Created: 9/9/1980

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Evolving Linkages

B. Finance and the Doilariiation of ihe Mexican Economy.

C Migration and the Blurring of che US-Mexican Border

A. Oil and the New Trade

D. The Increasing US State in Mexican Political Stability 13

Crowth and Urbanization 19

Prices and the World 20

The Evolution of thc Mexican Economy0

Oil Can and Cannot Do 20




and Economic 21

C The Rural Sector ,

D.Trade, Inflation, and the Exchange.

The Relationship Between Economics and Politics

The Evolution of the Mexican Political System0

A How the SystemWhy

he Presidential Succession and the PRI -

C ThePolitics at the 23

D. Political Stagnation and Politioal 26

An Instability Checklist M


It is inevitable that Mexico will absorb an increasing share of US policymakers' attention in. This Estimate attempts to set bases of ;udgment that will be as valid for dealing with future Mexicanif Tith the PresenIf Jose Lopez Portillc '

The System

By many criteria. Mexicohe world's most successful developing nation. Forentury it has had stable governments and orderly and regular changes of government. This long period ofajor Third Worldeconomic growth to averageercent since theunique achievement. Thc nation's political and economic success isunction of the Mexican political system.

The system, which was developed largely in the two decadesthe Revolutions highly authoritarian. All importantthat of choosing hiswith theLegislative officials, governors, and mayors of important cities, though nominally elected, are in fact designated by the president and their first loyalty is to him and not to their constituents. Unlike exclusive authoritarian systems, however, Mexico's inclusive system sets great store in bringing all Mexicans into the system in atymbolic way. In the preelection period the presidential candidate engages In several months of vigorous campaigning through even the smallesttoond with thence elected, theas well as his ministers, department heads, governors, andis amazingly accessible to delegations from all sectors of Mexican society.

The system makes use of, and reinforces, the vertical, patron-client structure of Mexican society. To thc despair of Marxists, Mexicanand peasants show little class consciousness; horizontal linkages with one's fellows are considered much less effective than vertical linkagesatron in achieving economic or political success. It is these workers and peasants as well as-the unemployed poor who form the


backbone of support for the official party. Members ot the middle class have more ovtions and their ,oyahy lQ [he& ^

thus they receive most of the governments carrots and sticks. It is members of this class who are most likely to find themselves rewarded by good government jobs or thrown into fail '

A major strength of the system is the turnover of power that occur-every six years. Although the president has virtual dictatorial power" during hw term, he is expected to fade away and enjoy his wealth in modest seclusion at tne end of his presidency. His last act is that of choosing hu successor, over whom he will then have no control or influence.haracteristic of the Mexican system that each presi-den. tends to be followeduccessor who corrects the exaggerations of the outgomgwn policies and personality. Thus, the leftist Cardenas was followed by the rightist Avila Camacho. the unusually corrupt Aleman was followed by the unusually honest Ruiz Cortines the erratic Echeverria was followed by the steady Lopez Portillo) The change of president is reflectedassive turnover of personnel else-vvhereovernment. Thus, many politically ambitious Mexicans feel that they arc never more than six years away from their goldenthere is no need for revolution.

Dangers to the System

inberMeJt,can tW,'tiCal 5'ability

-Growthexico Ciiv. If greater Mexico City, with some-thmg overillion people today, were to continue growing at recent rates, the population would exceedillion0 Such an outcome is impossible; given water and land constraints' the Valley of Mexico can support only someillionven if all migration to Mexico City were to cease this year natural increase alone would push the city's population close' to theillion mark by the end! of. This means that, by thet the latest, the Mexican Covemment must find some combination of carrots and sticks to stopto Mexico City and toart of the native-born population to leave the capital.

-Sire of the middle class. The steady growth in both theand absolute size of this class is now being accelerated by the inflow of oil wealth. Although the middle class profits most from the Mexican political system, it is also the most dis-sat.sfted with the hypocrisy inherent in the system and with the severe limitations that the system places on political choice. As the middle class becomes steadily stronger relative to such

up*** 1


sectors of government support as labor and thc peasantry, ihe government will be faced wilh some hard choices. Orr the one hand, it must make enough reforms to dampen middle class discontent. On the olher hand, it must avoid "reforming" itself into the kind of weakness that characterizes many Third World governments.

Presidential death or incompetence. As there is no vicein the Mexican system, the legislature has the duty under the constitution toeplacementresident unable to complete his term of office. In practice, this probably would leadevere crisis. The Mexican legislature Lt used to taking orders, not to making decisions on its own. Moreover, while certain members of the official party, the cabinet, theand the labor unions have considerable influence, there are no "kingmakers" aside from the outgoing president himself.

Instability Indicators

On the brighter side, we haveard lookumber of factors identified by other observers as containing the seeds ofin the rural sector, rising unemployment, and the Communist "menace" from Centralhave concluded that these offer little threat to the Mexican system in. Overall, we believe that the chance of regime-threatening political instability during the decade is less than one in ten. We recognize that, because of this low probability, experienced observers will tend to overlook signs of political instability if they do appear. To guard against thiswe have drawnetailed checklist of instability indicators tailored lo the Mexican system. It is presented int the end of this Estimate.

