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Public Policy: Mexico . Discredited Disaster Policy Undermines Political Regime . Post World War II Policy Making Aimed at PROMOTING ECONOMIC GROWTH. Massive public investment Elite consensus on state’s role in economy Prevailed until 1970’s State facilitated private capital accumulation

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Public Policy: Mexico

Discredited Disaster Policy Undermines Political Regime

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Post World War II Policy Making Aimed at PROMOTING ECONOMIC GROWTH

  • Massive public investment

  • Elite consensus on state’s role in economy

    • Prevailed until 1970’s

    • State facilitated private capital accumulation

    • State was nation’s largest entrepreneur

    • State served as guiding force (rector)

  • Mexican economic miracle (1950’s to 1970’s)

  • By late 1970’s Mexico at upper end of World Bank’s list of semi-industrialized countries

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Early 1980’s: Exhaustion of ISI model forces change GROWTH

  • 1976-82

    • Term begins with petroleum fueled economic boom

    • Corruption

    • Technology advances bypass many ISI industries

    • Oil prices plummet

  • Jose Lopez Portillo

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Before the Change: Distributive Policy of PRI controlled State Reduced Poverty

  • Benefits did trickle down to the poor

  • 1950-80: poverty in absolute terms declined

  • Illiteracy dropped from 35% to 15% of the population

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Dark Side to PRI Economic Successes State Reduced Poverty

  • Ownership of land and capital increasingly concentrated

  • Personal income inequality increased

    • 1977- poorest 70% of Mexicans families received only 24 % of all disposable income

    • Richest 30% of families received 76% of income

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Other Social Indicators of the State Reduced Poverty “Dark Side”

  • 25% of children under five years of age malnourished (as of 1990)

  • Only 54% of those starting primary school finished

  • 57 %of dwellings had no sewerage connections

  • 51% had no piped water inside

  • 70% population (classified by government) as living in “extreme poverty”

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Populist Policies & Debt Crisis State Reduced Poverty (oil boom of 1970’s ends )

  • Central government revenues expands and contracts

  • Public spending for health and social security remained constant (in real per-capita terms)

  • 1982 debt crisis forces changes

    • Made it impossible to maintain existing spending levels for health and social programs

    • 1986 – debt service consuming over half federal government budget

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Shift to Neo-liberalism State Reduced Poverty (1982 -1993

  • Alternative to state socialism and ISI

  • Rate of economic growth pushed upwards

  • Rectorship of economy not completely given up by technical elite residing in Mexico City

  • 1993 – signing of NAFTA Treaty signals ascendancy of neo-liberalism

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Consequences of neo-liberalism State Reduced Poverty

  • Macro-economic indicators show increase in growth rate

  • Inequality problems exacerbated because of distributive policies

  • Job creation anemic

    • Influx of foreign capital purchases machinery

    • Over half of investment ended up in financial instruments – rather than in job-creating, direct investment projects

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Overall Evaluation State Reduced Poverty

  • Neo-liberalism facilitated macro-economic growth

  • By itself appears incapable of necessary job creation

  • Government needs to invest in upgrading worker skills

  • Danger that gains from NAFTA will bypass the largest segment of the population

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Shantytown in Ciudad State Reduced PovertyJuárez

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Outskirts of Mexico City State Reduced Poverty

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Extractive Policy and the Financing of Development State Reduced Poverty

  • For most of post-World War II period Mexico’s tax effort (rate of taxation and performance in collecting taxes) was among lowest in world

  • Even after tax reform of Salinas administration (1988-94)

    • Over sixty percent of revenue from socially regressive taxes

    • Income tax rates for wealthiest Mexicans reduced

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Special Extractive Factor : Oil Policy in Mexico State Reduced Poverty

  • 1911: Mexico begins to export oil

  • 1917: Article 27 of the Constitution gives the Mexican government a right to all subsoil resources

  • 1921: Peak of oil production in Mexico, due to increased demand from WWI

  • 1920s: Mexico is second only to the U.S. in petroleum output

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U. S. Acquiesces to Nationalization of Petroleum Fields State Reduced Poverty

