Judith Adler Hellman
"Mexico in Crisis"
October 1997
ISBN 0841908958

THE MEXICAN ROAD TO DEVELOPMENT

Chapters 1 and 2 reviewed the process through which a bourgeoisie composed of industrialists, bankers, businessmen, and large landowners has consolidated its power. As we have seen, the bourgeoisie exercises enormous influence over government decision making through the interest associations it has formed and the direct access it enjoys to the president and top-ranking government officials. Logically enough, the development policy pursued by the PRI and by successive administrations from 1940 onward promoted the interests of the dominant national bourgeoisie and their foreign business partners. This policy brought about the rapid modernization and economic growth of Mexico. Indeed, Mexico's economic record throughout the 1950s and 1960s was so impressive that the country was often regarded as one of the two or three outstanding models of economic and political modernization in a nonsocialist Third World setting. Indeed, in the boom years of the 1960s it was common to hear the development process which had unfolded described as the "Mexican miracle." In this chapter we will examine the pattern of development to understand just how this phenomenal growth was produced.

THE "MEXICAN MIRACLE": 1940-1970

Although Mexico has one of the highest rates of population growth in the world (3.5 percent a year), and the total population has more than doubled from 20 million in 1940 to over 50 million in 1970, during those same years the economy grew steadily at an average annual rate of almost 6.5 percent. In 1969-1970 the rate of growth reached 7.4 percent, a figure so high that it was surpassed only by Japan and Finland among the nonsocialist developed nations, and a few especially advantaged countries (Libya, Korea, and Israel) in the developing world. To put it another way, although the population tripled from the mid-1930s to the mid-l970s, during this same period the per capita value of all goods and services produced in Mexico nevertheless increased by more than 160 percent. In 1971 production per person reached $700 per year, placing Mexico somewhere between Portugal and Spain in the economic hierarchy of nations. Furthermore, Mexico's economic expansion was all the more remarkable when we consider that it was sustained for almost thirty years with relatively little interruption and that it was "balanced" in the sense that agriculture grew in line with industry. By the 1970s, production of grains and legumes had grown to the point that Mexico had become a net exporter of food. It had also become self-sufficient in the production of petroleum products, steel, and most consumer goods. In 1940,65 percent of the population lived in the countryside. By the 1970s well over half of all Mexicans were living in towns and cities of more than 2,500 inhabitants. While 65 percent of the 1940 work force labored in agriculture, by 1970 less than half were agricultural workers, and the majority of working Mexicans were employed in industry, commerce, finance, transport, communication, and services. Throughout this period of rapid economic growth, population growth, and demographic shifts from the countryside to the cities and from agriculture to industry and services, the Mexican peso remained relatively stable. Notwithstanding two periods of inflation and devaluation in the 1940s and 1950s, it was used by the International Monetary Fund and other international banking agencies to support shaky currencies in other countries. Roger Hansen noted in ~971 that whether we measure Mexico's growth in aggregate or per capita terms, whether we compare the Mexican statistics with those of other Latin American countries or with the industrialized, developed countries of the world, whether we look only at the period from 1935 to 1970 or compare Mexican development with that which occurred during the period of most rapid industrial growth for each country concerned, the Mexican record in the postwar period was a "singular achievement."'

The Mexican Strategy for Development: The "Trickle-Down" Theory

Mexico's outstanding rate of economic growth and steady expansion in the industrial sector was the result of a calculated strategy of development that has been pursued with considerable consistency from the time Cárdenas left office in 1940. This strategy is based on a "trickle down" theory of development that focuses on the long-term aspects of economic growth. The strategy presupposes that as a nation s economic output grows, some of the benefits development ultimately reach people at all levels of society. But the distribution of The benefits of development tales place only after a period during which the profits of economic growth are reinvested to build an industrial base for future development ''

In order to sustain a rapid rate of growth, a developing nation like Mexico must raise its rate of domestic savings and investment. That is, the profits that result from industrial growth must be poured back into industry. The trickle-down theory hold that if a country like Mexico is to maximize economic growth, these profits cannot be distributed to workers in the form of higher wages.
In line with this strategy, Mexican wages have risen very slowly during the post-1940 period of rapid industrialization. The slow rise in wages has not kept pace with a rapidly rising cost of living. As a result, Mexican workers have experienced a fall real wages; that is, while their paychecks have been increased from time to time, the prices of food, clothing, housing, etc., have increased even more, and thus workers find that their peso buys less with each passing year."

While workers' real wages have declined, the income of industrial entrepreneurs has climbed rapidly. The government has placed al- most no limits on profits nor on the expansion of industrialists' incomes. Naturally, government policy makers are aware that when a rise in entrepreneurial incomes accompanies a fall in real wages for workers, the gap between rich and poor grows wider. Indeed, in 1958 the incomes of the richest 5 percent of all Mexicans were 22 times those of the poorest 10 percent; by 1980, the gap had more than doubled and the rich enjoyed incomes 50 times greater than those of the poorest sector of the population. However, the growing inequality of income distribution in Mexican society has been posed by those in power as a necessary, if unfortunate, "short-term consequence" of development.

Taxation Policy

There are strategic reasons why a government does not step in to curb the accumulation of wealth in the hands of rich industrialists. In order to assure a supply of capital for private investments in industry, the Mexican development plan has called for a policy to provide strong incentives to both domestic and foreign entrepreneurs. Part of this policy is to maintain an extremely low rate of taxation on income received by industrialists. Taxes are low both on interest earned from investments and on profits derived from production. Although taxation of high-income groups is known to be one effective way of redistributing wealth throughout a society and narrowing the gap between rich and poor, it has not been utilized by the Mexican government. Indeed, a survey of tax policy in Latin America in the 1960s revealed that Mexico imposed the lightest tax burden on her upper class of any of the eighteen countries studied. And taxation on foreign-owned enterprises is so low that in foreign business circles Mexico enjoys the reputation of providing one of the most favorable investment climates in the world.

Where the Mexican government has taxed the public-as in the case of the sales tax-the taxes imposed tend to be regressive. In contrast, income tax is so light that it not only fails as a redistributive method, but it raises very little revenue for government spending. Tax evasion, a common practice in most countries, reaches truly impressive proportions in Mexico. One Mexican expert estimates that roughly 75 percent of the upper class manages to escape payment of the relatively light taxes levied on them." They do so while those in charge of tax collection wink and look the other way. Tax reforms implemented in the mid-1970s improved the collection of income taxes from the salaried middle class but left the bourgeoisie effectively untouched. However, this and other aspects of the Mexican taxation policy are entirely consistent with the development strategy that has been applied since 1940; the government assures that entrepreneurs need not worry about heavy taxes biting into profits in the expectation that capitalists will thus be stimulated to make further investments in the industrial sector.

Opting for a low rate of taxation on high-income earners, the Mexican state has necessarily had to look elsewhere for the revenue to sup port the ambitious programs of infrastructural investment and other public expenditures. To raise these funds, the Mexican government has borrowed multilateral international institutions like the World Bank and the Inter-American Development Bank, from bilateral institutions such as the U.S. Agency for International Development and the Export-import Bank of the United States, and from private foreign l banks and financial conglomerates." Whereas development in the immediate postwar period had been financed with revenue from taxes, profits of public enterprises, and foreign earnings from exports and tourism, by the late 1960s, "Mexico's public foreign debt . . . started to grow until it finally became the foundation of its economic growth." By the 1960S, the foreign debt had reached $1.8 billion and it increased at a geometric rate through the 1970S,'' until by 1982 the debt was a staggering $80 billion and Mexico had earned the dubious distinction of being the most indebted country in the world.

Thus, unwilling or unable to tax the rich, the Mexican government has relied on foreign borrowing to balance the budget for public expenditures-with all this implies for the loss of autonomy that results when a developing country comes to count on foreign creditors to so 8reat an extent. In their public utterances Mexican political leaders regularly and passionately denounce the interference of foreign capitalists in domestic policy formulation as well as the pressures applied by international and American financial institutions on Mexican affairs. Justified as these denunciations are, it is also important to note that this lamentable situation results from more than the overall dynamic of dependency. The problem we see here is more than the "standard" problem of unequal exchange in which Third World countries grow more indebted as they pay rising prices for imported manufactured goods while their earnings from exports fall. In the Mexican case, the staggering dimension of the foreign debt is clearly the consequence of a general strategy of development which has doggedly favored the industrial bourgeoisie, whatever the costs to the nation as a whole. As one Mexican economist has noted,

… the Mexican government continued to balance its deficits-both from its social expenditure and its investment program-with debt instead of placing greater financial responsibilities on the richest sectors of the Mexican society. The government stabilizing development strategy was designed to pamper the industrialists who not only evaded, legally and illegally, the fiscal burden but also benefited from consumption at very low prices of enormous quantities of state-produced inputs, such as electricity, transportation, communications, and oil, giving back very little."

Other Incentives to Investment

Throughout the 1940s new Mexican industries were protected from foreign competition by high tariffs on imported manufactures. In the 1950s import licensing, that is, government control over goods imported into the country, became the mainstay of the protectionist policy for Mexican industry. This protectionist policy was part of a drive toward "import substitution." Under an import substitution program a government attempts to encourage the establishment and growth of manufacturing firms producing goods that have previously been imported from abroad. High tariffs and import licensing were designed to give Mexican entrepreneurs and their foreign business partners a strong competitive advantage over firms producing goods abroad. At the same time the government has also used licensing to restrict the amount of internal competition with which a new producer must contend.
In addition to providing protection for Mexican products, the government devised other policies calculated to encourage investment by private businessmen and to attract foreign capital. Since 1941, new enterprises have been granted tax exemptions for periods ranging up to ten years. Furthermore, duties paid by manufacturers on the machinery and materials that purchase abroad have been rebated to them. The government has also provided credit to entrepreneurs at rock-bottom ates of interest. Nacional Financiers, a government bank established in 933, provides funds to private businessmen who would otherwise encounter serious difficulties in raising capital for investment in industry. With government backing, this credit bank has expanded into international credit markets and is able to channel foreign loans into private business. In this way low-cost capital from international sources is available to Mexican entrepreneurs through loans guaranteed by Nacional Financiera."

Taken as a whole, these government policies created a very favorable climate for both foreign and domestic private investors. "It is reported that profit rates in Mexico are among the highest in the world. Through the postwar period of rapid growth, high returns on investment and economic stability stimulated a steady flow of foreign capital into Mexico. One of the challenges facing policy makers was how this flow of foreign funds was to be regulated.

Foreign Investment and "Mexicanization"

Since 1940, Mexican policy on foreign investment has been a compromise between two conflicting tendencies or desires. The first is a desire to reduce or eliminate foreign economic control over the Mexican economy. Indeed, as noted in chapter 1, the elimination of foreign economic influence was a primary objective of the national bourgeoisie which led the revolution and established the official party. At the turn of the century these people had found their own economic ambitions cramped by the dominance of American, British, and other foreign businessmen in virtually all key areas of the Mexican economy. Many representatives of the national bourgeoisie joined the revolution in 1910 precisely to oust the foreign businessmen who had gained such extensive control during the regime of the old dictator, Porfrio Díaz.

