Hostname: page-component-78c5997874-94fs2 Total loading time: 0 Render date: 2024-11-10T10:19:39.622Z Has data issue: false hasContentIssue false
  • English
  • Français

The origins and sustainability of Mexico's free trade policy

Published online by Cambridge University Press:  22 May 2009

Manuel Pastor  and
Carol Wise
Manuel Pastor
Affiliation:
Associate Professor of Economics at Occidental College and a Research Fellow at the college's International and Public Affairs Center, Los Angeles, California.
Carol Wise
Affiliation:
Associate Professor in the School of Business, Georgetown University, Washington, D.C.
Get access

Abstract

Standard explanations for trade liberalization do not fully account for Mexico's turn toward free trade during the 1980s. To a large extent, the initiative came from within the country. Even many Mexican entrepreneurs whose sectors seem likely to lose from increased competition now support trade liberalization. Four conditions lowered the “political cost-benefit ratio” for policymakers and entrepreneurs. First, Mexico's leaders dispersed implementation into several financial ministries, thereby better insulating this policy from lobbying by the likely “losers.” Second, potential losers were less well-informed than were likely “winners.” Third, under these conditions, the liberal ideological biases of Mexican elite policymakers and investors flourished, prompting them to accept a higher political cost than would have been tolerated otherwise. Finally, many Mexicans came to perceive trade liberalization as a necessary tool in the fight against inflation. Each of these hypotheses, however, also flags a possible threat to the policy's future political survival.

Type
Research Article
Information
International Organization , Volume 48 , Issue 3 , Summer 1994 , pp. 459 - 489
Copyright
Copyright © The IO Foundation 1994

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

1. Salinas is quoted in Cameron, Maxwell A., “The Domestic and International Politics of Trade Liberalization in Mexico” paper presented at the 17th international congress of the Latin American Studies Association, Los Angeles, 24–27 09 1992, manuscript p. 28Google Scholar.

2. Mares, David R., “Explaining Choice of Development Strategies: Suggestions from Mexico 1970–1982” International Organization 39 (Autumn 1985), pp. 685–87CrossRefGoogle Scholar.

3. Weintraub, Sidney, Free Trade Between Mexico and the United States? (Washington, D.C.: Brookings Institution, 1984), pp. 84–94Google Scholar.

4. The facts surrounding trade liberalization in the remainder of this section are drawn from the following sources: Ros, Jaime, “Free Trade Area or Common Capital Market? Notes on Mexico-U.S. Economic Integration and Current NAFTA Negotiations” Journal of Interamerican Studies and World Affairs 34 (Summer 1992), pp. 53–91CrossRefGoogle Scholar; Kate, Adrian Ten, “Trade Liberalization and Economic Stabilization in Mexico” World Development 20 (1992), pp. 659–72CrossRefGoogle Scholar; and Zabludovsky, Jaime, “Trade and Industrial Policy for Structural Adjustment in Mexico” in Fukuchi, Takao and Kagami, Mitsuhiro, eds., Perspectives on the Pacific Basin Economy: A Comparison of Asia and Latin America (Tokyo: The Asia Club Foundation, 1989), pp. 439–69Google Scholar.

5. Darling, Juanita, “Mexico Takes a Harder Line on Imports” Los Angeles Times, 3 05 1993, p. D1Google Scholar.

6. In some sectors, such as textiles and steel, Mexico's openness even surpasses that of the advanced capitalist nations.

7. The earlier Chilean liberalization of the 1970s, driven by ideology and sheer force, is the one exception here. For an elaboration, see Meller, Patricio, “Review of the Chilean Trade Liberalization and Export Expansion Process (1974–1990)” Bangladesh Development Studies 20 (1992), pp. 115–84Google Scholar; and Wise, Carol, “Trading Outward: The Politics of Commercial Policy Reform in Latin America” paper presented at a conference entitled The Role of Collaboration Between Business and the State in Rapid Growth on the Periphery, Princeton University, Princeton, N.J., 8–9 10 1993, manuscript pp. 16–18Google Scholar.

8. This attitude is exemplified in Pollin, Robert and Alarcón, Diana, “Debt Crisis, Accumulation Crisis, and Economic Restructuring in Latin America” International Review of Applied Economics, vol. 2, no. 2, 1988, pp. 127–54CrossRefGoogle Scholar.

