Globalization and the Washington Consensus in Mexico

Posted on Dec 3, 2024 in Economy

The Globalization of the Washington Consensus (Romo Héctor Guillén)

John Kenneth Galbraith stated that globalization, a concept invented by Americans, was not a serious concept. It was designed to facilitate international capital movements, causing numerous problems while granting respectable entry to other countries.

Key Economic Concepts

Global Economy: The world economy taken as a whole; the world market.

World-Economy (Braudel): A portion of the planet that is economically integrated. It is defined by:

  1. Slowly varying geographical space
  2. A center represented by a key city
  3. Successive hierarchical zones

National Economy: A political space transformed by the state into a coherent, unified economic space. Its activities are directed in the same direction based on the needs and innovations in living material. It can be identified by:

  1. Currency
  2. Market
  3. Barriers to factor mobility
  4. Institutional rules and social commitments

Currency: The common denominator of all goods offered and demanded in a country’s market.

Market: Interdependent firms, acting as independent decision centers, linked through a network of exchanges, influencing prices and quantities.

Barriers: Tariff and non-tariff restrictions on the movement of goods, services, capital, and labor.

Rules: Intervention mechanisms expressed through institutional forms and social commitments.

Internationalization and globalization are distinct: the former is about opening national economies, while the latter refers to integration.

Origins and Evolution of Globalization

The term “globalization” emerged in the early 1980s, describing open borders and liberalization policies enabling worldwide economic activity.

Boyer’s four conceptions of globalization:

  • Theodore Levitt: Convergence of markets allowing multinationals to sell the same goods the same way globally.
  • Kenichi Ohmae: A worldview leading to global integration of company activities and full control of the creative chain.
  • Multinational Management: Redefining profit rules imposed by nation-states.
  • Joachim Hirsh: Globalization encompasses technical, political, ideological-cultural, and cost dimensions.

Trends in Economic Globalization

Globalization is a historical process with three configurations:

  1. International (15th-mid 20th century): Exchange of goods and services between nations.
  2. Multinational (1960s-mid 1980s): Mobility of goods and services.
  3. Global (mid 1980s-present): Dominance of finance.

Globalization indicators:

  • Exchange of goods
  • Foreign Direct Investment (FDI)
  • International capital flows

Key elements of the exchange system:

  • Formation of dense commercial areas
  • Trade polarization
  • Off-market pricing by multinationals
  • Higher growth

FDI specifications:

  • Not simple trade
  • Intertemporal dimension
  • No transfer of property rights

Reasons for FDI:

  • Insufficient production in the country of origin
  • Protectionist barriers in target markets
  • Better demand satisfaction
  • Macroeconomic advantages

Multinationals locate production in the periphery to exploit wage inequalities.

Recent financial integration results from:

  1. Deregulation of financial markets
  2. Technological advancements enabling low-cost information dissemination

Divestiture and Privatization of State Enterprises

  • 1150 companies in 1982
  • Initial privatization: 1994-2000
  • Diverse businesses: mining, manufacturing, utilities, transportation, banking

State-owned enterprises (SOEs) increased from 500 to 1150. Privatization began under Miguel de la Madrid and intensified under Salinas, with about 18 banks privatized. López Portillo had nationalized the banks.

Economic Sectors

  1. Agriculture, forestry, and fishing
  2. Mining
  3. Manufacturing (food, wood, textiles, paper, chemicals, plastics, non-metallic minerals, base metals, machinery, equipment, other industries)
  4. Construction
  5. Energy (power, water, gas)
  6. Commerce, restaurants, and hotels
  7. Transportation and communication
  8. Financial services
  9. Community, personal, and government services

Revising the Washington Consensus

The Washington Consensus refers to policy reforms considered necessary for Latin America. It reflects changing political attitudes in the region.

Key points:

  • High Savings Rate: Restore fiscal discipline to finance modernization.
  • Public Spending Priorities: Focus on health and infrastructure.
  • Tax Reform: Cut marginal tax rates, broaden the tax base, and improve tax administration.
  • Banking Supervision: Strengthen supervision and prudential rules amid financial liberalization.
  • Competitive Exchange Rates: Stimulate non-traditional exports.
  • Trade Liberalization: Remove import restrictions and reduce tariffs.
  • Competitive Economy: Privatization and deregulation to stimulate competition.
  • Property Rights: Ensure clear and accessible property rights.
  • Institutional Strengthening: Build strategic state institutions.
  • Better Education: Improve the quality of public education.

Sustainability and Management of Natural Resources in Mexico: Agricultural Production in Irrigated Land (Benjamin Camacho)

Addressing Molina Enríquez, irrigation should contribute to basic grain production.