The sons and grandsons of the old bourgeois revolutionaries are now the people who formulate policy in Mexico, through their role in the government, the official party, or the various influential businessmen s associations. Many of them still cherish the dream of a Mexican economy completely controlled by Mexican entrepreneurs, by men like themselves. As a group, these men share a repugnance toward the notion of foreigners, particularly Americans, holding economic power in their country." Therefore, when they formulate economic policies, they are moved in part by strong desires to exclude foreign investors from a controlling role in the Mexican economy.

But those desires conflict with the Mexican leadership's commitment to the goal of rapid economic development, a commitment which has prevented them from indulging their desire to go it alone with outside financing from American or other foreign sources. Policy makers operate on the assumption that high rates of growth cannot be achieved without heavy foreign investment. Their chosen development strategy has forced them to lay aside their nationalist pride and to accept the inevitability of policies designed to attract foreign capital

Thus Mexican policy makers have worked out a compromise between their desire for economic independence and their need for foreign capital. Their compromise is a policy that encourages foreign investment at the same time that it subjects that investment to certain nationalistic restrictions. It is a policy of so-called partnership through which foreign capital is obtained while control over its use supposed~ remains in the hands of Mexican nationals. The name given to this policy is "mexicanization "

Mexicanization divides all industries into four categories. The first are fields reserved exclusively for the state. These include all key public services such as railroads, telegraph, postal service, and electricity. The oil industry and primary processing of petrochemicals all fall into this category, but concessions are granted by the government to private firms. The second category includes areas reserved for Mexicans such as broadcasting, automotive transport, and gas. The third category covers fields in which foreign ownership is limited to 49 percent. Insurance, advertising, publishing, cinema, domestic transport, food processing and canning, soft drinks, basic chemicals insecticide, fertilizer, mining, agriculture, and livestock all belong to this category. The fourth category covers all fields in which foreign capitalists are free to invest without restraint.

The mexicanization policy requires that Mexican nationals hold majority ownership of en emprises in certain key sectors of the economy The industries to which this restriction applies are defined by law However, the interpretation and application of the legislation (i.e. which enterprises fall into which category is left to the Mexican executive, and there is considerable leeway for the president to determine where and when mexicanization restrictions will be applied. It is precisely this flexibility that leaves foreign firms so much room for maneuver. The discretionary power allows the government to accept or reject foreign capitalists' contentions that they should be exempt from restrictions. The methods of persuasion used by foreign firms range from simple, straightforward payoffs, to diplomatic arm-twisting, to threats that they will withdraw their proposals for creating thousands of Jobs unless they are permitted to create them on their own terms. In the early 1970s, for example, Chrysler Corporation threatened to pull at of Mexico completely unless it was given leave to acquire full ownership of the failing enterprise it had previously shared with Mexican capital.

As a result of the pressure they exert and the loopholes that are left en, many favored foreign industries manage to escape mexicanization limitations entirely." Several of the largest firms in Mexican general Motors, Ford, General Electric, Anderson Clayton, Monsanto, Admiral, to name a few-are entirely owned by American interests. In some cases these U.S. firms have made their investments in actors where Mexican partnership is not required. In other cases, their continued activity in the Mexican economy has been considered so important that the government has simply chosen to look the other way nd ignore violations of the mexicanization principles."

Sometimes, despite their efforts to prevent it, foreign firms are forced to mexicanize, that is, to sell majority control of an enterprise to Mexican investor. When a foreign-owned company is faced with the prospect of mexiconization, there are a number of ways in which it can comply with the law by selling a majority of its stock to Mexican citizens, and at the same time retain control of the enterprise. Thus many foreign firms have developed a variety of techniques to evade the mexicanization requirement. Some of the favorite methods include:

1. Spreading the stock among a group of Mexican investors so numerous that none of the Mexicans is able to challenge the foreign company's controlling block of stock

2. Retaining control of the company's management through a special management contract

3. Retaining control by becoming the main purchaser of the goods produced by the "mexicanized" firm (e.g., DuPont owns only 33 percent of Química Flúor, but is the major customer of the chemicals produced by Química Flúor)

4. "Selling" the Mexican stock to a trusted Mexican investor or issuing stock to the public without issuing voting rights to the public

5. Paying a Mexican businessman for the use of his name as a majority Mexican partner

Circumvention of the mexicanization requirements is facilitated by the fact that there is a great deal of money to be made by Mexican businessmen who are willing to lend their names and influential connections to help foreign firms gain or retain control over enterprises in Mexico. This is a symbiotic relationship: the foreign investors need the collaboration of their Mexican "partners" and stand to realize enormous profits with the help of a Mexican "front man," while the Mexican "name-lender, (prestanombre) is normally well paid for his cooperation. However, the relationship between the Mexican front man and his American partners can be as hostile as it is mutually profitable. In Carlos Fuentes's novel The Death of Artemio Cruz, the protagonist is engaged in such activities and has increased an already substantial fortune by fronting for American firms that wish to circumvent the restrictions on the foreign ownership of natural resources. We come upon Cruz as he meets in his Mexico City office with two American businessmen who seek his aid (and, specifically, the use of his name) in obtaining concessions to exploit sulfur deposits along the Mexican Gulf coast:

Boiling water would be injected into the deposits, the North American explained, and would dissolve the sulfur which would be carried to the surface by compressed air. He explained the process again, while his compatriot said that that were quite satisfied with the exploration…Cruz, at his desk, tapped his fingers on the glass and nodded, accustomed to the fact that when they spoke Spanish to him they believed he did not understand not because they spoke it badly, but because he would not understand 1the scientific details in any language.... One North American spread the map on the desk as ha removed his elbows, and the other explained that the zone was so rich that it could be exploited to the limit until well into the twenty-first century, to the limit, he repeated, until the deposits ran dry....

The North American winked an eye and said that the timber cedar and mahogany was also an enormous resource and in this, he, their Mexican partner, would have one hundred per cent of the profit, they, the North Americans would not meddle, except to advise continuous reforestation

Then (Cruz), behind the desk stood and smiled, hooked his thumbs in his belt and rolled his cigar between his lips waiting for one of them to cup a burning match and hold it to him. He demanded two million dollars immediately. They question him: to what account? For although they would cheerfully admit him as their Mexican partner for an investment of only three hundred thousand, he had to understand that no one could collect a cent until the sulfur domes began to produce. . .

(Cruz) repeated quietly, those are my conditions, and let the North Americans not suppose that they would be paying him an advance or snything of that sort: it would merely be what they owed him for trying to gain the concession for them, and indeed, without that payment, there would be no concession: in time they would make back the present they were going to give him now, but without him, without their front man, their figurehead- and he begged them to excuse his frank choice of words-they would not be able to obtain the concession and exploit the domes

He touched a bell and called in his secretary who read, rapidly, a page of concise figures, and the North Americans said okay a number of times, okay, okay, okay, and Cruz smiled and offered them whiskies and told them that although they might exploit the sulfur until well into the twenty-first century, they were not going to exploit him for even one, minute in the twentieth century, and everyone exchanged toasts and the North Americans smiled while muttering that s.o.b.' under their breath.

Cruz, like real-life Mexican businessmen, is willing, for a price, to use his influence in government circles to win his American partners the concessions they desire, and to protect their investment from nationalization by the government. The Wall Street Journal, however, recently warned potential U.S. investors that the relationship with a Mexican prestanombre can be a "difficult and dangerous" affair and securing the cooperation of a reliable and willing Mexican name-lender can prove more of a challenge than a small U.S. firm is able to undertake.3' But once the services of a well-connected Mexican front man are secured, the relationship is mutually beneficial and unquestionably part of what makes Mexico such an inviting field for foreign investors eager for both high profits and maximum stability. " 'Mexicanization' has its bright side for foreign companies: they become eligible for generous tax and import duty exemptions, are virtually assured of immunity from nationalization or expropriation, and have greatly increased opportunities for expansion". Foreign businessmen have long recognized the advantages offered by Mexico as a field for investment, and foreign investment in Mexico has expanded with each passing year. From 1950 to 1970, foreign investment increased more than fivefold to $2,822 million, while in 1979 alone it grew by 72.6 percent.

The Emphasis on Capital-Intensive Production

One consequence of the heavy flow of foreign investment into Mexico has been the importation of advanced technology along with foreign capital. The trend of government policy has b en to encourage modern, highly mechanized means of production because this type of production is generally believed to result in higher rates of capital accumulation leading, in turn, to higher rates of growth. Stimulated by government loans, Mexican, and foreign entrepreneurs have built modern factories outfitted with equipment imported from industrially advanced countries, particularly the United States. Indeed, 80 percent of the goods imported into Mexico are machinery, chemicals, or semiprocessed manufactures produced in the United States. Mexico has become the United States' leading customer in Latin America, and ranks sixth among all nations purchasing American-made goods. Excluding oil, the prices of the raw materials which Mexico exports to the United States have declined steadily over the last twenty years. But the cost of machines and manufactures supplied to Mexico by American firms has risen. The result of this disparity has been an increasingly unfavorable balance of trade for Mexico with respect to the United States. Thus the Mexican government has gone heavily into debt to finance the purchase of the modern machinery with which Mexico's new factories are equipped. As we shall see, even the discovery of vast oil reserves did not reverse these trends, as the Mexican government spent more to import heavy capital equipment and food than it earned from oil exports.

In addition to putting Mexico heavily in debt to American and international banking agencies, the import of modern industrial equipment has had disastrous consequences on an already serious problem of unemployment. The machinery purchased abroad is designed for economies in which the cost of labor is relatively high and labor-saving devices are at a premium.

In a country like Mexico, where there is a scarcity of capital and a plentiful supply of workers, it might seem logical that industrialists would search for production techniques that emphasize the use of manpower ("labor-intensive" production) rather than machines ("capital-intensive" production). But Mexican industry is so closely tied to foreign capital that Mexican factories tend to be de5uu.esl~sb~nch plants of North American, European, or Japanese firms. The same technology applied at the parent plant in Pittsburgh, Hamburg, or Osaka is applied in the Mexican plant. There has been very little experimentation in Mexico with labor-intensive forms of production. Both Mexican and foreign capitalists find it more profitable to invest in machinery than to rely on the labor of human beings. "Mexican businessmen are generally biased toward what is considered more 'modern' equipment; this implies preferring capital to the use of labor. Machinery is considered to provoke fewer conflicts than labor unions and labor legislation. Foreign-owned industry is even more capital intensive than domestic Mexican plants. It may be that some experimentation with labor-intensive techniques would create more jobs in Mexican industry and ultimately improve the economic and social conditions of the Mexican working class. But the welfare of the working class is not a focus of concern for either foreign or Mexican capitalists, except insofar as higher incomes for workers expand the internal market for the goods produced by modern industry. What concerns the capitalists, of course is higher profits. And higher profits are realized with greater certainty and ease when sophisticated machinery is employed in place of people. Unfortunately, even the "mexicanization" regulations have not been utilized to channel foreign investment into forms which more adequately meet the needs of the mass of unemployed peasants and workers. Analyzing this situation, an American investment banker noted, "the principal motivation behind Mexican policies toward foreign investment has been to protect sovereignty.... There has been virtually no effort to promote social welfare goals through regulation of foreign investment."