9. We borrow this categorization from the following review essays: Cohen, Benjamin J., “The Political Economy of International Trade” International Organization 44 (Spring 1990), pp. 261–81CrossRefGoogle Scholar; Odell, John S., “Understanding International Trade Policies: An Emerging Synthesis” World Politics 43 (10 1990), pp. 139–67CrossRefGoogle Scholar; and Odell, John S. and Willett, Thomas D., “Gains from Exchange: An Introduction” in Odell, John S. and Willett, Thomas D., eds., International Trade Policies: Gains From Exchange Between Economics and Political Science (Ann Arbor: University of Michigan Press, 1990), pp. 1–19Google Scholar.

10. See the discussion on pp. 88–89 in Rodrik, Dani, “The Limits of Trade Policy Reform in Developing Countries” Journal of Economic Perspectives 6 (Winter 1992), pp. 87–105CrossRefGoogle Scholar. Rodrik notes specifically that the domestic macroeconomic instability of the 1980s would seem to have worked against trade reform since “high and variable inflation serves to confound price signals by making it difficult to disentangle relative price changes [due to trade opening] from movements in the price level… [and the] slowdown in domestic activity renders structural change more painful by exacerbating transitional unemployment” (p. 89).

11. Strands of such an analysis are present in Barkin, David, “About Face” NACLA: Report on the Americas, vol. 24, no. 6, 1991, pp. 30–37Google Scholar.

12. See Milner, Helen, “Trading Places: Industries for Free Trade” World Politics 40 (04 1988), pp. 350–76CrossRefGoogle Scholar and Tornell, Aaron, “A Proposal for Selective Trade Liberalization in LDCs” Papers on Latin America, no. 5, Columbia University Institute of Latin American and Iberian Studies, New York, 1988)Google Scholar.

13. Unger, Kurt, Las exportaciones mexicanas ante la reestructwacion Industrial intemacional (Mexican exports and international industrial restructuring) (Mexico City: El Colegio de Mexico/Fondo de Cultura Economica, 1990)Google Scholar. In a study of 184 manufacturing industries in Mexico, for example, Jaime Ros estimated that approximately 20 percent were engaging in intraindustry trade, accounting for half of all industrial exports from 1978–83 and for 23 percent of industrial value-added by 1980; see Ros, Jaime, “Industrial Organization and Comparative Advantage in Mexico's Manufacturing Trade” Working Paper no. 155, Helen Kellogg Institute for International Studies, University of Notre Dame, Notre Dame, Ind., 1991Google Scholar.

14. The method for calculating this intraindustry trade index is detailed in Bonturi, Marcos and Lord, Montague J., “Latin America's Trade in Manufactures: An Empirical Study” in Bradford, Colin J., ed., Strategic Options for Latin America in the 1990s (Paris: Development Centre of the Organisation for Economic Cooperation and Development, 1992)Google Scholar. The formula is

where X is exports, M is imports, and the subscript i refers to a statistically aggregated industry. Note that total trade specialization (either X i or M i = 0) yields an index of 0, whereas total integration (X i = M i) yields an index of 100. The aggregation to an economy-wide intraindustry trade index is done by using trade weights for each industry. The resulting index in Mexico rose from 26.9 in 1979 to 51.3 in 1986. This was the sharpest recorded increase (by percentage or index level) for any Latin American country in that time period and offers some insight into why Mexico is in the forefront of regional trade reform. To follow up this analysis, we obtained from Mexico's trade ministry, the Secretariat of Trade and Industrial Development (SECOFI), detailed industry-level trade data from 1988 to 1992 and then used the Bonturi-Lord formula, weighting across industries to obtain an aggregate figure for intraindustry trade. Interestingly, the figure fell for Mexico-world trade over this period, but rose by 2.5 points (or about 5 percent) for U.S.-Mexican trade. Clearly, the domestic incentives for a NAFTA-style arrangement with the United States were rising over the period.

15. See Sheahan, John, Conflict and Change in Mexican Economic Strategy (La Jolla, Calif.: Center for U.S.–Mexican Studies, University of California, San Diego, 1991)Google Scholar; and Milner, “Trading Places.”

16. Personal interview with Juan Sánchez Navarro, director of CONCANACO (1956–58) and of CONCAMIN (1960–62), Mexico City, August 1991.

17. Rogowski, Ronald, Commerce and Coalitions: How Trade Affects Domestic Political Alignments (Princeton, N.J.: Princeton University Press, 1989)Google Scholar.