The US-Mexican Relationship

During, the relationship between Mexico and the United States is destined to become muchcloser than either country desires. Because of oil. Mexico's bilateral trade with the United States willurplus for the first time In recent history. This event is likely to fuel arguments in this country for restrictions on "Mexico's nonoil exports (which are essential to Mexico City's strategy for coping withDollarization" of the Mexican economy will proceed apace, as Mexicans continue the trend of holding funds and doing business in dollars rather than pesos. This will make anmonetary policy extremely difficult if not impossible for Mexico City.

In US eyes, the blurring of the border is seen largely in terms of Illegal migration of Mexican workers to US labor markets. While the size and effects of this migration have been grossly exaggerated in the US popular mind, there is no doubt that the flow is large and increasing. Moreover, it appears to be changing in nature; whereas the typical Mexican illegal of the pastural laborer who spent only four to six months in the United States, the typical illegal of the future may well be an urban Mexican who will plan on Spending several years north of the border. By the end of, the United States may have reason lo welcome an inflow of foreign labor despite the social pressures it may create. The US domestic labor force agedhroughage group that includes most Mexican Illegalto growercent during, as compared withercent during. Thus, before the decade is over, US industry and agriculture may be in dire need of young foreign workers.


Ounr.ii thc decade ofe expectchanges in the relationship between Mexico and the United States. Many of these changes have long been in train and are largely outside the influence of policy decisions in both nations. Nonetheless, while the basicof the changes may be immutable.lving| present policymakersto be seiied and dangers to be avoided.

hisivided into two parts. Part One considers the probable evolution of US-Meiicanof theseandumber of considerations to be held in mind when dealing with, The second part-based on several yean of

ithany cf he analysis

research Jus


econ-JSry and pol phasis on the out thef tn.



A. Oil ond the Now Trade Picture

his year weery basic alterationtrade relationship between the United StatesBecause of oil. Mexico's bilateral tradewith the United Stales willurplusfirst time in recent history. Moreover, at thethe Mexican Government, this surplus cangrow as the decade progresses.s will dominate the current account, otherare likely to shift io way, favorable toStates. The growthIs the

United States -ill probably slow, -bik that of USto Mexicoarge volume of smuggled| accelerate. The number of Mexican tourists in the United States will increase, and they -ill spend more money than ever before. Debt service payments to the Uniled States will remain high.

he United States has long dominated Mexico's foreign trade. Despite strenuous efforts by Mexico City to shift Its exports and imports to other nationsne United Stata iUU accountw( hf 7n

?rJ^"ICfithercentittle overercent of Mexican import, (about the same as. If smuggled goods -ere included, the US share of Mexican imports -ould rise br several percentage points. Traditionally. Me.ico's subsrantial trade deficits -ith the United Statesoffset in part by surpluses on the tourismlarge but manageable current account deficits, which were in turn, covered by capital imports from the United States.

espite the apparent benefits, the Mexican Cov-eminent is not entirely happyhe new situation. It (cars that the United States -IIL. dependent on

The Mexican Covemmcnt Is attackmg theetved danger in two ways: (I) by ^klng to diversifyy limiting the total .mount of oil exports. Neither method Is likely to be totally luccessful. ;

Early in the Lopez Portillo administration, the Mexican Covemnient set itself the goal of reducing the US share of Mexican oil exports from SO toercent. So far it has not been successful in this ef-fort-in the first quarteru to the Unitedcluding Puerto Rico) -ereercent of total oil exports. This is largely the result of geographyof the transportation differential. European and



buyers of Mexican oil must pay more than American buyers. Some ol these countries are willing

overlook such cost differences in order to assure future access to Meiican supplies: others are not. For ita part, Pemex {the Meiican state oil monopoly] has been unwilling to cut its prices in order to offset rhe transportationnless the Meiicangives greater priority to diversification,progress toward reducing the US share of Meiican

"exports will probably hinge on complexare proving veryto negotiate.

resident Lopez Portillo has set an export ceilingillionay. though this ceiling almostcertainly will be revised upward before the end of his administration inonservation of national oil reserves is popular with all segments of Mexican society from the far left to the far right. Nonetheless, in order to meet other economic goals (fcr example,ercent annual gtowth in gross domesticil eiports will almost certainly have to be expanded2 if not before. How much will depend on the world price of oil. If the price of oil rises only as last as world Inflation and Mexicoixed eichange rate, almostould have to be exportedn the other hand, if the real price of oil rises byercent annually (toarrel, eiports could be held down.e would expect oil eiports to continue to expand unlessby domestic requirements and/or technical factors.'

>ot IV eronomle ficton nut willffectina MtOcui ail ntw ootky IniJ.Cif, and

0 (CepTjaVftulX

hus, despite the Meiican Government'sit seems inevitable that the United Stales will be importing considerably more Meiican oil as the decaded Mexico will be using theearned to buy ever greater Quantities of US goods, including some foodstuffs Mexico City will seetrade ties bothestriction on its freedom of action and as an opportunity for leverage to expand no not! exports to thc United States. (Expanding nonoil export industries is considered one of Mexico's few good possibilities for increasing jobs and cutting into the serious unemployment problem. We expect most Mexican demands on the United States Ino concern nonoilo ihe extent that leverage is successful, trade ties between the two countriesbe increased, Mexican economic' freedom of action will be further restricted, and the Mexicanparanoia will grew in step with the success of its leverage policies.

