Palace Politics : How the Ruling Party Brought Crisis to Mexico

Chapter 3. Did Structural Economic Failure Cause The Crises?

did structural economic failure cause the crises? Chapter 3 Many Mexicans, as well as many foreigners who study Mexico, share the conviction that underlying socioeconomic forces caused the nation’s economic crises. Although Mexico was seen as an economic miracle in the 1950s and 1960s—especially from 1958 to 1970 under the guidance of Finance Minister Antonio Ortiz Mena—it is argued that the economy and society suffered from deep, structural flaws. The view that these flaws inevitably produced economic crises comes in several variations. They are all wrong. “Structural” industrial failure has been blamed for economic crisis in diverse times and places. In the 1950s and 1960s, for example, inefficient agriculture in Latin America, seen as a legacy of colonial exploitation, was blamed for failing to produce enough food to consume at home or crops such as cotton and coffee to export, and thus causing economic crises.1 After the Asian crisis of the late 1990s, though not a single Western economist had predicted it,2 some claimed that it had inexorably resulted from “crony capitalism”—in the words of Jeffrey A. Frankel, a former member of the President’s Council of Economic Advisers, “patterns of corruption, industrial policy and other excessive government interference in the economy.”3 The 1976 and 1982 crises in Mexico were blamed on quite similar sorts of structural problems. At least, in this case, the problems were discovered before the crises—a point in favor of the argument because if structural problems exist, somebody should notice them before crises send everyone looking for them. Mexico’s supposed structural economic problems proved a popular culprit in part because, beneath some ideological differences, free-market and Marxist views could essentially agree about them. In somewhat eclectic versions, both views were important in Mexico in the 1970s and 1980s. The Economics Faculty of the National University taught “60 percent Marx and 40 percent Keynes,” as one former Bank of Mexico official joked.4 Like many other Bank of Mexico and Finance Ministry officials, he had not only attended the National University, but also had Antonio Ortiz Mena, finance secretary from 1958 to 1970, presided over the “Mexican miracle”: a stable, rapidly growing economy, widely benefiting the populace . One theory after another has suggested that beneath the apparent success was structural failure. None of the theories hold up. Photo: Archivo General de la Nación, Fondo Hermanos Mayo. did structural economic failure cause the crises? 57 later studied graduate-level economics at a prominent U.S. university, in his case at the University of Chicago’s famously free-market economics department. Strands of these seemingly opposite lines of thought tended to intertwine. The “neoliberal,” free-market critique of Third World structural problems originally did not focus on economic crises, but instead argued that excessive protectionism and other statist intervention undermined industrial efficiency.5 When crises erupted, this argument about industrial efficiency provided a ready-made explanation. Clark W. Reynolds, author of a prominent economic history of Mexico, blamed the 1976 crisis on “artificial” trade protection and government subsidies for electricity , fuels, and even roads.6 When Mexican presidents of the 1980s and 1990s with advanced economics degrees from U.S. universities—Miguel de la Madrid, Carlos Salinas, and Ernesto Zedillo—blamed economic crises on the old economic model, they meant the same thing as Reynolds.7 Marxist “dependency” theory, taking shape during much the same period as the free-market critique, also initially focused on industrial efficiency, seeing the capitalist “core” in advanced nations as undermining development in “dependent” Third World economies.8 This theory about structural industrial problems likewise provided a springboard to explain crises once they erupted. For example, E. V. K. Fitzgerald argued that foreign and large-scale domestic capital wielded international connections and threatened divestment, demanding public subsidies and avoiding commensurate taxes. The resulting massive budget deficits created the “fiscal crisis of the state,”9 hence crises. Ideological disputes about culprits should not obscure the parallels between these arguments. Both sides said big business got excessive subsidies and tax breaks, even if neoliberals blamed heavy-handed governments and dependency theorists pointed to domineering capital. Neoliberals especially attacked protectionism, but so did dependency theorists such as the Brazilian sociologist Fernando Henrique Cardoso.10 When Cardoso became president of Brazil in the 1990s and pushed through free-market reforms, he quipped that everyone should forget everything he had ever written. Yet aside from ideological...