18. Ibid., p. 15.

19. One reason why workers in Mexico often may have been unenthusiastic about trade opening is that free trade can displace uncompetitive rural producers and prompt a wage-dampening migration of displaced rural workers to urban areas. See Hinojosa-Ojeda, Raúl and Robinson, Sherman, “Labor Issues in a North American Free Trade Area” in Lustig, Nora, Bosworth, Barry P., and Robert, Z.Lawrence, , eds., North American Free Trade: Assessing the Impacts (Washington, D.C.: Brookings Institution, 1992)Google Scholar.

20. Frieden, Jeffry A., Debt, Development, and Democracy: Modem Political Economy and Latin America, 1965–1985 (Princeton, N.J.: Princeton University Press, 1991), p. 32Google Scholar. Also see Shafer, D. Michael, “Winners and Losers: How Sectors Shape States Developmental Prospects” States, Sectors, and Social Forces: Toward a New Comparative Political Economy of Development (Ithaca, N.Y.: Cornell University Press, 1994)Google Scholar.

21. Peasant organizations in cereals and grains production, fearing an avalanche of U.S. imports, took a more protectionist stance. Based on personal interviews with representatives from the Frente Auténtico del Trabajo and the Mexican Growers' Association, Mexico City, August 1991. Also see Davis, Diane E., “Mexico's New Politics: Changing Perspectives on Free Trade” World Policy Journal 9 (Fall/Winter 1992), pp. 659–65Google Scholar.

22. The classic statements of this theory are by Olson, Mancur, The Logic of Collective Action: Public Goods and the Theory of Groups (New York: Schocken Books, 1968)Google Scholar; and Frey, Bruno, “The Public Choice View of International Political Economy” International Organization 38 (Winter 1984), pp. 199–223CrossRefGoogle Scholar.

23. See Story, Dale, “Trade Politics in the Third World: A Case Study of the Mexican GATT Decision” International Organization 36 (Autumn 1982), pp. 767–94 and 781–87 in particularCrossRefGoogle Scholar; and Toledo, Saul Escobar, “Rifts in the Mexican Power Elite, 1976–1986” in Maxfield, Sylvia and Anzaldua, Ricardo, eds., Government and Private Sector in Contemporary Mexico, Center for U.S.-Mexican Studies Monograph Series 20 (La Jolla, Calif.: University of California, San Diego, 1987), pp. 65–87Google Scholar.

24. The country's traditional industrial heartland suffered heavy plant closures and job losses after the deepening of trade liberalization in 1985. For example, between 1985 and 1988, employment fell by 18.6 percent in Mexico City, 15.1 percent in the Estado de Mexico, and 7.8 percent in Nuevo Leon while it rose by 5.9 percent in the rest of the country. See Ros, Jaime, “Labour Market Analysis and Employment Planning” Working Paper no. 53, World Employment Programme Research, Geneva, 10 1991, pp. 43–45Google Scholar.

25. Ibid., pp. 45–51. Some traditional small and medium-sized industrialists haye attempted to expand exports and develop subcontracting arrangements with transnational firms. However, such efforts are essentially defense mechanisms and do not fully explain the support for free trade now expressed by former protectionists. See Durán, Clemente Ruiz, “Changes in the Industrial Structure and the Role of Small and Medium Industries in Developing Countries: The Case of Mexico” summary report prepared for the conference on Small and Medium Industries in Developing Countries, Institute of Developing Economies, Tokyo, 25 02–1 03 1991Google Scholar.

26. Our assertions about the support of small and medium-sized Mexican producers for commercial liberalization are based on forty-five interviews conducted in Mexico during 1991, 1992, and 1993. Using an open-ended interview strategy that encompassed respondents across economic sectors in both the public and the private arenas, we questioned each respondent as to the origins of Mexico's free trade policy; its base of political, economic, and sectoral support; and the policy's ultimate sustainability. With regard to the stance of the small and medium-sized business sector, 31 percent of our respondents viewed this sector as strongly in favor of the trade opening, while 7 percent saw it as strongly against it. The more common response (62 percent) was that most small and medium producers felt that, like it or not, they had no choice but to accept the NAFTA-style arrangement that the Salinas administration has so vigorously pursued. Given this, their strategy has been to capitalize on the benefits of macroeconomic stabilization and to ride out the trade adjustments as best they can.

27. Odell, , “Understanding International Trade Policies” p. 154Google Scholar.

28. With regard to the developing countries, comparative institutional analysis has seen a revival, as analysts working across disciplines have sought to explain the highly differential political economic performance of the middle-income industrializing states over the past decade. Examples of this tradition are the essays by Haggard, Stephan and Kaufman, Robert R., “Institutions and Economic Adjustment” pp. 3–37Google Scholar; Evans, Peter, “The State as Problem and Solution: Predation, Embedded Autonomy, and Structural Change” pp. 139–81Google Scholar; and Waterbury, John, “The Heart of the Matter? Public Enterprise and the Adjustment Process” pp. 182–217Google Scholar, all in Haggard, Stephan and Kaufman, Robert R., eds., The Politics of Economic Adjustment (Princeton, N.J.: Princeton University Press, 1992)Google Scholar.