inance and the Doflcrizalion af the Mexican Economy

uring the next decade, US investment indirect andbe limitedby what the Mexican Covemmcnt chooses to accept. As the oil-dependent "miracle economies" ofndBrazil. South Korea. Taiwan-begin to lose some of their luster in an energy-con-strained world, US investors will find Mexicoattractive. Indeed, if US investors have their way. Mexico will pass Brazil to become the foremost site for US loans and direct investment in the Third World. On the other hand, the Mexican Government will probably use its oil earnings to stabilize foreign borrowing needs. (We believe that thc Mexicanwill accept annual current account deficits on the order of SO billion; it could, of course. Increase eiports and thereby eliminate the need for foreignith regard to direct investment, the government may well decide to strengthen or more rigidly enforce Mexicanization or other laws that discriminate against foreign Investment in theeconomy. On balance, we wouldoderate increase in US investment in Mexico.

ny increase In the flow of foreign funds into thethose dollars used to pay forincrease the already extensive dollarization of the Mexican economy. The dollar has long been used in Mexico bothtore of valueedium of exchange. The Mexican peso is freely convertible, savings and checking accounts tn Mexican banks may be denominated in dollars, and many Mexicanconduct purely domestic business through US banks.6 devaluation of the peso (and the rumors that led up to it)owerful incentive to dollarization. Mexico had notevaluation. and during thoseears Mexicans had come to regard their currency as reasonably secure. When rising inflation and the erratic economicof former President Echeverria put the future of the peso Inassive flow out of pesos into dollars made the devaluation inevitable. At present the peso is officially "floating- but unofficiallyexicans remain wary and prefer to keep their

to maketheirdollars rather than risk getting burnedew change in the value of the period ol Sable exchange rites {backed up by low inflation rates) is likelyessen the Mexican preference for holding dolUrs.

lmost any conceivable economic growthfor Meiico involves inflation rates in eiceai of those in the United States and other trading partner; Therefore an eventual devaluation will remain highly probable, and dollarization will continue ind penodi-calEy accelerate. This means that an imcortant par! of the Mexican money supply will remain outside the control of the Mexican Government. Monetary policy and (he stimulation of certain tectoo of the economr through allocation of credit will become less effective. Many Mexicans, seeing the loo of monetary control over their own economy through douarization. will(incorrectly) that the United Slates has somehow gained control

C. Mle/atlo" ond the Blurring ol the US-Mexican 3order


In prchispanic times,is to say. the hii Indianextended north of the present state of Sinaloa on the west and central Tarnaulipu on theeyond that was the "Creathe heme of the savage barbarians who periodically raided into (he civilized south. Centuries later it was the home of the violent revolutionaries who took the nation by storm and.arge extent, created modem Mexico. (All of Ihe major furures in the Revolutionith the eieeption of Zapata, were from borders revolutionary violence slowly gave wayrder, the politicians of the south took over from (he generab of the north and thenever again let go. Once more (he conquering Chichlmecs had been rjvercoose by the civdixing cen(er.

IS. In non-Mexican eyes, ihe blurring of the border is seen.largely in terms of illegal migration of Mexican workers to US laborthough theis notorder phenomenon. Most illegal migrants Have not been from the border slates but from rural areas in central Meiico. While the size and effects of this migration have been grossly exaggerated

In the US rXDuhrhere is no doubt that the flow is Urge and increasing. (We estimateexicans enter the United States illegally each normal year. In the drought90 the numbers may prove considerably higher. However, at least two-thirds and perhaps as much asercent of these migrants return to Mexico afterewigrants generally make periodic Irins lo the United Statea in order to maintain an adequate standard of living for themselves and their families in their home villages. These migrants do not come from the poorest areas of Meiico. nor are they among the poorest In the areas from which they do come. Nonetheless, their migration (and the money they send back) helps reduce Mexicanand therebyolitical and social "safely valve" for the Meiican Government.

uringe eipcct tolow change in ihe nature, and possibly the size, of the il-

'omplete dtscusaon ot Meiican illeeilooreet olMlfraifcm.

legal How. More urbanites will come, they will beeducated and more ambitious, and they will be planning to stay in tbe United States for several years rather than several months. Many will be "targettaying as long is necessary to cam the amount of money required tousiness (in manyaxicab) orome back in Mexicowill simply be earning money lo raise livingof the extended families to which they belong in their native cities. Although these urban workers, like their counterparts from rural Mexico, will initially be willing to take jobs that few US workers want, they will soon develop both the skills and ihe desire tofor better paying. less arduous work. Many more than at present will bring their families. While tbe pool from which illegal migrants are drawn will grow substantially during the next decade, the actual flow will be greater or less, depending on developments inhe establishmentew legal migration agreement between the United Stales and Meiico could also change the size and character of the illegal flow, depending on the eiact nature of the agreement.

y the end of the ISSOs, the United States may have reason tolow of Mexican workers (beyond the already existing substantial US interest in helping assure Mexican political stability through the safety-valve effect of illegalccording to Droreciions by the US Bureau of Labor Statistics, the US labor force agedhroughage group that Includes most Meiican illegalgrowercent during, as compared withercent during. The labor force agedhich expanded byercent in, will contract byercent in. Thus, before the decade is over. US industry andmay be in dire need of young foreignSome US interests may well be pressingew bracero program orroader temporary worker migration plan along the lines of West Eurorxan gueslworker programs,