The growth of irrigated areas between the 1940s and 1960s facilitated hybrid seeds, industrial inputs, and mechanization, increasing yields. The Green Revolution achieved agricultural self-sufficiency but also led to socio-economic polarization, technological dependence, and pressure on natural resources.

Water Resources and Irrigated Agriculture

Mexico’s average annual rainfall is 1511 cubic km. Natural availability is the difference between rainfall and evapotranspiration. Natural runoff is crucial for dam storage. Storage capacity varies depending on climatic conditions.

Half the water stored in dams is lost in channels and plots. Lining canals, using sprinkler/drip systems, and extracting groundwater can increase irrigation potential.

Irrigation districts developed from large dams with state-managed water and production. Irrigation units are clusters using groundwater and surface water sources.

Harvested area in irrigation districts has declined relative to irrigation units.

Efficiency in Water Use for Irrigation

95% of irrigated land uses gravity irrigation; 5% uses pressurized systems. Losses in large dams occur due to unlined canals. Inefficient irrigation techniques include flood irrigation, excessive watering, and high drainage.

Economic and Technical Conditions of Irrigation Efficiency

Key features and trends since the 1980s affecting irrigation efficiency:

  • 6.4 million hectares of irrigable land for over 10 years.
  • Stagnation in district areas and growth in unit areas.
  • Declining surface and groundwater availability due to overexploitation and alternative uses.
  • Need to resize conversion programs for efficient irrigation systems.

Gravity irrigation is low-cost but furrow, sprinkler, and low-pressure systems require high investment.

Improving irrigation efficiency is crucial for reducing water and energy consumption.

Production Rationalization and Agricultural Development

Irrigation should prioritize agriculture’s role in rural incomes and national development. The state should determine objectives, promote research, restore infrastructure, and finance water-use rationalization technologies.

A modernization program should combine profitability with long-term goals: preserving water resources and improving producer incomes.

The Agricultural Sector in the 1990s

  • Globalization
  • Erosion of the national state
  • Dominance of the price mechanism over rural producers
  • Dynamic crop marketing and distribution
  • Rising prices until the early 1990s, then declining prices and EU agricultural policy
  • Benefits for transnational agri-food corporations
  • Impact of free trade on basic grain imports and production

Failed State

A state failing to provide security services, characterized by:

  • Loss of territorial control
  • Erosion of legitimate authority
  • Inability to provide basic services
  • Inability to interact with other states
  • Social, political, and economic failure
  • High corruption and crime

Real Income: Inflation-adjusted income.

Nominal Income: Income not adjusted for inflation.

The Mexican Agricultural Sector in the 1990s

  • Globalization
  • Erosion of the national state
  • Dominance of the price mechanism over rural producers
  • Dynamic crop marketing and distribution (rising prices until the 1990s, then declining prices and EU policy, benefits for transnational corporations, impact of free trade)

Failed State (characteristics as described above)

Developed countries produce expensive, subsidized staples and sell them cheaply internationally. Mexico’s demand for grains and livestock products increased in the 1990s, but domestic producers faced market access issues, leading to food shortages. The agricultural crisis, affecting corn, coffee, and sugarcane, began in 1967.

Neoliberal Agro-Export: Dominance of agribusiness corporations controlling the world market, focusing on:

  • Declining traditional exports (grains, livestock)
  • Dynamic non-traditional exports

Agribusiness dominance over rural producers occurs through:

  1. Price mechanisms
  2. Control of marketing and distribution

Since 1982, international grain prices have declined due to U.S. policy, benefiting transnational corporations. Trade liberalization allows U.S. farmers to compete with developing countries. The imposed world market price is artificial.

Low international food prices lead to transnational agribusiness dominance over developing countries’ producers. This “destructuring subordination” undermines the source of wealth, leading to depeasantization. Effects include:

  • Privatization of grains (sorghum, maize)
  • Food dependency (exacerbated by GATT and NAFTA, affecting corn and beans)

Traditional export crops (coffee, sugarcane):

  • Coffee: Weakening of producing countries’ price support organizations; promotion of low-quality coffee for instant mixes.
  • Sugarcane: High-fructose corn syrup imports reduced sugarcane revenue.

Livestock

Livestock production grew minimally in the 1990s due to declining meat consumption and imported frozen meat. Poultry profits declined due to U.S. egg imports.

Corporate Domain

Developed countries dominate non-traditional export crops (vegetables, fruits, flowers), encouraging developing countries’ participation but also enabling agribusiness dominance.

Export Agribusiness: Producers are encouraged to adopt biotechnology, modern packaging, and cooling systems.

Mexico’s neoliberal agricultural phase is characterized by:

  1. Moderate product growth
  2. Trade deficit
  3. High food dependency
  4. Segmented production structure (profitable and declining crops)
  5. Strong concentration at all levels