29. Maxfield, Sylvia, “The Domestic Politics of Mexican Trade Policy” in Federal Reserve Bank of Dallas, North American Free Trade: Proceedings of a Conference (Dallas, Tex.: Federal Reserve Bank of Dallas, 06 1991), pp. 103–8Google Scholar.

30. Part of this ideological shift is rooted in the kinds of social learning that Kahler discusses, whereby initial changes in policy instruments (tariff reductions) become swept up into a hierarchy of more ambitious goals (greater international competitiveness) that in turn get anchored in a more lasting way among a wider range of actors and institutions. See Kahler, Miles, “External Influence, Conditionality, and the Politics of Adjustment” in Haggard, and Kaufman, , The Politics of Economic Adjustment, pp. 123–31Google Scholar.

31. Our conclusions about bureaucrats' beliefs are based on a personal interview with Jaime Zabludovsky, deputy chief negotiator, Office of the Negotiation for the Free Trade Agreement, SECOFI, Mexico City, August 1991; and on confidential personal interviews conducted within SECOFI's NAFTA Office at the Mexican Embassy in Washington, D.C., June 1992. Similarly, small and medium-sized business leaders were personally interviewed in Mexico City. They include: Armando Rúiz Galindo, director of the Office of International Affairs, CANACINTRA, August 1991; Mario Galván, general director, Asociación de Industrials del Transporte y Comercio Internacional, June 1992; Carlos Gutíerrez, subdirector, Cámara Nacional del Cemento, June 1992; Guillermo Velasco, general director, Instituto de Proposiciones Estratégicas, June 1992; and Freddy Revah, former president, Cámara Nacional de la Industria Textil, July 1993.

32. See p. 71 of Goldstein, Judith, “The Impact of Ideas on Trade Policy: The Origins of U.S. Agricultural and Manufacturing Policies” International Organization 43 (Winter 1989), pp. 31–71CrossRefGoogle Scholar.

33. Sikkink, Kathryn, Ideas and Institutions: Developmentalism in Brazil and Argentina (Ithaca, N.Y.: Cornell University Press, 1991), pp. 22–25Google Scholar.

34. For a description of Mexico's political system, see Mares, , “Explaining Choice of Development Strategies” p. 671Google Scholar.

35. Again, the crisis created the conditions within which international financial institutions could push the trade opening by conditioning loan disbursement on specific liberalization measures; see Peters, Enrique Dussel and Kim, Kwan S., “From Liberalization to Economic Integration: The Case of Mexico” paper presented at the 17th international congress of the Latin American Studies Association, Los Angeles, 24–2709 1992, manuscript p. 13Google Scholar. The question here is why Mexico went so far beyond the minimal acceptable opening.

36. Kate, Ten, “Trade Liberalization and Economic Stabilization in Mexico” p. 666Google Scholar.

37. Personal interview with James Murphy, Assistant U.S. Trade Representative, Office of the U.S. Trade Representative, Washington, D.C., July 1990.

38. There have been other attempts to systematize understanding of Mexican trade liberalization via the tools of modern political economy. See, for example, Cameron, “The Domestic and International Politics of Trade Liberalization in Mexico” and Ros, , “Free Trade Area or Common Capital Market?” pp. 78–80Google Scholar.

39. Rodrik, Dani, “The Rush to Free Trade in the Developing World: Why So Late? Why Now? Will it Last?” Working Paper no. 3947, National Bureau of Economic Research, Cambridge, Mass., 01 1992CrossRefGoogle Scholar. The following is a dramatic simplification of Rodrik's approach; likewise, the model developed in this text eschews formal mathematics in favor of accessibility.

40. This formulation helps us understand why the debate over NAFTA in the United States became so conflictual: as most analysts have noted, the aggregate gains or losses are small while the redistributive impacts (from lower-paid workers to higher-skilled workers and businesses) will be large. See Hinojosa-Ojeda and Robinson, “Labor Issues in a North American Free Trade Area” and Learner, Edward E., “Wage Effects of a U.S.–Mexican Free Trade Agreement” Working Paper no. 3991, National Bureau of Economic Research, Cambridge, Mass., 02 1992Google Scholar.

