Capitol Ideas

The Mexican Kleptocracy

By From the July 1989 issue

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THOSE WHO WORRY about the integrity of our southern border rarely pay attention to the economic conditions in Mexico. They ought to. The wave of Mexican migration is a recent phenomenon, beginning only in the 1970s. Few expressed concern about the (mostly) unguarded Mexican border in the 1960s. In the 1940s and '50s we actively encouraged temporary Mexican agricultural workers to come north. The point is that something changed down there, relatively recently. What was it?

It is a drastic thing for a man to leave his wife, family, and home; to travel hundreds of miles to a strange land where he does not speak the language, there to engage in manual or menial labor; all the while running the risk that he will be arrested, imprisoned, turned back empty-handed, reduced to thumbing rides and trudging miles down dusty roads. When hundreds of thousands do it, there is something seriously amiss.

The Federation for American Immigration Reform (FAIR), which tirelessly lobbies for more restrictive immigration, has misconstrued this human migration. It attributes it to a population growth that has outstripped the capacity of the Mexican economy to provide sufficient jobs. But this is not the real cause at all. As FAIR's own immigration report pointed out in May, there is now actually a labor shortage in Hong Kong, with 5.6 million people living in an area one-third the size of Rhode Island. And in the "Maqiladora" zone of Mexico itself, where foreign companies are permitted to run factories comparatively free of interference by the Mexican government (parts are assembled into finished goods and then shipped north across the border), there is also a labor shortage. (This shortage arises because transportation to the factories and living quarters near them are hard to find; Mexico's government-trade union complex will not permit the necessary free market construction and transportation to fill the need.)

Mark Krikorian at FAIR told me that economic reform was indeed the "long run solution" for Mexico, but— "in the long run we are all dead." Meanwhile, we will continue to be overrun by the Mexican millions. This too is wrong. The "economy" of a country should not be thought of as analogous to physical machinery, or to a hotel or an ocean liner: something that can be utilized only when its construction is complete. It should be thought of as a set of rules whose effect ideally is to encourage those within their jurisdiction to work hard. The rules would achieve this by enabling people individually to reap the fruits of their own labor and to experience the consequences of their own idleness.

The shorthand phrase for such rules is "private property rights." When enforced, they encourage people to behave responsibly. Without them, there can be no economic justice. Broadly speaking, the U.S. does have such rules (although liberals constantly try to undermine them); Mexico does not.

IF SUCH RULES were instituted south of the border, Mexicans would almost immediately stop coming to the United States. The timespan for such a transformation, then, is not the time required to construct a new economy (thought of as a material entity) but the time it takes for the government to enact new laws. (It could be argued that an additional period of a year or two may be needed to convince an understandably skeptical populace that its politicians really do intend to abide by the new rules.)

The real reason why there has been a massive emigration from Mexico is that, beginning with the leftist presidency of Luis Echeverria (1970-76), and continuing with the kleptocracy of Jose Lopez Portillo (1976-82), there has been a marked increase in the socialization of life in Mexico. This followed a period (1940-65) of comparative stability in the country. Since then, private property has become less secure; the official taste for expropriating it has increased; coercion and bribery have more and more displaced contract and law; the government itself has become increasingly lawless, its powers less clearly defined or subject to external restraint.

There was no discernible improvement in the administration of President Miguel de la Madrid (1982-88), whose term saw the standard of living drop by 40 percent, and the number of pesos needed to purchase a dollar increase from 150 to 2,250. It may be true, as was pointed out by the Wall Street Journal's editor and optimistic Mexico watcher, Robert Bartley, that de la Madrid was "the first Mexican president in two decades to leave office with the hope that, when history has time to judge, his reputation will rise." Unlike his predecessor, de la Madrid did not find it necessary to go into European hiding with his loot. The problem is that little in the way of institutional change took place under de la Madrid, who in fact boasted that in his term Mexico had maintained "its basic institutions." But these need to be dismantled. As the Wall Street Journal pointed out in an editorial two years earlier, "the big mistakes of the past—bank nationalization, oil nationalization and the ejido system of land tenure—have been too big to tackle."

The ejido system, incidentally, is one of Mexico's worst features. Groups of families nominally "own" land in common, but cannot sell or rent their separate shares. "In most cases a collective ejido pays the same wage to each of its members," Paul Lamartine Yates wrote in his excellent 1981 book, Mexico's Agricultural Dilemma. "Indeed, they are paid whether there is any work for them to do or not, and whether the ejido has any income or not, as has happened in some of the ejidos of the south east. The system, however, provokes discontent. Those who work hard perceive that their efforts merely benefit the lazy…. A cooperative cannot dismiss one of its members; and if the hardworking members perceive one or two expending much less effort but still drawing their shares of the profits, the morale of the cooperative sinks."

Very similar words were used by Governor William Bradford to describe Plymouth Colony in 1623. Originally a collective, it was privatized that year, each family receiving "a parcel of land." This had "very good success, for it made all hands very industrious," Bradford wrote. Communal property, on the other hand, bred "much discontent…for the young men that were most able and fit for labour and service, did repine that they should spend their time and strength to work for other men's wives."

The Mayflower settlers privatized after two-and-a-half years. The Mexican ejido has persisted for seventy-four, with ever-increasing turmoil and endless expropriation. Luis Pazos, the outstanding writer on political economy in Mexico, notes that "between 1915 and 1988 more than six times the country's total arable land was 'redistributed.'" Today Mexico spends $2.5 billion importing food. The ejido is a system of rural welfare that both discourages people from working and yet ties them to the land. The cartoonist's stereotypical "lazy Mexican," sitting in the sun with a sombrero over his eyes, is merely behaving rationally given the incentives he faces.