' ruco1K, tmcesiowrA. EBT. Dmiibec

inal note on border linkages, it should be remembered that economic events and decisions Incountry canore pronounced effects along the border than In the heartlands. US recessions, for example, often devastate Mexican border cities byha demand for commuterhe demand for the output of US-owned border industries in Meiico.S tourism along the border. On the otherexican devaluation (like thatakes US goods much more eipermve toand can cut Meiican shopping in the United States almost to zero. Moreover, the devaluation of latewith the generally poor cooditioo of the Mexican economy during the last days of the Echeverriaincreased US-Mexican wage differentials and may have ledoubling of the flow of illegal migrantsWe estimate that the illegal flow7 may have gone as highillion persons, or two to three rimes the normal flow)

he Increosing US Stoke in Mexican Political $ieb.1Iry

ot too long ago the prevailing view in the United Slates was lhat Mexican political aod social stability was largely Mexico's ownlong as no US lives ot property were threatened. Thisis rapidly changing. US opinion now lears that political instability in Meiico could: (I)assive wave of illegal migrants across the eopardize US and world oil supplies,pen the door to Communist penetration. Meiicans have been quick to recognize the new US concern. Indeed, one Meiican intellectual commented wilheiaggeration that the United States has more to lose from Meiican instability than does the average Meiican citizen.

nf this estimate wc examine in depth the question of political and social stability in Meiico In. Here, we would only point out that the iricreasing US stake In Mexican stability islink between.the twoe eipect it to have two effects. First. Meiican administrations will be tempted toUS concern aswhat we wantecond. US officials will be tempted to give Mexico unsolicited advice on how to solve Its "serious socialt will be another unwanted tie that creates tensIorC *

Linkoao ond leveroge .,

Ins-6 14 Derf.g^



rate of unemployment and underemploy merit (Kat wme authorities believe approacheshe Mexican Covemmcnt hu consistentlycatful-inteuive rather than labor-intensive development. To many foreign economist), this smacks of idiocy. Why then does the government pursueourse? One reason is to keep Meiican industry near the forefront of modemecond, more important,hat most labor-intensive jobs are very low paying and. despite the unemployment rate,ittle demand for low-paying factory jobs in Meiico. Meiico already has many labor-intensiveshoes,ites, some foodmost cfoor record in attracting workers. (The US-owned assembly Irkliatries along (he border, which pay well by Meiican standards and hire mostly women, arehe average unskilledusually finds that he can make as much money through casual jobs in construction or the service sector asabor-intensive factory. And Iheore pleasant and less regimented.

hird reason for the Meiican Government's preference for capital-intensiveirectly political. From the point of view of political stability, it Is much more Important to provide suitable robs for Mexico's ever increasing number of high school and university graduates (who are politically very active) than for the masses of unskilled workers (who arein the government'sne of the rirHi of capt tai-in tensiverecisely that it can provide large numbers of good jobs for educatedAs long as the unemployment rate for educated Mexicans (including skilled workers) is virtuallyitgovernment (rels thatelsewhere in theolitically manageable The reverse would not be true.

ivil Service Re/ornv Every six years, with Ihe change of presidents,reat reshuffling of the government bureaucracy."One consequence of the wholesalehat bureaucrats, despite often broad eiperience indo not have the time to develop true ei fertile andittle continuity in government policy. Many peoole have concluded from thbonpot ideal civil service should be



established. Although ihe Meiican Covernmen! may ben thisby the increasing complexity of governmentrealizes that it is treading on dangerous ground and is proceeding very slowly. The choice is between increasing efficiency and safeguarding opportunity.

more than over any other0 was foughtresident and his cronies to stay inand not give anyonehance Forthe Meiican president (who has almostdictatorial power during his sir-yearthe power to select his successor) isdisappear at the end of his administration andfriends and clients with him. Theix-year Caesar, can and does makechanges in policy and personnel. Thesethrough Ihe entire governmentof this system, the hopeful andMeiican is never more than six yeanhis golden opportunity; there is no needIndeed, ihe establishmentrulycivil service in Mexico might turn out toin more ways than one.

they do. US as well as Meiican interests will suffer. Nonetheless, even ifarticular case US policymakers do know what is best for Mexico, they should recognize that ad*vce from north of the ftio Bravo is not and never will be acceptable. Meiieans will keep their own house in order without USno* at all. However,S president has ono or two specific requests to makeexican president (in private) /or lAe US food, the Meiican president will listen with respect and consideration. The United States is an important part of the Meiican environment, and ao Mexican president will forget that.