41. In an appendix available from the authors, we formalize the PCBR and explain why we assume distributive costs rise as liberalization proceeds. Suffice it to say here that the resulting upward slope of the PCBR is the most interesting case: if losses fall relative to net gains, then decision makers optimize by full implementation. Hence, where researchers find policy blockage, an upward-sloping PCBR is likely.

42. Ten Kate points to the fact that an undervalued peso eased the Mexican liberalization efforts of 1985 and 1986; see “Trade Liberalization and Economic Stabilization in Mexico” pp. 665–66.

43. As noted in an earlier footnote, an appendix available from the authors formalizes the PCBR, including the first- and second-order conditions necessary for an interior optimum. We also note there that, strictly speaking, the optimal PCBR is a quantity-driven and not a price-driven solution and hence the “price” line is not actually stable; a better formulation would use on the vertical axis a variable, E = L x/N x (where L is loss, N is net benefit, and the subscript refers to the derivative of each variable with respect to the degree of policy X) in which case the “opportunistic” optimum always occurs when E equals one. We eschew this additional level of complexity in the text given the task at hand.

44. Note that “informed” agents always have an incentive to keep information private so as to maximize their relative gains and avoid political opposition. Even if we have reversed distribution of information such that potential winners are “uninformed” and hence excessively pessimistic, potential losers will lose less by holding their policy cards close to their vests.

45. Such a gamble may be rational if there is a great deal of variance in the expected outcome from a policy change; given such “noise” the divergence of actual from expected outcomes will prompt updating but, in keeping with Bayesian logic, initial expectational revisions could involve only modest changes in prior beliefs and hence learning would be slow. NAFTA would seem to fit this scenario since the effects predicted by various models and authors diverge significantly. See, for example, Brown, Drusilla K., “The Impact of a North American Free Trade Area: Applied General Equilibrium Models” pp. 26–68Google Scholar; Hinojosa-Ojeda, and Robinson, , “Labor Issues in a North American Free Trade Area” pp. 69–108Google Scholar; and Weintraub, Sidney, “Modeling the Industrial Effects of NAFTA” pp. 109–43Google Scholar, all in Lustig, Bosworth, and Lawrence, North American Free Trade. See also Hufbauer, Gary and Schott, Jeffrey J., North American Trade: Issues and Recommendations (Washington, D.C.: Institute for International Economics, 1992)Google Scholar

46. Recent evidence on business cycles, for example, suggests that the ideological preferences of policymakers are reflected in differences in growth, unemployment, and inflation outcomes while opportunistic behavior (inflating the economy prior to an election, for example) exists but has a smaller impact on the macroeconomy. See Alessina, Alberto, “Macroeconomics and Politics” in National Bureau of Economic Research (NBER), NBER Macroeconomk Annual 1988 (Cambridge, Mass.: MIT Press, 1988)Google Scholar; and Alessina, Alberto and Roubini, Nouriel, “Political Cycles in OECD Economies” Review of Economic Studies 59 (10 1992), pp. 663–88CrossRefGoogle Scholar.

47. Of course, complete implementation of ideological preferences is politically and economically impossible; just because a decision maker might prefer a 2 percent unemployment rate does not imply that such a rate can be obtained.

48. For more on combining exchange rate targeting and trade liberalization to control inflation, see Pastor, Manuel Jr, Inflation, Stabilization, and Debt: Macroeconomic Experiments in Peru and Bolivia (Boulder, Colo.: Westview, 1992), pp. 29–33 and 67–106Google Scholar.

49. What is really occurring is that ideologically driven policymakers are willing to implement policy X such that L x > N x, yielding a higher degree of implementation of X and hence a higher than optimal PCBR E. It seems easiest to portray this with the downward-sloping “demand curve” which also takes into account that policymakers might be willing to accept a larger difference between L x and N x the further away they are from the truly desired policy. Note also that the previous Mexican demand for trade reform probably lay below the optimal level: protectionist policymakers were willing to forgo the benefits from trade opening because of their ideologically rigid preferences.

50. Note also that “excessive” liberalization can occur when policymakers' free trade preferences are both very strong and able to be realized in an insulated political system. For a formalization of how “deep priors” (e.g., ideology) can produce economic miscalculations, see Dymski, Gary and Pastor, Manuel Jr, “Bank Lending, Misleading Signals, and the Latin American Debt Crisis” The International Trade Journal 6 (Winter 1990), pp. 151–91CrossRefGoogle Scholar.

51. Personal interview with Bernardo Gómez Palacio, assistant to the Minister, Secretariat of Programming and Budget, Mexico City, August 1991.

