituto de Posgrados en Estudios Internacionales y del Desarrollo en Ginebra, Suiza

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I am old enough to remember the days when NAFTA was about to be signed; although I was certainly not old enough then to understand such a complex subject in its many dimensions. Coming from a family of economists and businesspeople – pragmatic, critical thinkers on all things economy –, I remember since then hearing some criticism and skepticism regarding NAFTA; yet the climate regarding the treaty was, in general, optimistic throughout Mexico. There was even a presidential promise of sorts: with the Treaty, Mexico would "enter the First World," and would do so quickly. Almost magically!

Many years and presidencies later, the Treaty is in the process of being renegotiated and probably be cancelled. Criticism of it increases, from both sides of the border. Headlines and reports can be read everywhere, along the lines of "NAFTA’s unfulfilled promises". This was heard already before Trump. The Trump presidency, however, is delivering the “push” – inevitable and long in the making – which forces us to rethink the economic policies and strategies that as a country we have been following for the past decades. Let the following be clear: NAFTA brought great benefits to some companies, to some economic sectors, to some businesspeople. But the promises of sustained improvement in the quality of life for the great many, simply didn’t come true. The minimum wage in Mexico, as well as the average salary of a common industrial worker or employee – and the purchasing power of salary – have remained stagnant for decades. Inequality has kept growing; poverty and extreme poverty are still the status of the Mexican majorities. On top, we have the current problems of violence and organized crime. What happened to that promise?…

In the opinion of many economists and analysts – whose voices were already heard before the entry into force of the Treaty – NAFTA was disadvantageous for the majority of Mexican workers since its inception. Already then, talks were underway of how harmful it would be for small Mexican industries to attempt to compete on par with North American firms. Many warned that Mexico simply couldn’t compete against the United States; with its huge internal market, its subsidized agriculture and its strong industrial and innovation base. Since then, allegations were made sustained that it would be like attempting to "beat" an enormous transatlantic by paddling on a wooden raft.

NAFTA entered into force and, in an effort to turn Mexico into a competitive and productive country – and above all, attractive to foreign investment – several strategies were adopted. The most relevant were low wages, which guaranteed low labor costs, the innumerable concessions to foreign companies that invested in Mexico (tax exemptions, public works built to their specific needs, weak or nonexistent worker unions). This undoubtedly had benefits for some. Foreign companies came and created jobs. Though the countryside and many small industries practically went bankrupt across the whole country, in exchange we, the consumers, had foreign products at low cost. But what was gained with low prices was lost through low wages: incomparably lower than the salary of an equivalent worker in the U.S. or Canada. Hundreds of local productive capacities were also lost: small industries destroyed, agricultural production that was cheaper to import from abroad. That the so-called “cradle of corn” now buys from abroad almost all of the corn that it consumes is mystifying at best, sad and absurd at worst. We barely produce anything through our own means and our own investment anymore, let alone innovative technological products. Outside of selling crude oil; mostly we import all sorts of things, we assemble a few other things by paying very low salaries, and we sell foreign technology. Another sad and serious consequence of this model – which is already unsustainable – is that cheap labor was made to be to THE strong point of Mexico’s economy. It should have been scientific and technological innovation; but that can only be achieved with an educated population, one that has the capacity to develop its own abilities for the workplace. Worst of all, we did not even become that competitive: our productivity rates, wages, and numerous other indicators are still among the lowest throughout OECD countries. For all of NAFTA’s supposed benefits, Mexico still lags behind.

This model can no longer be sustained. It is revealing that Donald Trump, with all his failures, outbursts and political blunders, has recently become a defender of wage increases for Mexican workers. Let it be abundantly clear that Trump does not say this out of altruism, nor because of social justice concerns: he says it from his usual place of aggressive rhetoric and blaming of the dangerous "other". He says it because he thinks that higher wages will put an end to the "unfair competition" that low Mexican wages represent, thus making the country attractive for U.S. companies to settle here instead of over there. He also wants fewer illegal migrants, in his rhetoric this also would be achieved by having better salaries in Mexico. And Trump, on this issue – maybe just this one time and just on this particular issue – is mostly right. That the message has had to come through someone as ethically questionable as Donald Trump, does not speak badly of Donald Trump: it speaks badly of us as a country. It is high time that we changed this economic model, based on the almost sole premise of low wages, to one of real improvements in income and life conditions for the many – something that, by the way, allows people to consume more goods and services. Placing our long-term investments on education and on the generation of our own innovative technology is a much more efficient strategy, one which would actually allow Mexico to leap into a better world armed with a competitive strength that is not based simply on paying very little to almost everyone.