"The Mexican Miracle": 1940-1968--Statist Development

THE MEXICAN MIRACLE: 1940-1968

 

THE LEGACY OF THE REVOLUTION

 

The revolution ceased to be a real force after Avila Camacho's term of 1940-1946. But the aura of revolution continued to lend legitimacy of Mexican governments throughout the second half of the 20th century.

 

Carranza started the belief that the Mexican revolution was only the culmination of the two great 19th century movements of independence and reform. The revolution transformed the state into the heir, guardian, and patriotic leader of Mexico.

 

Cardenas used the revolution and the constitution of 1917 as the legitimizing force behind his reform mongering policies. But after 1940 the revolution itself become institutionalized by the state.

 

There would be much lip service paid to the revolution, but the real legitimizing force would be independence for the governments after 1940.

 

With this ideological change and reassessment of the historical importance of the revolution, governments after 1940 would gravitate toward a central decision to industrialize the country through ISI.

 

This seriously disrupted the traditional center of political support which had been the countryside. After 1940 the ranks of the workers, bourgeoisie and middle class grew.

 

The power of the urban bourgeoisie grew tremendously and reestablished linkages with foreign capital. So much so, that by 1960 Mexico was as dependent on foreign capital as it had been during the Porfiriato.

 

After 1940 industrialization started in part as a reaction to Cardenismo which ended with the division of the revolutionary family. Eventually a policy was developed that would rule relations between the state and the private sector for several decades:

 

The duty of the state was to create and maintain the economic infrastructure; it should refrain as much as possible from intervening in the market; and it should develop those industries only where the private sector was uninterested in developing.

 

Little by little what emerged in Mexico is what is called a mixed economy, where a constant struggle ensured between the interests of the private bourgeoisie and the entrepreneurial state. After 1940 1/3 of all investments in Mexico would be made by the state.

 

This agreement between the bourgeoisie and the state was extremely effective and led to what many observers have called the Mexican Miracle. Between 1940 and 1960 production increased 320%, and between 1960 and 1980, 270%.

 

This meant that the Mexican economy had grown an average of 6% per year between 1940 and 1980. It also meant that the economy had produced 870% more goods and services in 1980 than it had in 1940. Population at the same time had only grown 370% between 1940 and 1980.

 

The structure of the economy also had changed. In 1940 agriculture represented around 10% of the national production, but by 1970 this number had dropped to 5%. Manufacturing, on the other hand, increased from 19% to 23%. The population also increased from 19.6 million in 1940, to 67 million in 1977, to more than 70 million in 1980.

 

In 1940 only 20 percent of the population lived in cities. By 1977 almost 50% lived in urban areas. And in the 1980's 60-70% lived in cities. Thus, together with the industrialization process, the country experienced in forty years spectacular change in rates of urbanization and demographic growth.

 

POLITICS

 

In contrast to these dramatic changes in demography and economy many characteristics of the political system after Cardenas remained unchanged.

 

In this system the presidency was the center of political power. Neither the Congress or the judiciary recovered the political power they had lost up to 1940. Cardenas was responsible for the all powerful president.

 

No president promoted the disappearance of so many states' political power than Cardenas. Patron/clientelism would define Mexican politics. The executive would be the patron and the states the clients. And the states were careful not to clash with Mexico city.

 

Also with the drive for economic development, federal resources became so important that for any state or regional project to be carried out the support of the executive was needed.

 

The corporatist official party also ratified its monolithic control, without adversaries that could challenge it. All governorships and senate positions were filled by PRM members. The opposition was only admitted into the Chamber of Deputies, as a token minority that legitimized the myth of pluralistic democracy in Mexico.

 

Mexican politics would also go through a period of demilitarization after 1940. Just after the administration of Avila Camacho had begun, the military wing of the PRM disappeared. The army had become a professional institution that would be subordinate to the president.

 

This trend whereby the military stayed out of party politics became very apparent by 1946 when Miguel Alemán (1946-1952) was elected as the first civilian, post-revolutionary president.

 

The PRM as such also ended in 1946 and became transformed into another party. It abandoned its name and programs that connected it to the Cardenista period, to become the present-day Institutional Revolutionary Party or PRI.

 

After 1940 it would be economic capitalist growth based on a monolithic and authoritarian political system that would guide Mexico. In the process the social structure that the revolutionaries were trying to create was abandoned and social justice was no longer a great priority.

 

One feature of the remarkable economic growth of Mexico was that labor lost ground to management. The distribution of income shows this trend. The percentage of income available to the poorer half of families in 1950 was 19%; in 1957, 16%; in 1963, 15%, and in 1975 only 13% of the total income of Mexico.

 

In contrast, the top 20% of the wealthiest Mexicans in 1950 received 60% of the income; in 1958, 61%; in 1963, 59%; and in 1975, 63%. Wealth would be concentrated at the top after Cardenas.

 

After Cardenas, economic policy was based on the questionable idea, which came from Obregon, that it was necessary to create wealth first, and then later distribute it. Actually, there was much support for the first stage, and very little for the second.

 

But the institutionalized ideology of the revolution served a useful propaganda tool that this skewed distribution of income was good for Mexico and its people.

 

FOREIGN POLICY

 

Between 1910 and 1940, Mexico clashed constantly with the great powers, especially with Britain and the US. It had been an unequal fight, and the results seemed to be more economic independence for Mexico and the destruction of the enclave economy through the oil expropriation of 1938.

