Mexico and Its Workers Didn't Hit the Jackpot With Nafta
(Bloomberg View) -- Since 1993, the year before the North American Free Trade Agreement went into effect, per capita gross domestic product in Mexico is up about 26 percent in real terms. That's a lot better than the outright decline in per capita GDP that the country had experienced over the course of the 1980s. But it's nowhere close to the 41 percent gains in real GDP per capita experienced by Canada and the U.S., the other signatories of Nafta, not to mention China, where GDP per capita is up more than 600 percent since 1993:
The picture might be slightly better than this for the median Mexican worker, given that by some measures income inequality declined in the country for a decade or so starting in the mid-to-late 1990s. Then again, a 2017 study by Ingrid Bleynat and Paul Segal of King's College London and Amílcar Challú of Bowling Green State University, which estimated income inequality by dividing average wages of construction workers in the Mexico City area by per capita GDP, found that this inequality never fell below pre-Nafta levels and has been rising again lately.
That study, which covers more than two centuries, also found that real wages for those Mexico City construction workers have risen only 80 percent since 1800, while per capita real GDP is up eightfold. That certainly can't all be chalked up to Nafta, but it is useful context. The great explosion in living standards that transformed life in the U.S., Western Europe and a few other places over the past two centuries has been less, well, explosive for most Mexicans -- and since opening up its economy to the outside world starting in the 1980s, Mexico has actually fallen further behind.
Explaining why this is so is the subject of a gigantic development literature that I cannot hope to fully comprehend, much less explain here. Its post-Nafta subset is a little easier to grasp, with McKinsey Global Institute's "two-speed economy" of "globally competitive multinationals and cutting-edge manufacturing plants" and "a far larger group of traditional Mexican enterprises that do not contribute to growth" providing perhaps the best one-sentence summary. I'm currently on my first-ever extended visit to Mexico, though, and the implications, more than the explanations, have been occupying my attention.
One implication is that a candidate like populist Andrés Manuel López Obrador, currently the front-runner in this year's presidential race, can win a lot of political points by criticizing Mexican capitalists and evoking nostalgia for the years from 1940 to the mid-1970s, when Mexican workers made big wage gains amid heavy government economic intervention and limited foreign trade. Another is that while a candidate and now president like populist Donald Trump can also apparently win political points by depicting the U.S. as a loser in trade with Mexico, it's hard to support that claim with economic data. You can make the case that U.S. workers have been losers -- or at least not big gainers -- in recent decades, but Mexico's workers have if anything done even worse. Here's American University economist Robert A. Blecker's 2014 summing-up of the evidence after 20 years of Nafta:
NAFTA did not make Mexico converge to the United States in per capita income, nor did it solve Mexico’s employment problems or stem the flow of migration. NAFTA did foster greater U.S.-Mexican integration and helped transform Mexico into a major exporter of manufactured goods. The benefits for the Mexican economy were attenuated, however, by heavy dependence on imported intermediate inputs in export production, as well as by Chinese competition in the U.S. market and domestically. The long-run increase in manufacturing employment in Mexico (about 400,000 jobs) was small and disappointing, while U.S. manufacturing plummeted by 5 million—but more because of Chinese imports than imports from Mexico. In both Mexico and the United States, real wages have stagnated while productivity has continued to increase, leading to higher profit shares and a tendency toward greater inequality.
With negotiations to renegotiate the trade pact currently moving fitfully along in Washington, these facts are important to keep in mind. Nafta hasn't been a disaster for the U.S. or a bonanza for Mexico. It may have helped North America as a whole weather the global-economy-transforming rise of China better than it would have otherwise -- but really, who can tell. And for many Mexicans going to the polls in July, the sense that things haven't gotten a lot better for them in a long time is based on more than just nostalgia.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Justin Fox is a Bloomberg View columnist. He was the editorial director of Harvard Business Review and wrote for Time, Fortune and American Banker. He is the author of “The Myth of the Rational Market.”
Why not "NAFTA"? Because, according to the Bloomberg News stylebook, "when an abbreviation has more than four letters and doesn't have to be pronounced letter by letter when spoken, use lowercase after the first letter." So the Spanish acronym for Nafta, TCNAF, stays all-caps.
If you want a longer summary than that, I recommend this 2014 essay by Harvard's Dani Rodrik.
I made a day trip from San Diego once, decades ago.
Even Amlo, as he is known in Mexico (the Mexicans tend to write it AMLO), hasn't suggested an end to Nafta, though. His likely finance minister said Monday that the candidate's support for the trade pact is "absolute."
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