AMERICAN REPORTERS IN MEXICO rarely tell us any of this. Too many journalists look no further than the meaningless statistical aggregates of the Treasury Department and the IMF. (Another $3.5 billion will have to be sent to Mexico this year, folks; but everything will be okay just so long as they get their deficit down another notch and shift the exchange rate once more.) Other journalists share the generally anti-American outlook of Mexican officialdom, and so are inclined to take an exculpatory attitude toward the country. (Alan Riding of the New York Times comes to mind.) Some journalism has been downright incredible, as when the Times found, one day after Portillo nationalized the Mexican banks, that "Takeover Pleases U.S. Banks." The effect of this expropriation was to permit the Mexican government to steal about one half the value of $12 billion in dollar-denominated deposits. Nonetheless, it was reported that "despite their philosophical commitment to private ownership, most American bankers applauded the nationalization as a much needed step to bolster international confidence in the Mexican banking system." Not one American banker was identified, but a Bank of America "spokesman," fortunately anonymous, was reported to say that "this is a positive step in that it puts the Mexican government clearly behind its banking system." Perhaps this explains, if nothing else does, why U.S. bankers cheerfully went on making loans to the Mexican government after the nation's banks had been expropriated.

Mexican news tends to be cyclical. First, there will be token admissions of error in Mexico City, accompanied by promises: Excesses will be curbed, reforms put in place. State companies will be privatized, inflation subdued, spending curtailed. Then, from our side of the border, will come a little editorial nudging: The stakes are high, the border exposed, drug traffickers wait in the wings, leftists may yet take over from the moderates… Better send them some more money then, right? And hurry up about it, loan officers! We wouldn't want them to default, would we? There follows a triumphal phase. Success! Twelve billion will be made available over the next three years. Now at last, it will be said, Mexico is on the road to recovery.

A period of silence ensues, while the lion digests the sacrificial kid. For a while everything is peaceful. Fortune, perhaps, publishes an encouraging article. (For example, "Opportunity Knocks in Troubled Mexico," published one week before Portillo's bank raid.) Then, quite unexpectedly, we begin to hear growling noises from the lion's den. He's hungry again! (Didn't we just feed him? Must be some mistake…) Now what? With a little luck, Jesse Helms or someone on the right will come to the rescue with a spot of Mexico-bashing. (In the summer of 1986, Helms had the temerity to suggest that a Mexican presidential election had actually been stolen.) Tilt! Fire alarms ring triumphantly in the New York Times newsroom, and editorials, news stories, and op-ed pieces will be rushed into print. They will demand an immediate end to Mexico-bashing. We will be reminded how high are the stakes. This in turn will serve to remind Mexicans that their perennial sense of grievance about the U.S. is, justified. Soon there will be renewed Mexican promises of reform, which is where we came in.

THIS IS WHERE WE ARE in the cycle right now. The new man, Carlos Salinas, has been in office for six months. He brings with him a new, technocratic outlook. A Harvard man. Now at last the problems will be addressed. He's privatizing fast, we are told, selling off those bad old monopolies, arresting drug kings, stock manipulators, union bosses. Even as I write the bankers' arms are being twisted once again. They are being asked to reduce the Mexicans' interest bill by $4.5 billion a year. If the past is any guide they will go along (perhaps reassured by the prospect that taxpayers will make up the difference). The Wall Street Journal recently chimed in with an amazing editorial, possibly Machiavellian, suggesting that Mexico should be permitted to repay some of its debts in pesos—comparable to making the case for counterfeiting. But the effect can only have been to make American bankers more uneasy than ever.

Perhaps this time the Mexicans really will change, but my suspicion is that the old cycle will continue. The U.S. Treasury Secretary, Nicholas Brady, has made this more likely. In calling for debt reduction he can only have reinforced the Mexican tendency to believe that they are in the right and we in the wrong. Reform is painful and it will only happen when Mexico knows for sure the banks will be sending no more money. Only then will they have no choice but to give up their socialized kleptocracy and start creating more wealth than they consume.

Daniel James, the president of the Mexico-U.S. Institute in Washington, D.C., points out that "the arrest of lawless big shots by incoming Mexican presidents is nothing new." Miguel de la Madrid made arrests that were "downright spectacular" by comparison with Salinas, including jailing the head of Petroleos Mexicanos for five years. James reports that very few state firms really have been privatized. Most have simply been reorganized under different umbrellas. True, import barriers have been reduced. But as I write the government is staunching further capital flight with very high domestic interest payments that are not sustainable for more than a few months. Wage and price controls probably disguise continuing inflation. The free market value of the peso has declined by a further 10 percent since Salinas took office.

What's happening at the Mexican border? Here are the most recent U.S. Border Patrol apprehension figures: January: 61,175. February: 54,016. March: 74,501. April: 80,300. These figures are lower than they have been in recent years—about the same as they were in 1982; not terribly encouraging given the 1986 enactment of sanctions against U.S. employers who hire illegal aliens.

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About the Author

Tom Bethell is a senior editor of The American Spectator and author of The Politically Incorrect Guide to Science, The Noblest Triumph: Property and Prosperity Through the Ages, and most recently Questioning Einstein: Is Relativity Necessary? (2009).