52. For more on policymakers' heightened ideological consensus in favor of free markets, see Centeno, Miguel Angel and Maxfield, Sylvia, “The Marriage of Finance and Order: Changes in the Mexican Political Elite” Journal of Latin American Studies 24 (02 1992), pp. 57–85CrossRefGoogle Scholar.

53. This analysis of changes within the PRI draws from Dresser, Denise, “Embellishment, Empowerment, or Euthanasia of the PRI? Neoliberalism and Party Reform in Mexico” in Cook, Maria L., Middlebrook, Kevin, and Molinar, Juan, eds., The Politics of Economic Restructuring in Mexico (La Jolla, Calif.: Center for U.S.–Mexican Studies, University of California, San Diego, 1994)Google Scholar.

54. Davis, , “Mexico's New Politics” pp. 667–69Google Scholar.

55. Centeno, and Maxfield, , “The Marriage of Finance and Order” p. 71Google Scholar.

56. The schism between the, PRI and its traditional base was reflected in the 1988 elections. A significant share of the working and middle classes in Mexico City and the country's industrial heartland supported the Democratic Revolutionary Party (PRD) led by Cuauhtemoc Cardenas while other elements of the middle class, particularly those from northern Mexico, drifted toward the right-of-center National Action Party (PAN). As a result, even the highly contested 1988 “official” count left the PRI presidential candidate with barely 50 percent of the national vote. The general issue of the PRI's political reorientation is elaborated on in Whitehead, Laurence, “Mexico's Economic Prospects: Implications for State–Labor Relations” in Middlebrook, Kevin J., ed., Unions, Workers, and the State in Mexico, U.S.–Mexico Contemporary Perspectives, 2d ser. (La Jolla: Calif.: Center for U.S.–Mexican Studies, University of California, San Diego, 1991)Google Scholar.

57. Dresser, Denise, Neopopulist Solutions to Neoliberal Problems: Mexico's National Solidarity Program, Current Issue Brief no. 3 (La Jolla, Calif.: Center for U.S.–Mexican Studies, University of California, San Diego, 1991)Google Scholar.

58. The PRI's comeback in the 1991 congressional elections has been directly attributed on the one hand to Salinas's brilliant linking of PRONASOL with distributional symbols from the Mexican revolution and on the other hand to free trade's apparent success both in driving down domestic prices and in the improving economic expectations associated with the likelihood of NAFTA. See Castañeda, Jorge G., “The Clouding Political Horizon” Current History 92 (1993), p. 66Google Scholar.

59. See Sylvia Maxfield, “Introduction” in Maxfield and Anzaldua, Government and Private Sector in Contemporary Mexico; and Heredia, Blanca, “Profits, Politics, and Size: The Political Transformation of Mexican Business” in Chalmers, Douglas, Boron, Atilio, and Souza, Maria de Carmo Campello de, eds., The Right and Democracy in Latin America (New York: Praeger, 1992)Google Scholar. For an alternative view that sees much less evidence of business input into policy formation during the 1980s, see Camp, Roderic A., Entrepreneurs and Politics in Twentieth Century Mexico (New York: Cambridge University Press, 1989)Google Scholar.

60. For an insightful analysis of these Economic Solidarity Pact negotiations, see Kaufman, Robert R., Bazdresch, Carlos, and Heredia, Blanca, “The Politics of the Economic Solidarity Pact in Mexico: December 1987 to December 1988” paper presented at a conference entitled The Political Economy of Democratic Transitions, World Bank, Washington, D.C., 4–5 05 1992Google Scholar.

61. Dresser, , “Embellishment, Empowerment, or Euthanasia of the PRI?” p. 30Google Scholar.

62. To articulate the demands of the private sector during the NAFTA negotiations, the business sector reconstituted into yet another larger and more powerful peak association (the Mexican Business Coordinating Council for Free Trade, or COECE). Personal interview with Juan Gallardo, coordinator of COECE from 1990 to 1992, Mexico City, August 1991.

63. Personal interviews with Mauricio González and Angel O'Dogherty, Grupo de Economistas y Asociados, Mexico City, June 1992.