Setting A. Populcrion Growth ond Urbanization

or the neit decade, thc course of population growth and urbanisation will be the mm* important element in the Meiicanis to say. in that complex of factors not under the direct control of the Mexican Government. During the past (wo or three yean, the Mexican family planning program has had remarkable success In reducing the population growthone of theercent If this reduction in thc growth raterend, and most indications are that it does, then the country will probably follow rather closely the low-growth protection given in ourotal population, nowwill probably reachillion5 andillion bywell below theillion andillion of our high-growth projection.

ecause most of the Meiieans who will join the labor force Lnere already born before the trend toward lower population growth began, the beneficial effect on employment will be slight. Indeed, the labor force (currently7 million) will number onlyess0 than it would have under our high population growth projection. In either case,illion new Jobs must be created each year duringf the unemployment rate is to remain constant. There is no way that this can be done; the only question is how much worse the unemployment-rate will get,

hc urban explosion promises toreater headache for the Meiican Government inhan the growth of population and thc labor force. Largely because of the substantial wage differential between rural and urban areas, which has led to heavy rural-urban migration. Mexico's urban population is growing much more rapidly than the population of the countryhole. Most of this growth is centered in Mexico City. If greater Meiico Gty. with somethingillion people today, were to continueat recent rates, the population would exceedillionuch aa outcome is impossible, given water and land constraints, (he Valley of Mexico can supper! only someillion people. Even if all migration to greater Mexico City were to cease this year, natural increase alone would push the city's population close to theillion mark by the end of the decade. This means that, by thet the latest, the Mexican Government must find some combination of cattoU and sticks not only to step migration to Mexico City but also toart of the native-bom population mt of the capital.

he rediiection of national lural-uibancombined with substantial mteiurbanGty. would place aadditional burden on services in secondaryUnder ordinary ciicumslances, we wouldpopulation of the eight major secondary citiesby twe-thtrds over the neilears. Underscenario, these eight secondaryhave to grow by ISO percent. And theworsen rapidlyhus, even ifLs successful, it will have spread rather thanproblems of urbaiiiution.


B. Oil Prices ond the World Eronomy

o coo* with the prcWerns of popuUtion and unemployment in, (he Mexican Covemmentatte the best possible use of its oil revenuesevelop strong eiport industries. (Effective domestic demand is far from belns strong enough to absorb the output of Mexican industry on the scale required to reduce unemployment. Thus, some production must be soldexico City's success In these efforts will dependrge extent on factors outside of itsworld price of oil and thc economic health of its major trading partners. These two factors will probably work against each other.

espite occasional periods of slack, oil supplies will probably remain tight through the period. Thus, oil prices will rise at least in line with world inflation and probably somewhat more rapidly. How much more rapidly will make considerable difference to the Mexican economy. For example, if the real price of oil rises at an average annual rateercentingle foreign saleillioo barrels of oil in that year would earn Mexico SM million more than if the price of oil only kept pace withIf. on the other hand, the real price of oil risesperecnt annual rateheillion-barrel sale wouldillion more. When we consider that Meiico could beosition to export as muchillionayhe difference in earnings between xero real growth in oil pricesndercent in real growth wouldillionillion, respectively,that year.he price will increaseAs world oil prices can be neither controlled nor predicted by Meiico City, the Meiican Covemment will need to revise its economic development strategyear-to-year ifonth-to-month basis.

igh and rapidly rising oil prices will both hurt and help tbe Meiican economy. On the one hand, highll enable Ihe country to avoid the foreignconstraint to developmentcbtively low cost In terms of resource depletion. On the other hand, the continuing rise in oil prices will limit economic growth in the United States and other markets for Meitco's rvoooil exports. Although Meiico will not need such exports to balance Its trade account, it will need them for the jobs they provide. If the USgrows by leasercent annually for (hecenario that some economists believevalue of Mexico's nonoil exports could easily stagnate in real terms. (In this case. Meiico City would be templed to link oil and nonoilmove that would be strongly resisted by industrialized importers of Meiican oil.)

The Evolution of the Mexican Economy0 A. WSal Oil Con and Connor Oo

houghtful Mexicans realize that oil is not and cannot be the deus ei machlna that solves all thesocial and economic problems. Indeed, many Mexicansajority) fear that the oilmay turn out tourse disguised as aVeneruela and Iran are often mentioned as eiam-pies of the evils of oil in Meiico City conversation. In the Mexican view. VenerueU isne-crop" economy that will rapidly decline once the oil runs out Iran is an example of thechaos that ensues when wealth gets out of control. The Meilcans ate not sure that it could not happen to them.

he economic dangers of the oil bonanza are as follows. First, the inflow of oil earnings could put upward pressure on thc peso, thereby pricing Mexico's nonoil eiports out of the international market. Second, oil earnings will increase the money supply (unless sterilized, which Is almost impossible because of (he dellarixabon of the Mexican economy) and thereby give rise to inflation. Third, if imports are greatlymove that would help reduce domestic inflation as well as eliminate upward pressure on thedomestic industries would be Jeopardized by the flood of cheaper foreign goods. In any of these cases, job creation would falter and unemployment wouM increasfi.

f the economic and political dangers ireat. why not leave the cursed stuff in Ihe ground? This is. inajor thread in Meiican oil policy. The present administration has gone on record as wanting to produce only the bare amount needed to finance the foteign-eichange costs of development.the government appears content to allow current account deficits on the order ofear, believing that there are fewer dangers in continued foreign borrowing thaneadlong drive to produce and export vast amounts of petroleum.

hc oil bonanza will not produce miracles but. properly used, il willercent annualgrowth through, tiring ourmodel of the Meiican economy, we have examined oil/economic giowth/inflation/balance of payments trade-offs in Meiico' We concluded that, under any reasonable assumptions about world oil prices, Meiico canercent economic growthith oil eiports cf1 million.epending upon the pace of Mexican eiploralion and development. Mexico could have the reserve base and the facilities to eaport considerably more thanaximum that we protect. Exports will also be influenced by the growth of domestic consumption.ercent economic growth and no increase tn conservation, the country would re-Quiref oil for domestic usey the mid-lSSOi. if not sooner, however, we expect the Meiican Covemment lo introduce more realistic pricing foe oil products sold on the domestic market as well as other measures to cut consumption growth. Such actions should allow some expansion in exoortsn thehalf of the decade, if necessary for adequategrowth.