As we might expect, the result of a development policy that emphasizes capital- rather than labor-intensive production is that employment has not kept pace with industrial growth. As the industrial sector has expanded in Mexico, the number of laborers added to the work force each year has declined. That is, the industrial work force has grown at a slower rate than industrial output.

Nowhere in the Mexican economy is this trend toward capital-intensive production more evident than in the petroleum industry. With the discovery in the mid-1970s of vast all reserves, petroleum soon became the central focus of the national economy. But although, as we shall see later in this chapter, petroleum production earns billions annually, fewer than 200,000 workers are employed in the entire petrochemical industry. The point is even more dramatically underscored when we consider the ratio of capital investment to the creation of new employment opportunities. In some phases of the recent development of the all industry, only one new job was created for every $250,000 of capital invested.

Estimates indicate that between 750,000 and 800,000 new workers enter the labor force each year. But even during the boom years of rapid economic growth in the 1960s, only 300,000 new Jobs wore created annually. Thus, the number of jobs available in industry has not grown sufficiently to absorb even the current job seekers, much less the additional agricultural workers who would have to be absorbed into industry if overpopulation and unemployment in the countryside are to be reduced. Estimates on unemployment vary, because the official statistics tend to disguise much of the problem. However, the 1980 census made clear that only half of the labor force-some 12 million Mexicans-have regular employment,~3 and most reliable sources indicate that the number of chronically unemployed or underemployed workers may even be higher than the official figures suggest.

When unemployment is high and the supply of labor overabundant, the surplus of available workers tends to depress wage levels. During the period of most rapid industrialization wages were held so low that they surpassed their 1939 level only in 1966. Lower wages, of course, mean a lower standard of living for workers and higher profits for the industrial entrepreneurs. And higher profit for industrialists, as we have noted, is a key part of the Mexican government's strategy to stimulate private investment. In countries where labor unions are militant and independent of government control, it is difficult, if not impossible, for the political elite to pursue a development program in which wage increases are held to a minimum. But when the greater part of the work force is not unionized and when workers who do belong to trade unions are mostly incorporated into a single labor federation like the CTM, which is neither militant nor independent of government control, this type of development is quite feasible.

A relatively tiny proportion of the labor force is organized into certain unions which constitute an "elite" within the working class. These few unions (petroleum workers, electricians, railroad workers) have a long tradition of militancy, and have managed to win wages that are substantially higher than those earned by any other sector of the Mexican labor force. "The labor unions are well organized in a number of sectors, and in return for labor peace, an orderly system of wage adjustments and active efforts to 'cool-out' workers in the rest of the economy, a small proportion of workers in the industrial sector are relatively well paid." But the aggressive tradition of the petroleum workers', electricians', and railroad workers' unions stands out as the historic exception within the labor movement. Virtually all other workers have been forced to accept wage contracts negotiated for them by their leaders in close collaboration with the private owners of the enterprises involved. In contrast, the wage contracts of electricians, petroleum workers, and railroad workers are negotiated directly with the government, because these are the industries that are government-owned. The higher wages enjoyed by workers in the nationalized industries "appear to be the price the government is willing to pay for the loyalty and support of these groups of workers in the name of the whole working class."

Government Spending

The pattern of government spending in the years since 1940 has reinforced all the advantages to private capitalists that we have noted above. If a government is determined to maximize economic growth, it must concentrate its expenditures in ``bottleneck breaking" investments; that is, investments in road construction, hydraulic systems, electrification, communication lines, and so forth-investments that create the infrastructure underlying a modern industrialized economy. Because private investors are generally unwilling or unable to undertake projects that yield low profits in the short run, the task of building an infrastructure usually falls o the government. Government spending on infrastructure, like other aspects of the Mexican development policy, is specifically designed to create the optimum conditions for productive private investment. Large government investments are made for improvements in transportation, electric power, the distribution network of petroleum and gas products, and so forth. These public outlays arc aimed at creating an environment in which industrialists find it easy to establish new firms and to build productive facilities.

If a government pours revenue into the construction of a modern infrastructure, subsidies to business, and credit concessions to nascent industry, it may have very little money left over to spend on essential public welfare services. It is difficult for the state to undertake the expansion of education, medical facilities, rural electrification, and public housing when the bulk of its revenue is tied up m bottleneck-breaking investments to increase industrial output. Indeed, throughout he 1940s and 1950s while Mexico invested heavily in industrialization, less than 15 percent of the total government investment was allocated to social welfare expenditures. By 1980, health and welfare expenditures had dropped to 13 percent. In the last year for which figures are available, 1975, state spending on public education was only 3.4 percent, although by that period, school-age children comprised half the population. Social security has covered only one quarter to one third of the work force through the present decade." Overall the figures indicate that "despite the populist tradition of Mexican politics, the level of expenditures on welfare is relatively low-benefits being effectively limited to that third of the workforce that is unionized.''

Policy Priorities and Dependency

There are limits on the financial resources that any government has at its disposal. Consequently, policy makers must choose among a variety of development patterns or strategies, some of which emphasize rapid economic growth, while others stress more equal income distribution and more immediate social benefits for the population. No government can spend its money in a way that maximizes industrial development and, at the same time, make the needs of a population of desperately poor people its top priority. A choice must be made. And in Mexico, the political leadership has consistently opted for those development policies which give highest priority to the growth of the industrial and commercial agricultural sector. Other national goals, such as full employment, higher wages, more equitable income distribution, and social welfare, have been given low priority as Mexico's ruling elite has, rushed the economy toward ever higher levels of productivity.

As we have noted throughout this chapter, virtually every aspect of the Mexican strategy for development-a strategy geared to the needs and interests of the bourgeoisie-tends to further enmesh the country in a net of dependent relationships with multi-national corporations, with private American investors, with official U.S. banking institutions, and with American-dominated international bodies like the World Bank or the International Monetary Fund. The propensity to borrow abroad rather than tax Mexican industrial profits; the choice of an import substitution policy which requires technology and equipment available only in advanced industrialized economies; the decision to use import substitution to produce luxury consumer goods like autos rather than machinery to build a foundation for an autonomous industrial capacity-each of these policy choices has reinforced dependent relations with the United States; circumscribing the alternatives for future development.

Given the historic and geographic links between the two countries, the unequal distribution of resources north and south of the border, and the degree of integration of the Mexican with the U.S. economy, we would logically expect to find bilateral relations characterized by "interdependence," or even a high degree of "asymmetrical interdependence."- But, in fact, statistics on national income, balance of trade, foreign investment and ownership, and foreign loans provide a picture of the most skewed form of dependent relations: foreign firms dominate the most dynamic sectors of the Mexican economy. They are more capital intensive, feature higher rates of labor productivity, are housed in larger plants, and offer hi8her wages than Mexican industries. Eighty percent of all technology employed comes from foreign sources." Foreign companies produce 35 percent of the total industrial output and hold 45 percent of the share capital of the 290 largest firms. And notwithstanding Mexican efforts to attract European and Japanese investors, four-fifths of all foreign-owned companies operating in Mexico in 1979 were American." Among foreign capitalists, American investors predominate; 70 percent of direct foreign investment comes from the United States, and almost all credit to public or private Mexican borrowers comes from U.S. banks.''

The balance of trade between the two countries is probably the area in which Mexican dependence is most evident. Mexico sends 69 percent of all its exports to the American market and buys 64 percent of all its imported goods from U.S. sources. However, while the United States is Mexico's main trading partner, American goods sold to the Mexicans In 1981 represented only 5 percent of total U.S. exports. Even in the years of the oil boom, as we shall see, the negative balance of payments increased to $2.3 billion in 1978 and $4.2 billion in 1979 as Mexicans wore forced to import food and capital equipment in ever greater quantities. By 1981, Mexico's exports to the United States had grown to an impressive $9.7 billion, but in the same year Mexicans imported $12.1 billion worth of goods from the U.S. And linked to most of those indicators of dependency is perhaps the most telling set o statistics: U.S. income and wealth per capita remains, even in the 1980s, seven times that of Mexico; one of every five Mexican workers now seeks employment at least part of the year in the United States.

What we wish to underscore with these few data is that Mexican economic dependence on the United States is, in itself, a conditioning factor that shapes and delimits-if it does not totally determine-the development options available to Mexican policy makers. But beyond the grim reality of the limitations imposed by any dependent relationship between unequal countries, the priorities established by the elite which has directed policy since 1940 have served to consolidate American dominance over Mexican affairs at the same time that they have produced and reinforced gross inequalities between the Mexican upper classes and the popular masses.

Given the form that economic development has taken in Mexico since the Cárdenas years, what could we expect would be the result of the dramatic discovery and exploitation of vast quantities of oil along the Gulf coast of Mexico?

MEXICAN DEVELOPMENT IN THE AGE OF PETROPESOS

From the time that the extent of Mexico's oil reserves became widely known in the mid-l970s, government spokesmen asserted that Mexico would not repeat the mistakes-indeed, the tragic errors-that had occurred in other oil-rich nations. Venezuela was cited most often by Mexican leaders, as by countless North American and European analysts, as a negative example of the gross mismanagement of oil wealth which results in the exacerbation of virtually every economic and social problem existing at the moment that petrodollars start to flow into an economy. Some analysts of the Mexican situation went so far as to draw hope from comparisons between the probable course of events in Mexico and the bizarre and tragic happenings then unfolding in Iran. If comparisons with Iran or with Saudi Arabia or the Arab Emirates seemed farfetched, the parallels with Venezuela were numerous enough to lend an air of seriousness to such discussions. One key point, however, was lost, or at least obscured, in almost every analysis of Mexico's future which was couched in these comparative terms. Mexican leaders were not free to pick and choose development strategies from the counter of history, just as one chooses hot or cold sausages. Developing oil production, the Mexican state was operating within the framework of a development strategy-inherited from past decades-which sharply limited the range of alternatives available in the 1970s and 1980s. The logic of the development process which we have outlined in this chapter dictated a restricted set of options for the utilization of petroleum wealth.

'Oil Wealth: Promise for the 1980s

Under the luxuriant vegetation and off the steamy tropical coast of Campeche, Tabasco, Veracruz, Chiapas, and Tamaulipas lie what may well come to hundreds of billions of barrels of oil. Once the dimensions of Mexico's petroleum resources became known beyond elite Mexican government circles and the American CIA, each new estimate of certain and potential reserves was higher. By 1978-1979, Mexican resources were widely understood to run to 200 billion barrels, with only 15 percent of the country surveyed. By 1980 proven reserves had reached 60 billion barrels and many experts believed that Petroleos Mexicanos (or Pemex, the state-owned oil company) would soon uncover oil reserves to exceed those of Saudi Arabia, thus making Mexico the number one oil power in the world. Although there was some reason to doubt the scientific rigor of the measurements applied, and it seemed possible that Pemex might exaggerate findings to strengthen its position vis-á-vis other state agencies or to bolster national pride and enhance Mexico's international standing, by July 1981, five new giant all fields had been uncovered off the coast of Campeche and proven deposits stood at 70 billion with potential reserves listed as 300 billion barrels.75 The remarkable speed with which exploration progressed was surpassed only by the dimensions of the discoveries: in the Bay of Campeche seismic sounding began in 1972; sixty well-defined subterranean structures were quickly identified, and exploratory drilling was underway by 1974; proven reserves rose geometrically until it was clear that petroleum resources here would make the North Sea reserves seem skimpy. In the "Reforma" fields in Chiapas and Tabasco, one large field alone, the "Bermudez" field, held all wealth almost equal to that of the North Slope of Alaska.77 Thus, even in the late 1970s, CIA experts set Mexico's potential output for 1985 at 10 million barrels a day, and indeed, by 1981, 2.75 million barrels were in fact pumped daily.