  • Nationalization of oil (Lazaro Cardenas)

  • 1944: Mexico pays U.S. oil companies $24 million, plus interest at 3 percent, as compensation

  • Mexican and U.S. officials develop a 20-year plan to expand Mexican oil industry

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Mexico Finds More Oil State Reduced Poverty(1974 – 75)

  • Crude-petroleum deposits discovered in the states of Campeche, Chiapas, Tabasco, and Veracruz

  • Provide an economic boost amidst rising inflation

  • Mexican oil production more than doubles

  • USA – most important market for Mexican oil

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PEMEX Receives US$12.6 billion in International Credit State Reduced Poverty

  • Money used to construct and operate offshore drilling platforms,

  • build onshore processing facilities,

  • enlarge its refineries

  • engage in further exploration

  • purchase capital goods from abroad

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Decreased income from sale of oil State Reduced Poverty

  • 1980s

  • Oil prices fall

  • Mexico is blocked out of the market by refusing to lower their prices

  • Increase in debt reduces economic activity

  • 1981

  • Foreign banks acquire 87% of PEMEX assets

  • Recession stimulates capital flight

  • Devaluation of the peso

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Mexican Petroleum Industry: State Reduced PovertyLate 1980’s

Attempts to Modernize

President Salinas Gortari

(Harvard trained economist)

  • PEMEX inefficiency makes for decreasing competitiveness

  • Salinas breaks the power of oil workers’ union

  • Efficiency of PEMEX increases

  • Production levels continue decline

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Program for Redevelopment and Restructuring of Energy Structure


Investment by 2000

250 billion pesos (at 1995 prices)

49 billion from private sector

  • Goal – increase energy exports

  • Improve competitiveness in international market

  • Stimulate more regional development inside of Mexico

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PEMEX Today Structure

  • Despite the $77 billion in revenue earned each year, PEMEX is forced to pay extremely high taxes to the government that keep PEMEX in incessant debt.

  • In order to keep their company going, PEMEX has borrowed an excess of money and is now $42.5 billion in debt.

  • With the record breaking oil prices starting in 2005, resulting partially from the Iraqi war, PEMEX has seen a rise in revenue.

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Impact of Shortcomings within Policy Functions: Problem of Implementation

  • Despite increased profits during President Fox’s administration, few debts have been retired

  • Unexpected income has been used to pay the salary of bureaucrats and current costs.

  • Production capacity continues to decline

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Current Mexican Oil Production Implementation

  • Average oil production decreased by 500,000 barrels per day (2005-07)

  • Political conflict over who should invest in the oil industry

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Consequences of Policy: Developmental gap persists between urban North, and rural, mostly indigenous South

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Current Challenges urban North, and rural, mostly indigenous South(Economic Policy)

  • Economy that produces too few jobs to accommodate the number of people entering the job market

  • Educational system in need of modernization

  • Growing impoverished population

    • Half of Mexicans live below the official poverty line

  • Highly unequal distribution of income

  • Acute environmental problems

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More Policy Challenges: Economic urban North, and rural, mostly indigenous South

  • Must catch up to its international trade partners/competitors

  • Modernize its agricultural sector

  • Renovate energy sector

  • Expand the tax base

  • Corruption

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Government Performance: Challenge of Security and Crime urban North, and rural, mostly indigenous South

  • Establishing the rule of law

    • Greatest failure of all

    • Cannot deal with street crime

    • ¾’s of crimes go unreported; why? Citizens’ low expectations that the perpetrators will be caught and punished.

    • Real progress only by addressing underlying causes

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Drug Trafficking urban North, and rural, mostly indigenous South

Cartels often more powerful than the government

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Mexico’s Political Future urban North, and rural, mostly indigenous South

  • State of the political system

    • Elections – more democratic and transparent than in most of Latin America

    • Talk of weakening the presidency and strengthening Congress

    • Classification: a democracy