Erriploymem and Economichatconomic growth mean for employment? New jobs will be createdate of aboutear during theaverageittleew positions annually. During the same period the labor force will eipand byillion workeis annually. Thus, each yeareople will be added to the army of unemployed. Th* unemployment rate,ndercent, will rise to nearercent

te iWlOfftCnwu TaVaaga*

rs*s. at so

n an economy such as lhat of Meiico where there is not enough wealth (even after oil) to give everyone the good life, economic and social mobility become eitremely important. In post-Revolutionary Meiico. differences of class, race, and even education impose few limits on personal achievement An ex-milkman can become one of the country's mostpolitical figures. An Indian construction worker canultimillionaire contractor. These are. of course, exceptional people. The average Mexican, while his ambitions and abilities will not take him so far. doeseasonable eipectatlon of bettering himself. This is especially true of the high school or -university graduate. The Mexican Covemment.


a variety of means including spurring the development of capita I- intensive industry, has been careful to assure that opportunities are plentiful for the always potentially dangerous educated elite.

C. The Rural Sector

eiico is noural nation and the main problems it faces are no longer ruralfact that seems to have escaped most foreign observers and even some Mexican officials. Indeed. Mexico today is in many important respects similar to the United States between the two world wars; the rural sector is declining rapidly in importance while prospects for agriculture remain good. The agricultural labor force has fallen fromercent of the total0 toercent at present, while thc amount of developed cropland has increased byercent. The share of agriculture in the gross domestic product has fallen fromercentercent, while the value ofoutput (in constant pesos) has risenercent. In, we expect Mexico to continue its evolutionation of many poor subsistence farmersation of relatively few prosperous commercial farmers.

Explaining the Meiican rural sector isa process of breaking downythone; Mexico cannot feed itself. This is simply net true. Mexico's agricultural balance of trade hasurplus in every recent yearlthough Mexico imports aboutercent of Its basic foods, it exports enough coffee, cotton, and vegetables to mote than offset its imports of corn, wheat, and oilseeds. So, it isuestion of using oil earnings to pay for food imports; agricultural exports not only pay for food imports but generallyalf billion dollars or so in additional foreign exchange. As the Mexican peasant upgrades his operation (throughmechanization, ore typically shifts out of corn into more valuable crops. Thus, as this process accelerates, Mexicomport more basicxport more high-value farmncrease farm incomes;dd variety lo the Mexican diet.

Myth number two: Meiico is so poor in land and water that agricultural output cannot be greatly expanded in the future. Eilensive undeveloped arable lands remain, and there are also untapped water re-

'Scc Mtitaan Agfculiute. AtV* anAttulllv. Efl9

sources; the difficulty is thai the distribution patterns of these resources do not always coincide, and much of the north remains vulnerable to drought. Utilizing much of this land and water would require eitensive capita! investments, which neither the Mexicanor private interests are likely to make until profitable markets for the increased output can be found either in Mexico or abroad. As these markets are found, this land will be put into use. Withcapital and technical inputs and more efficient utilization of water resources, agricultural production should be able to expand significantly through, although droughts will continue to restrain out-put in some years-

yth number three: the Mexican rural sectorocial and political powder keg. Not so. Although the number of landless peasants has doubled toillion personsural unrest hasThetrong desire lo own his own land either directly or as one plottale-owned farmpotent factor onlyfew decadesdeclined markedly. While random ruralexists as it always has. It appears to have little Ideological content. Nowadays, the dissatlsifiedfinds it more rewarding to head for Mexico City (permanently) or to Californiaew months) than to agitate for revolutionary change. (The landduring the latter days of the Echeverriaapparently were instigated by elements In the federal government for political reasons and thus did not reflect widespread rural discontent. The present administration was able to cut them off virtually over*n, labor unrest by farm workers in orosperous areas of the north is more likely thanunrest in poorer areas of the nation. Neither is likely to be politically threatening.

D. Trade, Inflation, ond tho Exchange Rale

s we indicated earlier, Mexico's strategy Tor creating employment hinges upon Ihe expansion of nonoil exports, both industrial and agricultural. Such an expansion will undoubtedly prove difficult.of the eneigy problem, the developed nations will be growing very slowly and thereforeimited market for Mexican exports. Even this limited market may be further restricted by protectionist measures. On the domestic side, Mexico may allow its goods lo become uncompetitive in price If it is unwilling or unable to control Inflalion or to'compensale 'or it through Currency devaluation.

conomicthe most ipectacular in the Third World, if the entire penod from theo the present isinource of legitimacy for the Meiicanrystem. For this reason alone, the Meiicanmust always appear lo be on top of the economic situation. Beyond the direct political effects ofilb such as unemployment orhe indirect political effect that these Ills have on the lppcarancc of presidential competence. In the Men-can case, it is al least arguable that the indirectf greater importance for political stability than the direct effects.