Exuberance over this news of actual and potential all reserves has been tempered from the start by some sobering considerations concerning the role of petroleum in national development. From the day in March 1938 when Lázaro Cárdenas expropriated seventeen foreign oil companies, the national oil enterprise, Pemex, has stood as a central symbol of Mexican sovereignty. The 1938 nationalization began as a labor dispute between the Oil Workers' Union and foreign managers. A Mexican tribunal ordered wage increases and shorter hours, and when he foreign companies refused to comply, Cárdenas seized the holdings of the British, Dutch, and American oil companies and "restored a great birthright to the Mexican people." Although the United States moved to retaliate with the imposition of low import quotas on Mexican petroleum and an embargo on the supply to Mexico of American investment funds, technology, and transport facilities, the onset of war in Europe made a quiet settlement of the all companies' claims expedient if not imperative for both countries.

Poor in expertise and equipment, the Mexicans struggled to run their own petroleum industry. Although Mexico had been the world's principal oil producer from 1910 to 1921," in the first years after nationalization, Pemex, "suffered from dwindling reserves, decrepit plants and equipment, grossly inadequate transport and pipeline facilities, a chronic shortage of Mexican technicians, continuing foreign pressures, intractable labor problems, low prices and the challenge of hammering the foreign firms into a single corporation at the nation's service." By the 1950s Mexico's known petroleum resources were exhausted, and international oil prices wore too low to justify costly exploration. Thus Mexico was forced to import oil to meet domestic demand and the country remained an oil importer through the early 1970s. Only with the news that great riches lay beneath the earth and the coastal waters of the Gulf, did it become clear that what had been strictly a symbol of dignity, national unity, and pride could now become a real source of funds for national development.

The New Development Plan: "Export-led Growth"

A plan for development, based on projected reserves and production was soon formulated. The central tenet of the program was that oil would be pumped out of the ground not in response to demand on the international market, but at a pace consistent with the slow, steady expansion of the Mexican economy. To avoid the "financial indigestion" or inflation brought on by sudden and massive accumulation of foreign currency earnings from oil, a policy of slow exploitation of petroleum wealth was announced by President José Lopez Portillo (197~1982) Official policy called for Pemex to draw only 1.1 million barrels per day, rather than the estimated 10 million potentially available. Furthermore Mexico was to move away from dependency on the United States by selling this oil to a diverse range of customers with no single country taking more than half the available supply. Sales to Japan and western European clients were foreseen, along with purchase on favorable credit terms by energy-poor Third World nations in Latin America and the Caribbean.

To escape what it termed the "petrolization" of the economy, that is, the creation of a lopsided economy excessively reliant on oil revenues, the López Portillo regime sought to promote slow growth of the industrial sector though "export-led development." The exported growth policy promised to resolve the contradictions of import substitution which, as we have seen, proved unworkable in Mexico, as elsewhere in the Third World, because of the high and ever-rising cost of imported components, technology, and capital equipment. An export substitution program, in contrast, proposed gradual replacement of primary exports-in this case, crude oil-with processed and manufactured exports. Thus refined oil, petrochemical products, and manufactured goods of every description would gradually take the place of crude as Mexico's chief export. By 1990, it was projected, Mexico would earn 85 percent of all foreign exchange from the sale of industrial products and only 15 percent from crude oil. The key to this transformation lay in utilizing oil revenue in the short run to establish the long-term basis for a modern, internationally competitive industrial capacity."

To build such a capacity, López Portillo's "Industrial Development Plan," launched in 1979, called for the creation of new "development poles" through the decentralization of industry from Mexico City, Monterrey, and Guadalajara to neglected, peripheral regions of the country. Eleven new industrial, zones were to be established in the marginal hinterland areas; four were "industrial ports" under construction at Tampico and Coatzacoalcos on the Gulf, and Salina Cruz and Ciudad Lázaro Cárdenas on the Pacific.- To encourage investment in these new zones, the Mexican government called on its customary repertoire of incentives to private investors: tax credits of 25 percent for new investments, an additional 20 percent tax rebate on the basis of the number of jobs created, and discounts of 30 percent on electricity, natural gas, fuel oil, and basic petrochemicals for investors in the new industrial ports. It gives some sense of the rewards involved when we consider that under this system of tax credits and rebates, Mexican and foreign investors such as the largest private conglomerate of Mexican capitalists, the Monterrey-based Alfa group, paid taxes of only 17-19 percent on all corporate earnings in this period.

Thus the plan for development foresaw a gradual expansion of Mexican industry with particular emphasis on steel, petrochemicals, capital goods, and machinery such as pumps, turbines, electric motors, and forged metal products-all goods which had formed the bulk of expensive inputs during the import substitution attempt. The assumption was that the internal market for Mexican products would grow as oil revenue "trickled down" to the masses, while cheap energy and cheap labor for both private- and state-owned enterprises would give Mexican producers an advantage over North American, European and Japanese competitors in the international market. Finally, oil revenue would be directed to support a "Global Development Plan" designed to create 2.2 million new jobs in all sectors of the economy between 1980 and 1982. Thirty percent of these jobs were expected to open in industry, the rest in agriculture and the service sector. By 1990 a total of 12.6 million new jobs would be available to absorb the 800,000 annual entrants into the labor market.

To its ideators, this program seemed certain to bring prosperity- first to the industrial bourgeoisie and the financial risk takers, and eventually even to the mass of peasants and workers, as the wealth generated-through exports trickled down to them. Instead, as we shall see, within the context of an international system in which Mexico was bound by strong and multiplex ties of dependency to the United States, ~and within the framework of the development policy which had been pursued in Mexico since the Cárdenas years, export substitution development proved no more successful than the import substitution schemes of the 1960s. Why did the export-led development strategy turn out to be so difficult to implement?

"Petrolization"

The most immediate obstacle to realizing an oil-based development scheme was, very simple, the petrodollars could not be expected to flow into Mexico unless an] until petroleum flowed out. Finding and drilling the wells to produce at a rate which would earn Mexico the foreign exchange to underwrite ambitious development plans required heavy investments-as always-in technology and capital equipment. Although Pemex had been in operation since 1938, and oil had been produced in Mexico since early in the twentieth century, in 1979 three quarters of all capital goods utilized by Pemex were still imported, almost entirely from the United States, where Texas-based oil companies like Brown & Root of Houston offered the specialized equipment and expertise geared to off-shore drilling along the Gulf coast. In the development of the rich oil fields in Campeche Sound, Brown & Root was hired as project manager to oversee engineering and construction." For Pemex, such assistance has been crucial, The Chicontepec basin in Northern Veracruz may turn out to contain as much as 100 billion barrels. But low porosity and permeability of the oil-bearing rock have necessitated the drilling of 16,000 separate wells-as many as Pemex had sunk in all its history. In addition, the development of each new oil field has required the construction of gathering lines, roads, railroad spur lines, and other support facilities. Moreover, the blowout of the oil well "Ixtoc I" in June 1979, which spilled a total of 134 million gallons into the Bay of Campeche before it could be capped nine months later, dramatically demonstrated the need for human skills and equipment of the most sophisticated kind.

Lacking technical personnel as well as adequate research facilities, Pemex, already the largest single employer in Mexico, expanded its payroll from 80 to 120 thousand employees over the five-year period from 1976 to 1981. But still foreign specialists wore required. Furthermore, balance of payments problems grew worse as Pemex was forced to import capital goods with price tags that rose about twice as fast as the value of crude oil on the international market. To make matters worse, "the prices of goods Pemex imports rise faster than do those of other imported goods; as a result, the short ran impact of oil development on the economy is more inflationary than the development of other sectors."

Other countries peddling advanced technology tried eagerly in these years to sell their goods on the Mexican market. For example, in 1978 the Commercial Division of the Canadian Embassy advised Canadian firms:

Pemex has an ongoing need to purchase a wide range of equipment including pipe, flanges, connections, valves, fasteners, gaskets, insulating materials, boilers, steam generators, heat exchanges, cooling towers, storage vessels, pumps, compressors, air dryers, power plants, laboratory and data acquisition equipment, . . . electrical substations, switches, transformers electrical cable, fire control equipment, drilling equipment, well repair and maintenance equipment, etc., to be used in new projects or to maintain existing facilities.

But for all the enthusiasm of Canadian, western European, and Japanese suppliers to break into this market, American companies remained the primary source of both equipment and skilled technical inputs. Thus, the hope that all wealth would provide the lever with which Mexico could pry itself free from U.S. domination proved ill-founded as Mexico turned to the United States for the bulk of purchases necessary to build an infrastructure for oil and gas production. And as for the hope of diversifying petroleum sales, 80 percent of Mexican oil was sold to American buyers in 1978-1979, and by 1980 the figure was still 77 percent. Furthermore, 99.3 percent of natural gas sold went to American customers, shipped directly to the United States through a pipeline constructed for that purpose.
Another hope which had been expressed in the Global Development Plan was that Mexico would escape the kind of unhealthy reliance on oil earnings which would distort the economy and the society as a whole. Yet from 16 percent in 1976, the share of hydrocarbons in Mexico's export earnings rose to 40 percent in 1979,65 percent in 1980, and reached 75 percent in 1981. By that same year, one-third of all government revenue came from the sale of petroleum. This tendency to rely more and more on petroleum revenue was the inevitable, if unfortunate consequence of the lag in the growth rate of all sectors of the Mexican economy other than oil. In the face of rising prices for manufactured imports, increasing foreign borrowing to support the free-spending government programs already in place, plus the growing need to import food-which we shall detail in the pages that follow-only oil earnings could plug the gap.

Thus by the end of the 1970s, pressure had mounted to export ever greater quantities of oil to meet the interest payments on the external debt and pay for the growing number of goods and services purchased abroad. As one analyst noted, "when confronted with the choice between raising domestic taxes or increasing oil revenues to finance government programs, . . . the politically expedient choice is oil exports. Given this pressure, by 1980 the López Portillo regime had abandoned its previously established limits on the extraction and sale of oil, and production rose from 2.25 to 4 million barrels a day. In 1982 the first official admission that the model of oil-spurred growth had failed was given in a report from the Mexican Institute of Petroleum which bluntly stated, "economic expansion will continue to depend for the most part on oil, for which no substitute can be foreseen before the end of the century.