64. In general, we would expect larger companies to be better informed, partly because of the sheer resources they can deploy for information collection and partly because of the difficulties smaller companies would encounter to gather the same amount of information., A set of smaller companies would first have to solve a free-rider problem regarding appropriating the benefits of improved information and then coalesce to pool resources. In this case, the more easily informed are also the likely winners: most analysts interviewed in 1991–93 believe that larger companies are likely to benefit disproportionately from freer trade with the United States. Their economies of scale and their scope in production and marketing leave them better positioned to weather the competitive storm and successfully restructure in the face of foreign competition. Also see Peters and Kim, “From Trade Liberalization to Economic Integration“; and Morici, Peter, “Grasping the Benefits of NAFTA” Current History 92 (02 1993), pp. 49–54Google Scholar.

65. Of course, the flip side of the losers' exclusion and possible underestimation of forthcoming adjustments is the possible overestimation of the good things to come on the part of the winners. On this point, it is interesting that even one of the World Bank's country economists for Mexico was worrying out loud by mid-1992 that the orthodox elements in the macroeconomic program were “too strict.” Personal interview with Daniel Oks, World Bank, Washington, D.C., 06 1992Google Scholar.

66. See Williamson, John, ed., Latin American Adjustment: How Much Has Happened? (Washington, D.C.: Institute for International Economics, 1990)Google Scholar.

67. Personal interviews in Mexico City with: Vicente Cisneros, general manager, Creaciones Italianas de Mexico, August 1991; Jonathan Heath, chief economist, Macro Asesoría Económica, June 1992; and Alejandro Valenzuela, director of foreign investment and trade, Secretariat of Finance and Public Credit, July 1993.

68. Personal interviews with Miguel Lozada, general manager, National Chamber of the Apparel Industry, Mexico City, August 1991; and with Armando Rúiz Galindo, director of the Office of International Affairs, CANACINTRA, August 1991. Domestic policymakers also seem to have shifted from a microeconomic to a macroeconomic emphasis. Influential policy team members like Treasury Secretary Pedro Aspe view the conquest over inflation as one of their proudest policy victories and associate this victory with trade reform.

69. For arguments regarding the macroeconomic rationale for trade liberalization see Lustig, Nora, Mexico: The Remaking of an Economy (Washington, D.C.: Brookings Institution, 1992)Google Scholar; and Ros, “Free Trade Area or Common Capital Market?” For a look at the macroeconomic consequences, see Blecker, Robert A., “Trade and Investment Liberalization in North America: A Structuralist Model of the NAFTA” paper presented at the Allied Social Science Association meetings, Anaheim, Calif., 01 1993Google Scholar; and Adams, F. Gerard and Rio, Abel Beltrán del, “The Mexico-United States Free Trade and Investment Area Proposal: A Macroeconometric Evaluation of Impacts on Mexico” Journal of Policy Modeling 14 (02 1992), pp. 99–119CrossRefGoogle Scholar.

70. The pact actually evolved over a series of agreements, each spanning several months. In each case, a new agreement was negotiated before the old one expired. The long-term fixity of the exchange rate may not have been apparent at the beginning of this process, but it soon became clear.

71. The important and continuing role of import competition in constraining inflation is evidenced by Business Latin America's 1991 assessment that “price controls are no longer an issue for most companies. Import competition for products still subject to controls has often more effectively limited price increases than the government maximum price.” See “Mexfco's Exchange Rate is Central to PECE Debate” Business Latin America, 28 October, 1991, p. 346.

72. The 1987 and 1989 import and reserve figures used here come from International Financial Statistics (IFS), CD-ROM, December 1992 (Washington, D.C.: International Monetary Fund, 1992)Google Scholar. The real exchange rate is based on the period average controlled exchange rate, the period average Mexican consumer price index, and the period average U.S. wholesale price index. All data are from IFS.

73. The expectation of a stable exchange rate also allowed the government to drop the high nominal interest rates that had been necessary to re-attract flight capital and foreign portfolio investment; this in turn reduced interest payments on domestic debt and helped rein in government spending.

74. Longer-term expectations of enhanced investment inflows were important since short-term relief as a result of the debt accords amounted to only a $1–1.5 billion reprieve from annual debt service.

75. Canada was included in the negotiations later after Canadian officials insisted that even though the country's trade ties with Mexico were minimal, they would be significantly affected via their own trade pact with the United States.

76. The quotation is from a confidential personal interview, Mexico City, June 1992.

77. In October 1992 Mexican policymakers finally reacted to the peso overvaluation by doubling the pace of its depreciation. Unfortunately, this still yields an annual devaluation of 4–6 percent, not nearly enough to stem the swelling value of the peso. See “Mexico Speeds Devaluation with New PECE Extension” Business Latin America, 26 October 1992, p. 365. In September 1992 the government also attempted to slow import growth, particularly of consumer goods, by imposing a new decree requiring such imports to meet Mexican safety and quality standards. The concern seemed not to be focused on safety per se but rather on the steadily mounting import bill. See “Clamping Down at the Border” Business Latin America, 14 December 1992, pp. 2–3.