Ihe Evolution of the Mexican Political System0

A. How rhe SystemWhy

he How of authority inhe reverie of thatextbook democracy. All Lai ports ntthat of choosing hiswith the preside ot- LeguJative officials, governors, and mayors of important cities, though nominally elected, are in fact desuputed by the president and their firsto him and not to their cocstifuenis. The voters, knowing in advance who will be elected In each important contest, usually turn out in impressive numbers to demonstrate their loyalty to the system and lo (he chosen candidates. (Indeed, some writers have described voting in Meiico ax more akin tothe flag than lohe voters know that the benefits they receive from (he system are at least roughly proportional to the manner in which they support the chosen candidates.

f the flow of authority is downward from the president, the flow of "legitimacy" Is upward from the people. Unlike exclusive authoritarian systems, Mexico's inclusive system sets great store in bringing all Mexicans into the system in atymbolic way. In the preelection period the presidential candidate engages in several months of vigorous campaigning through even the smallest villages toond wrth thenee elected, the president, as well as hb ministers, department heads, governors, and


unending ruleingle man. Thus,ew false statu inObregon and Callea periods, the revolutionary slogan of "no reelection"ornerstone of Ihe political system. The Meiicanis given dictatorialmost Meii-cans believe are necessary foreriod of six yean. At the end of his term, after "appointing" his successor, the outgoing president is expected to fade away and enjoy his wealth in modest seclusion. Thc amazing thing is that this is lust what happens; no president since Ca.les (innd) has attempted to Influence the policies of the man he chose to succeed him.

econd peculiarity of the Meiican system is that each president tends to be followeduccessor who corrects the eiaggerations of thc outgoingpolicies and personality. Thus, the leftistwas followed by the rightist Avila Camacho. the unusually corrupt Aieman was followed by thehenest Ruiz Cortines. the erratic Echeverria was followed by the steady Lopez Portillo. Thisis summed up by the common rrietaphor that "the Revolution walks withight fooleft foot"

residents are chosen from among the members of the official party, the Portico RevolucionarU IrutUucionat. or PRL The PRI is something like the US Democratic and Republican parties combined; it covers the full spectrum of tendencies and leaders from the extreme left to the extreme right The only route to power for any serious politician is through the PRI; other parties exist, but ihey (much like minor parties In the Uniicd States) attract only those who are more interested intatement than in achieving power. Although the outgoing president may choose as hisechnocrat who has not been greatly active in PRI affairs,ould befor him not toartv member.'

he Mexican politicalmore than its detractors wouldbased solidly In the masses of peasants, workers, andargely because these groups are the most susceptible loinducements and controls- Voting patterns and the surveys of sociologists and anthropologists consistently indicate thai ihe government's strongest support comes from ihe poorest urban and rural areas. Thc PRI, which in nonelection yean is more of abureaucracyarty, has three tra-

"TH* wwiptai tt IfJ MmSjiniiplurd InJuwu

Intn tnu*n> dnlrrdird



the desires of local interest groups to the preside nt,

s compared with the establbhments of other Latin American nations, the Mexicanmallen in all threell equipped (the Air Force, for eiamole. has onlyets, all of which arend underfinanced (traditionally receiving onlyercent of the federalell disciplined, apparently completely loyal to the system, and has almost none of Ihe institutional egotbm of most South American militaryHigh-ranking oflicers are encouraged to seek wealth rather than political influence oi power.

ecently there have been some indications that theeginning toew role for itself. Many military men do not share the nonchalance of other government officials toward events in Central America. They feel thai co-optation may not always do the trick and that they may be called upon tothe nation's southern border against strongforces. Moreover, these military men see the oil bonanza bothesource thatigh level of military prelection and as the means of paying for that proteclion. The Lopei Portillo adminbtration is responding to these new military concerns with amodernization program thai envisions buyingsmall ships, and other equipment from the United Slates and other foreign countries. If thbb thwarted, it could leadomewhal greater activism of the armed forcesressure group

C. ThePolities ol iho fringe

n the past, all of the serious threats to thehave come Irom inside the "Revolutionaryn the electionsmportant PRI leaders, angry at being passed over in the presidential succession. left ihe PRI and formed their own personalbt parties. Each of these cx-PRI candidates knew that the PRI would noton-PRI candidate lo win; what they hoped to do was to use the election lo split the PRI and then settle the presidency by force of arms. (Two ol these candidates happened to beiven the steady erosion of the strength and political power of the Army, thb type ofot likely to reoccur in.

ditional legs: the agrarian seclor. the labor sector, and thc "popular" sector which includes professionals, shopkeepers, government workers, and marginalsin urban squatter settlements. All of these groups are highly organised in the typical vertical patron-client fashion,

he middle class, although technically part of the "popular"uch less dependent on the government than are the poorer classes, and its loyalty is therefore more conditional.rom thb class Ihat the greatest threats to tbe system have come, and it is to thb class that the government dbtributes most of its carrots and sticks. Thb class,apidly growing in both absolute and relativeeceiving an ever greater share of the national income at the expense of both the poor and the very rich.he members of thbjournalists,unionare most likely to be found in good government jobs or in jaiL

ig business, thoughart of thc PRIof its nonrevolutWruryinked lo the system in much the same way as the other sectors. The government has. and has used, the power to greatly help or lo destroy Individual firms, but it also depends on thb sector to carry out much of itspolicy, especially in the area of job creation. Although big business generally toes the government line, itower base of its own and has on rare occasions been able to fight the governmenttandstill on certain issues. Some observers believe thai thb power will increase over the next decade.