Social Costs of Oil Production

It is often said that, given the steady concentration of wealth they have witnessed since the Mexican Revolution, peasants and workers did not expect to see great improvements in their lives as a result of the discovery of this new "national treasure." On the other hand, it seems doubtful that they anticipated that oil would bring greater misery. Yet for many, if not most of them, it has. Among other negative consequences, the rate of inflation which accompanied the oil boom has confirmed economic planners, worse fears. Officially 30 percent in 1980, the annual rate of inflation was estimated at over 100 percent by the end of 1982. Notwithstanding the imposition of price controls and heavy state subsidies for staple foods, cost-of-living rises in the "boom" period have far outstripped the real income of the lower half of the Mexican population.

The challenge of creating jobs for the growing masses of unemployed and underemployed has certainly not been met by the oil boom, notwithstanding the optimistic projections of the Global Development Plan. The capital-intensive nature of petroleum and petrochemical production means that thousands of dollars of capital must be invested for each position opened. A study of the Colombian petrochemical industry in the late 1960s found that an investment of $39,000 was required to create one new job. This figure was twenty times the sum needed to generate a job in clothing, footwear, textiles, glass, or metal products." In Mexico a decade later, the cost of each additional position varied from one industry to the next, with estimates ranging from $6,000 to $25,000 for each new job. However, as we have noted, in some phases of recent development at Pemex, an astounding $250,000 had to be invested before a job was added to the payroll. The problem indicated by this statistic is not simply that more workers do not find employment in Pemex, but that every peso invested in Pemex and other capital-intensive sectors is investment foregone in areas which feature a more favorable ratio of labor to capital. Furthermore, even the government's policy of selling petrochemicals domestically at well below the world market price, as well as the special discount rates provided to industrial firms, tend to increase unemployment. Randall explains "the subsidies are a factor in cheap energy prices which make it more profltable to hire machines than people.'' However, acceptance of ever higher rates of unemployment has become a matter of official policy:

In March 1979 the administration announced that it would put into effect a National Industrial Development Plan, placing priority on the growth of basic industries in preference to labor-intensive industries. While the latter were regarded as a desirable means of creating employment, it was feared that they would build additional inefficiencies into the economy.

If oil-fueled development does little to create jobs or directly improve the lives o poor people, nowhere has this inadequacy been felt more intensely than in the Gulf coast states which have been the scene of the exploration, drilling, and construction associated with petroleum production. "Pemex crews have spurred the flight from land- and water-related work by destroying large tracts of fertile terrain and contaminating productive rivers and estuaries." As one biologist reported: "With their dredges they can make and remake rivers.... They have cut grooves across the entire state . . . [turning the hydrological system upside down." The hostility of peasants and peasant organizations toward Pemex is an indication of the degree to which the state oil company has wreaked havoc on the precarious rural economy of these tropical zones. The destruction of rich agricultural land and coastal fishing grounds by oil seepage and the wholesale expropriation of farms which is used for exploratory ventures and then abandoned in ruined condition have been responsible for the decline in productivity in what was once a key agricultural region. Tabasco state has been | particularly hard hit. Amid the shrinking acreage of cultivable land, petroleum development has eaten away at resources, ecologically and economically destroying much of the richest farmland in Tabasco state.

Particularly bitter are those peasants who raise crops that are subject | to government-imposed price ceilings. These people have lived since l the earliest years of the current boom, with a local rate of inflation that l hovers around 300 percent. Although few jobs have opened for local people, their villages and towns have quadrupled or quintupled in size I with the influx of Pemex personnel, foreign technicians, equipment l salesmen, their dependents, and hangers on. Shantytowns have developed at the margins of new industrial ports and all installations as hundreds of thousands of untrained men and women pour into the development zones in search of work which in the end goes to more skilled or specialized workers, or to those who can afford to pay the requisite bribes. The social infrastructure of schools, hospitals, and other services is inadequate to meet even the planned population increases, not to speak of unplanned migration. The social disintegration of the previously existing communities is all but complete as the search for oil has brought in the prostitutes and petty and major criminals characteristic of boom towns. In essence, the corruption rampant in Mexican government and society at all times has, in these last years, reached epic dimensions in the coastal zone.

At the center of the decline in public and private morality is Pemex itself. Notorious for its corrupt practices, even in a society distinguished neither for efficiency nor honesty in public administration, the Pemex bureaucracy has been charged with raking off public funds through crooked maneuvers and raising the price of imported machinery to include kickback payments of as much as 45 percent.'. Ironically, the same oil industry which is often posed as offering a cure for Me co2s economic, social, and political ills is itself riddled with corruption, bureaucratism, and "labor problems" which consist largely of Mafia-like control over an oil workers union run, literally, by a mob of gangsters.

Since its foundation, the company has been characterized by a wasteful and inefficient use of resources, with administrators technical staff and union leaders all involved in the sale of contracts to private companies and of job to the vast number of people seeking them.

Only 40 percent of workers employed by Pemex hold regular contracts.
I he rest buy their jobs each month with payments amounting to hundreds of thousands of pesos to the bosses of Sindicato de Trabajadores Petroleros de la República Mexicana, or STPRM, the oil workers' union. The union's power is based on its enormous and varied financial holdings in landed estates, supermarkets credit unions, and other enterprises, its capacity to enforce a closed shop, and, above all, its role in the modern sector most closely related to the symbolism of the revolution. This is what enables it to secure wages for its members which are on the average, twice those received by other industrial workers. But this power also permits union leaders to engage openly in the game of vendeplazas, or job selling. The sub rosa system of payoffs has its own graded scale: in the late 1970s a general workers job sold for 40,000 pesos while a mechanical engineer could secure work for 150,000 pesos. The kickback required for temporary jobs was based on the length of the contract with a 2,000-peso payment needed for 28 days 4,000 for a sixty-day job, and so on. And so closely interwoven are the private affairs of Pemex managers and all union leaders-all of whom serve freely on the boards of directors of companies which receive Pemex contracts-that the directors of the government enterprise are hardly in a position to expose corrupt union officials."°

Thus the operations of the state all company are shot through with corrupt practices at every level. Oddly enough, while Pemex corruption is a regular topic of editorial comment in several Mexican newspapers and magazines,"' the issue of company corruption came to a head only in 1982, when a United States federal grand jury began to investigate charges that American all equipment companies had made payments of tens of millions of dollars to secure contracts from Pemex officials. The case brought by the U.S. Department of Justice against a small Houston-based firm was the first major criminal investigation under the Foreign Corrupt Practices Act of 1977, which prohibits bribery payments to foreign government officials to obtain or retain business contracts."' The disclosures in Washington, D.C., resulted in the forced resignation of two top-level Pemex administrators. However although two high-level officials have been brought to account, there is no way to redress the injury to the poor and powerless who have been the victims of this bureaucratic system built on corruption. The would-be all workers who must trade bribes for jobs exemplify only one form of victimization. Pemex has paid generous compensation to wealthy ranchers and plantation owners for land expropriated for oil operations. However, when powerless peasants are expropriated they receive compensatory payments so low that they are effectively left with nothing with which to make a new start. But the biggest losers in this system of corruption, the real victims of government malfeasance, mismanagement, and collusion, are the Mexican people as a whole. This is be cost of developing the petroleum-exporting potential of the country as we have seen, has been borne in every other sector of the economy. And that cost would not have been so high had the price tags on equipment and technology not included bribes and kickbacks to Pemex administrators and union bosses.

In chapter 8 we will examine the fiscal disaster which has overtaken Mexico and Mexicans-above all, middle- and lower-class Mexicans- with the oil glut of 1981, the drop in petroleum prices it prompted, and the resulting crash of the Mexican economy in the autumn of 1982. However, at this point it is sufficient to underscore the fact that the pattern that events have taken since Mexico became an "oil-rich nation" in the 1970s is a direct outgrowth of the overall model of development that has guided Mexican policy makers over the last four decades.

AGRICULTURAL POLICY

lust as the policy of the Mexican state in directing a program for industrialization or a strategy for the utilization of oil wealth has reflected the interests o~ the dominant Mexican bourgeoisie and of foreign capital, so too has the agricultural policy pursued in Mexico since the massive land reform initiated by Cárdenas in 1937. In the final section of this chapter we will look at that agrarian program, how it has shifted over time, and how those changes fit within the overall strategy of Mexican development.

Land Reform Under Cárdenas

As we know, land reform was one of the central goals of the Mexican Revolution. The incorporation of agrarian reform legislation into the Constitution of 1917 represented a great victory for peasants and peasant leaders, and paved the way for a series of agrarian laws promulgated during the 1920s and 1930s. We also recall, however, that agrarian reform was carried out on only a token basis during the 1920s and early 1930s, and ii was not until Lázaro Cárdenas came to power in 1934 that large-scale land distribution began in earnest. During Cárdenas's administration it appeared that the Mexican peasant would finally realize the great agrarista dream: the day when the government would provide every peasant family with a plot of land sufficient to guarantee an income adequate to meet the family's basic needs.

Cárdenas's land reform was spectacular, not only because he distributed close to 45 million acres in five years, but also because of the type, quality, and locution of the land he distributed In the twenty years that had elapsed since the revolution, Cárdenas's predecessors had distributed less than 19 million acres of mostly marginal land. The earlier land distributions consisted almost entirely of arid, unirrigated, steep, rocky, and infertile land lying far from roads and markets. Large productive estates were not touched. The holdings of powerful landowners were left intact, and their economic and political power was not diminished by any of the halfhearted agrarian reform gestures made during the 1920s and early 1930s.

Cárdenas's approach to land reform was far more radical. Rather than handing out marginal lands that no one had ever been able to work profitably, Cárdenas expropriated and distributed highly productive, choice lands. Almost al! of the land distributed by Cárdenas was already under cultivation in modern, economically efficient plantations.

The Laguna region in north central Mexico was the setting of Cárdenas's largest and most dramatic land reform effort. It was here, in one of the most modern agricultural areas of Mexico, that well over a million acres of efficiently organized and highly profitable cotton plantations were seized by the government under the provisions of the Agrarian Code, and distributed to 38,000 peasant families. With the assistance of three hundred government engineers and agronomists, Cárdenas carried out most of the Laguna reform in just forty days. The speed of the Laguna distribution was typical of Cárdenas's approach during his administration. When attempting to effect radical change Cárdenas favored the swift, irreversible, political act. As in the case of the expropriation of the petroleum industry, Cárdenas made up his mind to move on land reform, and then implemented his decision with such speed that he was able to expropriate hundreds of large haciendas before the opposition had time to rally its forces to obstruct the sweeping changes. The extraordinary rapidity with which land reform was carried out meant that the old order was swept away while the large landowners were still reeling under the shock and could offer no concerted opposition to Cárdenas's program.