78. For an exposition of the government argument and some critical responses, see “Banco de Mexico Report Rebuts Critics Predicting Crisis” Business Latin America, 11 May 1992, p. 147; and Castaneda, , “The Clouding Political Horizon” p. 64Google Scholar.

79. Peters, and Kim, , “From Liberalization to Economic Integration” p. 16Google Scholar, argue that an alternative classification of commodities would place consumer imports at 35 to 40 percent of the 1992 import bill.

80. Some analysts also have suggested that a significant percentage of this capital arrived to complete the purchase of the newly privatized telephone company and financial system and will soon taper off dramatically. See Castañeda, , “The Clouding Political Horizon” p. 64Google Scholar; and Ros, , “Free Trade Area or Common Capital Market?” pp. 72–73Google Scholar.

81. As a result of the June slide in the markets, foreign investment fell nearly 20 percent (partly due to lower values). Some analysts estimate that $2 billion fled Mexican money markets overall as “foreigners grew nervous and took their capital home.” See Business Latin America, 27 July 1992, p. 260.

82. Weintraub, Sidney, “The Economy on the Eve of Free Trade” Current History 92 (02 1993), pp. 67–77Google Scholar.

83. Ros, Jaime, “Free Trade Area or Common Capital Market?” pp. 63–65Google Scholar.

84. As much as Mexican policymakers have bristled at the notion of continued state intervention in the 1990s, economic history has few examples of countries that have climbed into the ranks of the advanced industrial bloc without a developmentalist state. For an elaboration on this theme, see Wise, Carol, In Search of Markets: Latin America's State-led Dilemma, Papers on Latin America, no. 33, Institute of Latin American and Iberian Studies, Columbia University, New York, 1993Google Scholar.

85. The potential for a newly configured and more sophisticated industrial strategy has not been lost on some Mexican policy analysts and entrepreneurs. Personal interviews in Mexico City with José Warman, general director, Centro de Tecnologia Electrónica e Informática, June 1992; and with a confidential respondent in the Consejo Nacional de Ciencia y Tecnologia, July 1993. Also see “Companies Slowly Wake to Profits of Research” El Financiero International, 9 November 1992, p. 12.

86. Baer, Delal, “North American Free Trade” Foreign Affairs 70 (Fall 1991), pp. 132–49Google Scholar.

87. Lutz, Ellen L., “Human Rights in Mexico: Cause for Continuing Concern” Current History 92 (02 1993), pp. 78–82Google Scholar.

88. For a broader discussion of the sequencing of economic and political reform in Mexico, see Smith, Peter H., “The Political Impact of Free Trade on Mexico” Journal of Interamerican Studies and World Affairs 34 (Spring 1992), pp. 1–25CrossRefGoogle Scholar.

89. Weintraub, Sidney, A Marriage of Convenience: Relations Between Mexico and the United States (New York: Oxford University Press, 1990)Google Scholar.

90. These comparative references are based on Wise, , “Trading Outward” manuscript pp. 10–21Google Scholar. A less well-known case that fits neatly into this discussion of both origins and sustainability of liberalization is Bolivia; for more on this, see Pastor, Inflation, Stabilization and Debt.

91. For a related view of sustainability, see Haggard, and Kaufman's, distinction between the initiation, implementation, and consolidation of reform in “Institutions and Economic Adjustment” pp. 5–7Google Scholar.

92. Although Chile's ability to successfully shift course post-1982 after a disastrous decade-long liberalization effort has been hotly debated, we side with those who point to the reliance on more heterodox or pragmatic adjustments to steer the trade reform effort onto a more viable course. These included, for example, an upward shift in tariffs (to 35 percent) through most of the 1980s, much more aggressive exchange rate management, and the provision of state-sponsored incentives for the promotion and diversification of natural resource exports. See Meller, “Review of the Chilean Trade Liberalization and Export Expansion Process (1974–1990).” Colombia has a longer history of such interventions, having relied on more of an East Asian strategy of combining import substitution with export promotion since the late 1960s, and having developed a sophisticated bureaucratic machinery earlier on to back this strategy. See Wise, “Trading Outward.“

93. For a discussion of the need for more flexible policies, see Shapiro, Helen and Taylor, Lance, “The State and Industrial Strategy” World Development 18 (06 1990), pp. 861–78CrossRefGoogle Scholar.