he nonpersonalbt opposition parties differ only as'lo ihe extent to which Ihey have been co-opted. The Partufo Action National, orhe oldest, strongest, and most Independent of theparties. Although generally considered conserv-

uringnd, the political influence of the Mexican military waseries of revolutionary generals who, as presidents, feared the po-ct of their comrades in arms,hen Mexico's first civilian president in over three decades took power, the military had largely ceased tohreat and had become an important support of ihe ruling party. Thc majorof theo protect the system from its internal enemies; the Army has been used to put down peasant revolts and student riots as well as lo hunl guerrillas, smugglers, and bandits and to intimidate opposition political parties. Army officers command the Brigada Blanca and similar groups of government thugs. The military alsoivic action function, doing everything from building bridges to running hospitals in many of the leu accessible areas of the country. Moreover, in many stain the xoneserves as an alternative to ihe' governor for


ers and peasants are relatively. .i. olitical institutions

est Moreover" these leaders cannotorgotten that thwarted"

f om thethe init'tlthc Revolution

he most Important attempt at political reform* sinceook place early in ihe presidency of Diax. Tbe national presidenl of ihearlos Madrazo,ampaign to create local party primaries in place of the usual system ofelegates and candidates imposed from above-Although the reform had obviously been cleared with Diax Ordaz, the Presided did not publicly associate himself with it. When the initiative drew little support from the publicreat deal of condemnation from party members. Diaz Ordax was able to fire Madrazo and back off from ihe proposaL (Madrazoew yean bter in an aireventwith considerable cynicism by Mexican PRI watchers.)

he current President's efforts al polilical res form have been much tnore limited. Theyertain number of seats in the lower house topoliticians and give slightly more power to the legislature but do not touch the internal workings of the PRL Although thc Lopex Portillo reforms will allow more currents of opinion to be voiced in the Chamber of Deputies, they will in no way jeopardize the PRI's total control over government. They have failed lo catch on with thewaslackluster in the first elections held after the reform was instituted.

his will present an immense political problem. From prehbpanic times on. Meiicobeen the nation's center of culture, eieite-ment. good living, power, and opportunity. Every Mexican considers It his right to go to the capital In order to better himself, to escape past failures, orto be part of the action, Mexico Gty is Rome, Jerusalem, and Mecca rolled into one No government Kas evererious attempt lo restrict thecitizen's freedom of movement; the extension of government authoritarianism into this area would be without precedent.

ome experts believe that, as population presses harder on resources, the quality of life InGtv will decline to such an extent that morewill be trying to leave than to enter the area. This seems doubtful. Despite the massive inflow of rural migrants to thc SQuatler settlements around Mexico Gty. Incomes are becoming more equal In the city even as Inequality grows in (he nationhole. This means that, on the average, one will still improveeconomically by moving to the city. And mostbeat thebtlcs indicate that, when other factors are held constant, migrants to Mexico

Gty advance faster and achieve higher status thanresidents. Moreover, the glamour of the capital

will remain for years if not decades after economic

opportunities disappear and living conditions


hat then is the government to do? Oneperhaps the only long-run solution, is to create other polo of urban growth. This will be difficult. President Lopes Portlld's plan to csUbush new agrc-industrial centers along the coasts will, under the best of circumstances, berop in the bucket by the end of the decade. With regard to already established urban areas, only MonterTey, Cuadalajara, and the border cities have been able to attract an appreciable number of rural-urban migrants. These areas already have serious problems, which would be exacerbated by higher population growth rates. The oil centers of Tabasco. Chiapas, and southern Veracrux as well as some resort areas on the Pacific coast and In Yucatan are currently attracting some migrants, but this flow is more likely to subside than expand as the decade goes on. The other major cities of Meiico, now spumed by migrants, will have to be made more attractive through tax advantages, establishment olthat is both labor Intensive and high paying, and decentralization of some government functions, if the problem is not to get completely out of control by the turn of the century.

nother danger which is always present In the Meiican politicalhat of presidential death or Incompetence.o vice president In the Meiican system; the legislature has the duly under the constitution toeplacementresident unable to complete bb term of office' and. if enough time remains in the term, to hold new elections. The actual result would probablyevere crbis. The Mexicansed to taking orders, not to making decisions on its own. Moreover, while certain members of the PRI. the cabinet, the bureaucracy, and the labor unions have considerable influence, there are no "kingmakers" in the Meiican system apart from the outgoing president hii

AS. Unemployment, under the best ofwill probably reachercenta If unexpected economic difficulties arise, the rale could go still higher. This, in and of itself, should not severely strain the system as long as job opportunities for the educated and politically aware remainHowever, high rates of unemployment inwith other factors could prove

An Initobility Checklist

h* chance that regime-threatening political Instability will arise inins leu than one in ten. Because of this tow probability, observers will tend to overlook the signs of such Instability If they should appear. Thb mindset will be particularly strong among those observers with the moat Mexican experience: no matter how bad th* situation is, these experts can always remember how the Metlcanovercame worse problemsr whenever. By contrast, seme journalists willto predict imminentthey have every year since. The alarmism of the ie^nialbts will further harden the mind-set of the ex-perts.eal danger exists that (he expertsore any signals of instability that might come ut

Original document.

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