The Goals of Land Reform

Cárdenas understood the far-reaching implications of land reform in a society such as Mexico. Agrarian reform is an instrument through which land, as a productive resource, can be transferred from one part of society to another; generally speaking, from certain individuals in a society (a small number of large landowners), to other members of that society (a mass of landless peasants). But in addition to the transfer of land as a productive resource, land reform can operate to redistribute wealth, status, and political power within a society. In a traditional agricultural society, where land is the basis of most socioeconomic status and political power, the implementation of a thoroughgoing land reform has profound social and political as well as economic consequences. Cárdenas understood this fact well enough. He was aware hat in expropriating and redistributing large landholdings, he would lo more than break up some large estates and divide these holdings among thousands of hitherto landless peasants. He understood that in so doing, he would transfer to the peasants a new economic and political power as well as a new social status. He would lay the basis for a redistribution of economic and political power within Mexican society.

Given that Cardenas needed the political support of the peasantry, he was anxious to assure that social and political power would in fact be transferred to the landless peasants. Therefore he was determined to promote the economic success of the land reform he had set into motion. In order to establish a firm economic base for the ejidal program, wherever possible he (1) organized the ejidal holdings into farming collectives, and (2) set up government institutions to support the land reform program and to aid the new land recipients in their struggle to break the old patterns of dependency on large landowners.

Collective Agriculture

As we have already noted, most of the land distributed by Cárdenas had previously been organized into large, modern agricultural enterprises. The basic national for the collective ejido was the desire to distribute the land of the few to the many, without destroying the productive capacity of what had been highly productive estates. Therefore, same way had to be found to break up the large estates and distribute their land in the form of small holdings, and at the same time to preserve the economies of scale that go along with large-scale enterprises. The answer to this problem was the collective ejido. Under this system each peasant in a peasant community was given a specific piece of land on what had been a neighboring hacienda. Each peasant, then, had the right to farm his small plot, but agricultural machinery, wells, fertilizers, insecticides, and other equipment were owned or purchased on a collective basis. A variety of different, more and less collectivized forms evolved to meet the needs of the ejidatarios. In some ejido communities, all the individual plots were merged into a single large agricultural unit and worked on a collective basis from sowing to harvest. At harvest time the profits from the sale of the crop would be divided according to a formula that allotted each member of the ejido some measure of profit corresponding to his contribution to the joint effort.

On other collectivized ejidos, ejidatarios farmed only the plot they had been assigned, but shared in the use of agricultural equipment.

The collectivized form of agriculture featured a number of advantages. It maximized the economic use of scarce irrigation waters. It facilitated the use of heavy, expensive agricultural equipment, as well as the harvesting and marketing of the crop. And finally, it permitted the peasants-long used to executing fairly specialized tasks on the hacienda-to continue to work in specialized teams. As one observer explained it, the system of collectivized agriculture helped "to smooth the transition from 6ij~j~jid) agriculture by maintaining the existing labor organization as far as possible.

Under the land reform program of 1937, a variety of supporting institutions were established to aid the newly landed peasantry. The National Ejidal Credit Bank was set up to provide credit, technical assistance, and supervision to the collective ejidos and to guide the ejidatarios in establishing their own internal administrative structures. In addition to the bank, Cárdenas oversaw the creation of schools of agricultural technology designed to train ejidatarios and their sons. Furthermore, the new land recipients were encouraged by the Cárdenas administration to form their own unions, councils, and associations. These organizations were specifically designed to arbitrate disputes arising within or between ejidol communities, to protect and promote the interests of the ejidatarios in their dealing with the National Ejidal Credit Bank and other government agencies, and to consolidate the political support of the ejidatarios for the government that had given them land.

There is a considerable body of statistics recorded in the first few years of the collective ejidal experiment in Mexico. These data indicate substantial economic progress for the ejidatarios. After a brief period of economic disorganization immediately following the land distribution, the ejidos soon began to function with an efficiency that permitted them to repay the credit loans initially extended by the National Ejidal Credit Bank and, in some cases, to realize substantial profits. For example, in one area of the Laguna region, the purchasing power of the peasants increased more than 400 percent during the first three years following the land reform."'

The Downfall of the Collective Ejido

Unfortunately, the honeymoon period of the collective ejidos was all too brief. Serious troubles began for the collectives as soon as the Cárdenas administration came to an end in 194u. Some of the problems that developed were inevitable, in the sense in that they arose from shortcomings built into the ejidal system at the time that the land reform was carried on~. Some of the difficulties confronted by the ejidos grew out of the contradictions inherent in an attempt to establish an island of socialism in a sea of capitalism. Other problems which have plagued the ejidos over the ejidos over the last thirty-five years spring from limitations on their success imposed by government policies unamiable or even hostile to their development. We will look at each of those limitations in turn.

Shortcomings built into the ejidal system. Many of the problems that were to plague the ejidal system in Mexico were built into the system from the beginning. In the Laguna region, where the first large-scale land reform was undertaken, many problems arose simply from the haste with which the program was carried out. For example, the engineers and agronomists who surveyed the region miscalculated the amount of irrigated land available for distribution. Much of the land originally classified as irrigable subsequently received water only in the years when the Rio Nazas, the region's principal water source, reached its maximum height. Likewise, the boundary lines established for the new ejidos were only vaguely determined, and often boundaries drawn between two ejidos or an ejido and a private property overlapped, creating a situation ripe for conflict. Finally, the census carried out in 1937 to determine the number of peasants eligible for land grants included not only 18,000 peasants native to the region, but about 10,000 seasonal laborers and 10,000 strikebreakers who had moved into the Laguna during a general strike that immediately preceded the reform. Thus, once the ejidal grants were distributed, the number of people to be supported by the land had more than doubled.

Other problems that developed in the Laguna reform, as well as in the land reform programs which followed, grew from deficiencies in the Agrarian Code that provided the legislative basis for the program.

Several provisions in the Agrarian Code created confusion and economic waste when applied to the concrete situation of a land distribution. In addition, the code was riddled with loopholes that permitted the large landowners to retain a substantial part of their old estates, and with these estates, much of the political and economic power they had monopolized in the prereform era. For example, the Agrarian Code permitted each landowner to choose the 150 hectares he would retain as a "small private property" (pequeño propiedad). Naturally, he chose the part of the hacienda that included his house, stables, barns, warehouses, wells, irrigation canals, and the network of ronds and communication lines connecting the estate with the outside world.

Sometimes (the landowner) chose irregularly shaped, narrow strips, extending outward from his buildings in order to retain what he considered to be the most productive lands… In other words, the heart or hub of the hacienda was detached, and the remaining parts wore given to the ejidatarios. The ejido was thus formed from fractionated appendages detached from the central core.

During the process of land reform, the unity and logic of well-organized and efficient agricultural properties were often destroyed. The agrarian law emphasized that the unity of agricultural production should not be disrupted. This was the rationale for distributing land in the form of collectives rather than autonomous individual plots. But when it came time to put this theory into practice, it was the poorest land that was distributed to peasants in disjointed blocks, while the landowning class was permitted to retain the most fertile, best-irrigated land, and virtually all of the capital equipment.

Under the agrarian law, in addition to retaining 150 hectares of his own choice land, the landowner was permitted to subdivide and sell land that was not required for distribution to neighboring peasant communities. As a result, the hacienda was often "broken up" into 150 hectare parcels and "sold" to various members of the same family. This system of "parceling out" a huge estate which is then worked as a single hacienda unit is a common phenomenon in all regions of Mexico. It has come to be known as "neolatifundism," the creation of new latifundia (large landholdings). In addition to the "sale" of 150 hectares parcels to family members (including minors), it is not uncommon for neolatifundists to employ a lawyer or some other trusted person, who for a fee, lends his name to be used for a land title. As in the case of Mexican businessmen who front for foreign investors in order to circumvent mexicanization laws, an individual who lends his name to cover illegal land concentration is called a prestanombre, or name-lender.

Where a hacienda was located in an area of particularly dense peasant population, it would be unlikely that the old landowner would find himself in possession of land that was not required for the agrarian reform. In such cases, the old landowner would retain only the 150 hectares guaranteed him under the Agrarian Code. But even those whose property was genuinely reduced to 150 hectares enjoyed the advantages of working a capital-intensive enterprise. And in many such cases, the old landowner used his newly acquired capital resources to set himself up in a variety of agriculture-related businesses in the main cities and towns of the principal agricultural regions. In this way many of the old hacienda owners came to control the supply of credit, machinery, fertilizer, insecticides, and other products essential to the ejidatarios of the region. Hence the hacienda owners whose health had formerly been based on land ownership, entered into a powerful modern commercial class with strong tics to the industrialists. In this way many members of the old landowning class became even more completely integrated into the national bourgeoisie.

An "island of socialism," The Mexican land reform, even in its most dramatic instances, did not Produce a total change in land tenure patterns. Indeed, in no region of Mexico, not even during the Cárdenas years, did the land reform program bring about a thoroughgoing transformation. Nowhere did private landholdings disappear. On the contrary, the Mexican government was quick to reassure Mexicans and foreigners alike that the right of private ownership would continue to the respected. Wherever private property, be it land or petroleum holdings, was expropriated, some form of compensation was provided. In theory, the huge estate, the hacienda, was reduced to a number of so-called small private properties. But, in practice, the large estate continued to be a prominent feature of the rural Mexican scene.

In the regions where agrarian reform was implemented, the Mexican -countryside became a crazy quilt of agricultural collectives scattered among haciendas. The collective ejidos, with their communal labor, profit sharing, cooperative credit system, and marketing system were 'islands of socialism" floating in a sea of capitalism. The peasants involved in this experiment were socially isolated from the surrounding environment in which capitalism prevailed as a mode of production with a corresponding system of values. Although Cárdenas attempted to carry forward a series of reforms in rural Mexico, the country was then and remains today an economy dominated by capital-> is~ enterprise. Thus, from the very start, the collective ejidos were an aberrant form, struggling for survival in a capitalist society. Obviously this situation was full of contradictions that were difficult if not impossible for the collectives to resolve.

One contradiction inherent in this situation was that the goods produced on the collective ejidos had to compete on the market with goods produced by capitalist enterprises. While a private commercial farmer can cut production costs by laying off workers and replacing them with machinery, the numbers of workers involved in ejidal production necessarily remains constant. The collective ejido cannot reduce its labor force because labor is provided by the members of the collective itself. A second contradiction between the collective ejidos and the larger society quickly developed as ejidal leaders sought to increase the self-sufficiency of the collectives. The early years of the agrarian reform witnessed the birth of collective credit societies, mutual crop insurance companies, marketing co-ups, collective agricultural machine stations, and a host of other cooperative enterprises. But to the extent that these cooperative institutions wore successful, they directly threatened the interests of the old landowners who had converted themselves into agricultural entrepreneurs dealing in agricultural equipment, supplying agricultural credit, and marketing cotton, wheat, and sugar. Any growth of the economic independence of the ejidatarios automatically conflicted with the interests of this new agribusiness sector which was dominated by the old landowners and by American capital. Therefore, it is not surprising that almost all the peasant-run projects aimed at increased economic independence for the collective ejidos were eventually quashed by the withdrawal of government approval or government funds.

The shift in government policy on land reform. The collective ejidal system, for all its technical problems implanted at the time of the land distribution, and for all the contradictions inherent in the establishment of an isolated collectivist experiment, might still have survived as a viable system were it not for the conservative swing in agrarian policy following the selection of Manuel Avila Camacho as official party candidate in 1940.

The international politics of the World War II period provided the rationale for the dramatic shift in agricultural policy away from the agrarista priorities of the Cárdenas years. During the 1940s, government support for the peasants' struggle against the large landowner was brought to a close. As the Mexican historian Jesús Silva Herzog explained, "Revolutionary language was toned down and substituted by new terminology. Very seldom did one hear of revolutionaries and reactionaries, but of the unity of all Mexicans." With fascist forces gaining strength in Mexico (as occurred in several Latin American countries), communist and socialist leaders as well as official party spokesmen expressed the belief that the national security of the country required all leftist elements to close ranks behind the constitutional government. Led by the socialist Lombardo Toledano, the CTM, for example, virtually prohibited its affiliated members from exercising their right to strike lest they jeopardize the national security and the allied war effort. Tremendous stress was laid upon the need to increase production of raw materials to supply the allied forces. Avila Camacho and the ranking officials of his government seldom missed the opportunity to develop this theme in their public addresses:

The soldier will fight until death to preserve our national territory, but together with him we will al fight, each person in accordance with his own resources and within the range of his special activities. The worker, by producing more and sensing -during all his working hours-that our survival will depend in great part upon the number and quality of what he produces. The peasant by multiplying his effort and his crops so that in those great years of trial, the plow and the spade will prove as indispensable as the gun or airplane…

Not only were workers and peasants urged to defend democracy in the field or in the factory, but in the name of both national unity and the need for higher production of raw materials, the expropriation and distribution of land slowed from 2,934,856 hectares per year during the Cárdenas administration to 559,262 hectares per year under Avila Camacho.

Under President Miguel Alemán (194~1952), land distribution slowed to a trickle, and the situation of peasants grew worse. Supported by the national bourgeoisie, Alemán placed overriding priority on rapid industrialization and the emergence of Mexico as an economically stable, developed country. Unfortunately these goals were pursued only at a high price.

Rapid industrialization, an Alemán fetish, required low wages and the sacrifice of the labor force to capital accumulation.... Continuous protests from organized labor made no perceptible change in Aleman's philosophy or conduct.... For Alemán, the sacrifice of a generation of workers and peasants was a smell price for making his nation materially strong, industrialized, modernized, advanced.

The correlate of Alemán's emphasis on industrialization was the frankly antiagrarian character of his regime. Alemán, like Avila Camacho before him, was obliged by his position at the head of the "revolutionary" party to concern himself with the welfare of rural Mexico. He had to pay lip service to the "goals of the agrarian revolution," and he had to continue the pattern of heavy government investment in agriculture. But for Alemán, government investment in agriculture meant investment in huge dams and other public works near the U.S. border; projects that increased the economic productivity of privately held lands.

Aleman's very first legislative initiative, sent to Congress only two days alter his inauguration, was a proposal for the revision of Article 27 of the constitution. Alemáns revision of the agrarian law redefined the amount of land classified as "nonaffectable"; it enlarged the size of estates that could be legally owned by single individuals."

The changes in policy under Alemán wore typical of the overall trend in agrarian policy in the post-Cardenas years. Each new administration continued to repeat the rhetoric of the past, asserting the government's commitment to land reform as a ' major goal" of the Mexican

Revolution. At the same time, each of these administrations pursued specific policies which, logically enough, reflected the interests of the dominant bourgeoisie. Taken as a whole, these policies undercut peasant gains of the past, and slowed the process of land reform until the trend culminated in the 1980s, under President José López Portillo, with a virtual abandonment of the agarista commitment of the revolution. The shift in agrarian policy from 1940 to 1980 can be summarized as follows:

1. While ejidatarios had been encouraged by Cárdenas to work their land in collective form, later policy actively favored the breakup of the farming collectives and the formation of innumerable little groups within each ejido. In this way much of the political and economic potential of the collective ejidos has been reduced.

2. The size of landholdings defined by agrarian law as "unaffectable" (unavailable for expropriation) has been Increased."' A~ the same time, the government has ignored "neolatifundism," the illegal ownership of land in excess of the established maximum acreage. The result has been increased concentration of landholdings.

3. As a consequence of the above, the number of acres of land distributed annually to peasants under the agrarian reform program has been drastically reduced. Equally important, the quality of the land that has been distributed is markedly inferior to the land distributed during the Cárdenas land reform.

4. Militant peasant organizations, which under Cárdenas had received official sanction and had been encouraged to organize peasants to agitate for land distribution, have generally been discouraged or repressed since 1940.

5. Perhaps the most significant policy shift has come in the area of government expenditure. Since 1940 the bulk of government spending on agriculture has been channeled into the support of private commercial agriculture at the expense of the ejidos and the tiny subsistence farms (minifundios).

The Emphasis on Commercial Agriculture: Land Reform Abandoned

The shift in government spending from the eiidal to the private commercial sector is a trend which, as we have seen, can be traced to the immediate postwar period. Through the 1940s and 1950s it was expressed chiefly in terms of massive state investment in infrastructural development which benefited large private owners. The planning of irrigation projects, for example, was typical of the bias in favor of private commercial agriculture.

Most (of Mexico's major irrigation projects) have been development in the rather sparsely populated north and northwest, where large private holdings predominated over ejidal lands. In fact much of tile land directly benefited by the new hydraulic systems is owned, directly or indirectly, by prominent Mexican politicans and their friends and relatives… In contrast, little has been done to bring water to the heavily populated central mesa region where most of the land is held by ejidatarios and the owners of smell private plots.

The government policy on credit is also typical of this shift in priority. Agrarian law prohibits peasants from using their ejidal holdings as collateral for crop loans. As a result they are dependent on government loans. As a result they are dependent on government loans as the only source of credit Statistics on government credit to the ejidal sector reveal just how limited the government commitment to ejido agriculture has been." The proportion of government credit earmarked for support to the ejidos declined steadily after 1940. ''Furthermore, even those funds available to ejidal agriculture have been channeled to the few highly productive, commercially oriented ejidos." The cutback in credit supplied by the government bank has forced ejidatarios to borrow money at usurious rates from private banks and money lenders. The giant American-owned corporation Anderson-Clayton has been particularly active in the field of loans to peasant farmers. The exorbitant interest rates paid by ejidatarios who have been denied government loans make it extremely difficult for them to realize profits at the end of the agricultural cycle. "In many cases half or three-quarters of the crop serves to repay such loans."

Government spending on agricultural research has reflected the same bias in favor of the large, commercial landholding. From 1940 to 1970, government-sponsored experiments concentrated on raising the productivity of grain and cotton cultivated on large commercial estates. Techniques developed in the so-called green revolution dramatically raised the productivity of wheat and cotton crops. But such increases are produced only with the heavy use of chemical inputs, mechanized equipment, and well-irrigated land. The vast majority of ejidatarios had no access to these inputs and, as such, the "dramatic discoveries" of this sort of agricultural experimentation only served to further marginalize the subsistence producer. Indeed, ejidatarios have suffered very directly as a result of the technological innovations developed in Mexico for the large commercial farm. As green revolution technology raised the production of large commercial farmers, the market prices for those crops dropped. When market prices declined, the commercial former could continue to increase his profits because the new technology permitted him to increase his output. But the small peasant was unable to apply this technology to increase his production, so he had to live with lower prices for his crops. Io make matters worse, through the 1960s, as the government poured funds into green revolution research, relatively little research money was granted to study methods for increasing production on small subsistence plots.

This systematic shortchanging of ejidal and smallholding peasant agriculture continued unchecked until production had declined to "sub-subsistence" levels on the plots of ejdatarios and minifundista producers. Deprived of credit and technical inputs, ejidatarios and minifundistas reached the point where their plots no longer provided food to maintain their families, let alone a surplus for sale to urban Mexicans. Meanwhile, enjoying the flexibility that ready credit provides, commercial producers, in search of higher profits, had given over ever-greater proportions of the lands to cash crops: coffee, tomatoes, strawberries, and other fruits destined for the U.S. market. Commercial holdings which had been planted in edible grains and legumes were increasingly converted to sorghum to fatten beef cattle for export. By 1970 only 22 percent of the land in the irrigation districts was devoted to corn and bean production.347 As a consequence of this shift away from basic food crops, Mexico, which a decade earlier had proudly entered the ranks of agricultural exporters, was now obliged to import 15 to Z0 percent of all foodstuffs. Indeed, one study estimates that perhaps half of the tortillas presently consumed by Mexicans are made from imported corn."' By 1980 the total bill for food purchased in the United States had reached $2 billion.

Food imports became indispensable as the yearly growth rate in agriculture declined from 5 percent to 2.5 percent, a level below the rate of population increase. While one-third of the work force was employed in the agricultural sector, productivity was now so low that agricultural production contributed less than 10 percent to the gross national product. Indeed, by 1980 total agricultural output was only 1 percent higher than it had been in 1975, although the population had increased 10 percent over that same five-year period:~: In short, by the Igt70s the "logical limits" of the government's agricultural policy favoring the private sector had been reached.

The dramatic growth of Mexican agriculture in the 1950-1970 period was primarily the result of infusing large amounts of capital into a previously undercapitalized agriculture. When the sectors which were able to absorb the new inputs and production methods had achieved full adoption and when the technological limits to raising yields had been approached, the growth of grain output could no longer keep pace with population growth.

This decline in agricultural production, which prompted a crisis in the balance of payments in the balance of payments in the late 1970s, also provided the stimulus for a new emphasis in research and government spending on small holding agriculture. Financed by the World 13ank and channeled through the Mexican Program for Public Investment for Rural Development (Programa de Inversiones Públicas para el Desarrollo Rural, or PIDER), a series of development plans were designed to increase crop yields on rain-fed smallholdings. Attempting to apply modern technology, new credit resources and government-sponsored "commercialization opportunities" to smallholding peasants in the central Mexican state of Puebla, the pilot program was posed as an effort to extend the "miracle of the green revolution" to subsistence peasants. Thus, in the late 1970s, "agricultural development officials, foreseeing a new role for the smallholding sector, began to maintain that, given the right ecological and institutional conditions, large Increases in the production of basic foodstuffs could be obtained from 'traditional' peasants."

But, in fact, the notion that small, intensively cultivated parcels can produce efficiently is not new. As early as the 1960s land-reform experts like Rodolfo Stavenhagen were demonstrating empirically that "the idea of the inefficient ejido is one of those myths which are propagated without scientific basis. There is no serious study of Mexican agriculture which doss not show that the ejidatorio and the private owners can make the soil produce with equal efficiency." One study demonstrated that if agricultural productivity is measured in terms of all units of input except the owner's labor (that is, productivity per unit of capital invested, irrigation water, seed, fertilizer, etc.) the tiny private plots (minifundia) turn out to be the most efficient of all types of farming in Mexico. The ejidos are the second most productive. And measured in those same terms, the large-scale landholdings turn out to be the least efficient producers. In short, the small farmers, both ejidatarios and minifundistos, do more with the few resources they have than do the large landowners. The Mexican peasant farmers take the small amount of capital available to them, the few tractors and other agricultural equipment at their disposal, the negligible amount of irrigation water that they have for their fields, and grow more with those resources than do the so-called efficient commercial farmers with similar inputs.

Although those same data were long available to government economists, until the late 1970s, agricultural policy was based on the highly questionable assumption that only the private commercial sector could produce efficiently enough to support the overall economic growth of Mexico, as population efficiently shifted from the countryside to industrialized urban centers Counterposed to this policy and the assumptions on which it was founded, was n whole school of Mexican and foreign agricultural development experts-sometimes referred to as "agrarian populists" or as "campesinistas"-who asserted that peas-ants, as producers, have skills, strengths, and knowledge of their particular situation that have remained untapped. Essentially, these experts argued that smallholding peasant agriculture can be made more productive and thus is not necessarily fated to disappear in the process of capitalist development. The experiments in Puebla state were to provide the testing ground for these concepts and hopes. "Plan Puebla" was designed to reverse the policy trend which for decades had favored commercial agriculture at the expense of small peasant farmers.

Unfortunately, preliminary results of the pilot projects carried out in Puebla were mixed. They indicated that the production goals of a program emphasizing government support to peasants can be met. But the anticipated social welfare benefits, the hoped-for increase in "social justice" are far more difficult, if not impossible, to obtain within the framework of the power relations that characterize the Mexican countryside. In his study of Plan Puebla, Edelman found that the program actually accelerated the impoverishment and marginalization of the poorest peasants because the better-off peasants managed to accumulate a modest amount of capital as the program gave them access to relatively inexpensive government credit. Furthermore, they were able to operate on a scale that allowed them to circumvent exploitative intermediaries and sell directly to the state commodities agency. Meanwhile, "for the poorer peasants a process of proletarianization has been set in motion, spurred by rising rents for land, increased reliance on intermediaries, higher risk levels in crop production, and higher unit costs of production."

Thus while the early phases of the green revolution benefitted the agrarian bourgeoisie at the expense of ejidatarios and smallholders, the 'second green revolution' seams to have reinforced inequalities within the peasantry and resulted in the proletarianization of its poorest sectors.

Notwithstanding these early indications that the new "peasant-oriented" development projects tended to drive their intended beneficiaries off the land at an accelerated rate, in March 1980, President López Portillo announced the establishment of the Mexican Food System (Sistema Alimentario Mexicano, or SAM), a comprehensive plan to raise productivity among smallholding, subsistence producers-the same rain-fed agriculture targeted by Plan Puebla. Posed as an effort to raise the nutritional level of the population by stimulating the production of basic foods within the peasant economy, SAM gave strong incentives to encourage staple crop production for the national market. It did this by providing price guarantees and generous credit terms, plus discounts on all agricultural inputs to anyone producing beans, corn, rice, or wheat. With the introduction of a shared risk concept, that is, compensation to smallholders in the case of crop failure, the government created a system of subsidies to production as well as supports for processing and consumption. Announced with great optimism, SAM was projected to bring about self-sufficiency in corn and beans by 1782, and all other staples by 1985.

Unfortunately, even the early indications suggested that SAM would produce results tragically similar to those of the Puebla pilot project on which it was modeled. Favorable weather conditions and massive government spending in 198~1981 brought about some immediate rises in productivity. But over the long run, the project appeared more likely to benefit commercial farmers, middlemen, and the better-off peasants rather than the rural poor who constitute the supposed "target group." Corruption in the administration of SAM ran rampant even in the first year of operations. But even more significant and more troubling was the fact that the broader social goals of the project could not be realized given that the fundamental power structure of the countryside remained unaltered. Thus it proved impossible to translate rises in staple crop production into more protein and vitamins on the tables of either the urban or the rural poor. And when López Portillo's successor took office, SAM was officially terminated and the entire bureaucratic structure dismantled as part of the 'austerity" measures imposed in 1983.

The Future of Land Reform

In evaluating the results of the Mexican land reform it is crucial to remember that any successful agrarian program necessarily requires a 8reat deal of initial and continued input on the part of the state. Government input may take the form of investment in infrastructure (dams, irrigation canals, roads, rural electrification), provision of credit, or aid to a number of important supporting institutions (agricultural extension services, marketing facilities, agricultural schools). When these expenditures wore forthcoming during the Cárdenas administration, ejidal agriculture showed great promise as economically viable and even highly productive form of agricultural exploitation. However, when alter 1940, this crucial state input was in large part withdrawn and redirected toward the private commercial sector, the entire land reform faltered and sank into a morass from which it was never to emerge, notwithstanding occasional, sporadic attempts to resuscitate some of the more economically and politically important land-reform districts.

Until the 198Os, it was widely held by students of Mexican land reform that the agrarian reform made by Cárdenas was irreversible and final." Those who sustained this view wore correct in that the land distributed to the peasants was never snatched away by the government and restored to the old hacendados. However, the post-1940 official attitude and legislation reversed the progress of the ejidos and undercut their productive potential. Thus land was never officially returned to the old landowners. But the lack of government support to the ejidos, and particularly the shortage of low-interest credit for ejidatarios, has made their existence as farmers so difficult that many sought a solution that represented a total throwback to prerevolutionary days: they secretly and illegally arrange to rent their ejidal parcel to a large commercial farmer who possesses the necessary capital to make a profit from the land. Then the ejidatario works for the commercial entrepreneur as a peon on the parcel that is, on paper at least, his own land. By the mid-1970s, unable to afford the agricultural inputs, some 80 percent of all land reform beneficiaries had lost effective control of their parcels in just this manner.

Recognition, confirmation, and consolidation of this trend came with the rural development program implemented by President José López Portillo as part of his effort to resolve the dramatic problem of declining agricultural productivity. Until López Portillo came to office, no post-1940 Mexican leader had ever taken any measure against the ejido as an institution,'" and even if the real effect of their policies was to undermine the land reform sector, all modern Mexican presidents had defended the ejido and the ejidatario as the primary symbols of the revolution and its achievements. Indeed, virtually all speeches and the presentation of statistics were designed to suggest that the reform process which, in fact, had culminated under Cárdenas was still in progress and was being carried forward with ever greater enthusiasm and dedication.

López Portillo, in Contrast, promoted an agrarian policy that represented an undisguised move away from land distribution as a means to bring "social justice" to the peasantry. Stating bluntly that agrarian reforms was a failure, and that, in any case, there was "no more land left to distribute," López Portillo proceeded on the premise that Mexico's urgent food needs dictated a policy of "betting on the strong".

The first step in the process which promised to alter irrevocably the face of rural Mexico was the seemingly innocent-indeed, well-meaning-dedication of López Portillo to resolve all outstanding land claims during his term in office. This effort, it was asserted, would then bring to a close "the first stage" of the Mexican land reform, that of the distribution of land. However, the procedure through which land distribution was to be "concluded" was that the state governors (political appointees all) were empowered to settle all disputes within their domains, including tenure conflicts and question concerning rights to water, forests, and pastures. Thus enormous discretionary powers came to rest in the hands of the state governors, the vast majority of wham wore major latifundistas, as was López Portillo's minister of agrarian reform. The rationale offered for this policy which called an official halt to land distribution was that it would inspire confidence in private commercial landowners, calming their fears of expropriation, and stimulating them to reinvest their profits in agriculture.

To further encourage private investment, including foreign investment, agro-industry was promoted. To this end, transnational corporations already active in Mexico-Anderson-Clayton, Carnation, Del Monte, Nestlé, Ralston Purina, and United Brand~ were urged to expand their operations so that eventually every stage of food production from cultivation to processing, distribution, and marketing would be largely in the hands of these giants.

A reorganization of the land reform bureaucracy, carried out in the name of efficiency, reinforced the antiagrarian tendencies of the López Portillo program. This reorganization turned over to the Ministry of Agriculture or the Ministry of Water Resources-bureaucratic structures dedicated to serving all agricultual interests, both public and private-powers and responsibilities which previously had come under the auspices of the Agrarian Reform Ministry. Thus the government agencies explicitly designed to defend the peasants in the face of competing claims from private agricultural enterprise were either dismantled or their powers subsumed by other ministries which have no special responsibility to the ejidal sector.

However, the most serious blow to the aspirations of the landless peasantry was dealt by the López Portillo administration with the Law for Agricultural and Livestock Production, proposed by the president in his State of the Nation address, September 1980. The new legislation-a latifundista's dream-removed virtually all remaining restrictions on the concentration of productive land in the hands of the few. As we have seen, previous agrarian reform law had limited the amount of land which could be legally held by an individual according to a precise formula geared to the quality of the land and its potential use. Thus latifundistas were forced to pretend to graze cattle on prime land or they were obliged to employ the services of prestanombres who served as the owners of record for various portions of what W8S actually one individuals giant estate. With the "New Law"-as it came to be called-the need for such subterfuge was removed as the limitations previously imposed on the size of holdings were effectively lifted. Thus large landowners were free to shift front cattle ranching to crash crop cultivation without giving up any of the extra land that they had been permitted to hold on the grounds that it was too arid or mountainous to plant with crops. Now, only land defined by the secretary of agriculture as "underutilized" was subject to expropriation. With this legislation in place, we cannot wonder that López Portillo was able to proclaim that no further land was "available" for distribution to landless petitioners. Beyond its role in bringing land distribution to a halt, this legislation undermined the already weakened ejidal system by removing the inviolable status of ejidal holdings. The New Law created "production units" in which ejidatarios and private landholders could join together in "free association" to produce staples, thereby qualifying jointly for subsidized credit. This alteration in agrarian law opened the ejido to private investment, legalization the de facto arrangements which, we have noted, had prevailed for decades. The overall effect of the law is to speed the takeover of ejidal lands by private commercial farmers and multinational agribusiness conglomerates; "Given the differences between (private commercial) farmers and ejidatarios, the relationship is a free association only in the sense that an employer-employee one is." In essence "associated agricultural enterprise" means that ejidal lands are turned over to private capitalists for exploitation, effectively destroying the ejido as a system of common peasant production. Cynthia Hewett de Alcántara notes that this arrangement is often likened by its proponents to the collective and cooperative experiments of the Cárdenas years, in which the scattered resources of the peasantry, in cases like the Laguna and other collective ejidal zones, were grouped into more productive units to provide a higher standard of living to land recipients.

But there is, in tact, a fundamental difference between the programme curried out during the 1930s and the present one: the balance of political forces in the earlier period permitted the exercise of considerable power by the peasantry, but that of the 1s705 does not. The promotion of association between landless labourers or minifundistas and private or public capital thus seems to imply the real risk that only those jobs would be created, and only those crops grown, which meet the financial needs of investors. Those needs, in a relatively free market economy, are not congruent whit the basic livelihood requirements of most rural people.

In short, the policy of pooling the resources of small peasant and ejidal sectors with large-scale capitalist enterprise serves only to accelerate the process by which peasants become a cheap labor force working their own lands for their capitalist "associates."

The overall effect of these policies, the insufficient supply of land and capital for peasants, and the despair of receiving land grants have.