 

When Mexico entered into WW II on the side of the US this changed drastically. Suddenly, Mexico found itself an ally of a country that had been its main enemy in the world. The US government helped Mexico to get its first international loans since the Huerta regime during the revolution, it also opened up its markets to Mexican goods.

 

To reciprocate, the Mexican government signed agreements concerning commerce, migrant farm workers, and military cooperation. Raw materials were sold to the US at lower than free-market prices.

 

In exchange the Mexican government accumulated large reserves of US dollars that had to be saved, since there was nothing to spend them on. The US produced only for the war effort and Mexico was cut off from US imports.

 

Thousands of migrant workers worked for US agri-business, 15,000 joined the army, and 1,492 Mexicans lost their lives fighting for the US in the Pacific and Europe.

 

When the war ended, Mexico found itself incorporated into the American sphere of influence. And the possibility of European countries serving as a political counter weight to US dominance was non-existent.

 

Furthermore, as Mexico underwent its industrialization project, the war had channeled Mexican trade even more to a dependency on US markets. Most of Mexico's raw materials went north, in exchange for the capital goods required by the ISI process.

 

Direct foreign investment in Mexico in 1940 was barely $450 million; by 1960 it surpassed a billion dollars; by the mid-1970's it had reached $4.5 billion; and in the 1980's it surpassed $10 billion a year.

 

The institutionalization of the revolution, so that it was nothing more than a legacy and popular myth facilitated this penetration of US influence into Mexican economic, political and cultural spheres.

 

But in spite of this great dependence on the US after WW II, Mexican foreign policy was relatively independent especially when it came to the western hemisphere. When the US CIA overthrew the democratically elected regime of Arbenz in Guatemala in 1954, it was denounced by Mexico.

 

Mexico would not support US aggression against Cuba in the Bay of Pigs fiasco. And Mexico denounced the US intervention in the Dominican Republic in 1965.

 

THE DARKER SIDE OF THE MIRACLE

 

The fact that Mexico was able to combine economic growth with political stability led many observers in the 1960's to suggest that Mexico was a model that other developing nations should follow.

 

The enthusiasm for the so-called Mexican miracle cooled down with the political crisis of 1968 in which large groups of students challenged the legitimacy of the system. The bloody aftermath showed Mexico and the world, that despite the revolutionary rhetoric and democratic theatre, the state was authoritarian at its core.

 

Also beginning in the 1960's there were indications that the ISI model of industrialization was not working well. It became clear that the industries that had been built could only survive in the free-market with strong protectionism and tariffs.

 

The industries were stagnant and could not grow fast enough to resolve either the growing deficits and the population boom that Mexico was experiencing. Agriculture also showed signs of stagnation. Its productivity had decreased and it was unable to even feed Mexico, let alone serve as a dynamic export sector.

 

By the 1970's a protracted economic crisis in the international economy made things even harder for the Mexican economy and its industrial development. A new model was necessary.

 

During the presidency of Luis Echeverría (1970-76), the highest authorities expressed their doubts on the viability of the Mexican development model. Changes were demanded for an alternative way for "share development". The administration was unable to find a strategy.

 

However, the increase in world oil prices and the important findings of new oil fields in Southeast Mexico in the mid-1970's prevented the occurrence of a political and economic crisis in 1976 and gave Mexico breathing space to come up with something different.

 

The José López Portillo administration (1976-1982) would find that even the most favorable conditions in the world oil market could not solve the structural problems of the Mexican economy. The problem was that high oil prices could not remedy the situation of a disintegrated and obsolete industrial base, especially in the face of recovered Asian and European competition.

 

After 4 years of unprecedented profits from the oil boom, Mexico regressed in 1981 into a deep crisis of its finances and production. This was caused by the drop in international oil prices, and extremely regressive tax system and by declines in production, trade and a tremendous increase in foreign debt.

 

OVERVIEW OF THE INDUSTRIALIZATION PROJECT

 

The industrialization project coincided with WW II. From 1942 on, exports of raw materials grew noticeably and Mexico obtained the necessary hard currency to import the equipment that the factories needed.

 

Unfortunately, the sources of machinery, the US and Europe, were absorbed by the war effort and could not supply the technology and machinery that Mexican industry needed to be competitive.

The industrialization impulse was unleashed after the end of the war under Alemán (1946-52). In 1939, manufacturing represented 16,9% of total production; in 1946, it sent up to 19.4%; and by 1950, 20.5%.

 

Between 1940 and 1945, the industrial sector grew at an annual average of 10.2%. During the war, Mexican industry took advantage of the productive vacuum in the world markets. US and other industrial nations were manufacturing war goods, leaving a gap in the world manufacturing market for civilian goods, which Mexican industry would fill.

 

After the end of the war Mexico lost many of its foreign markets as US industry moved back to the production of civilian goods. Mexican industry was unable to compete on the foreign market and was forced to turn inward, and produce for the domestic market.

 

Throughout the industrialization project protectionism had allowed Mexican industry to establish themselves, and even expand, but it did not force them to be efficient. And in the long run this prevented Mexican industry from going beyond its borders and this hindered a truly modern and independent industrialization.

 

The Mexican industrial plant had no long term planning and required substantial imports of capital goods and technology. But since it did not export at the same rate that it needed these inputs, hard currency had to finance them.

 

The money came from agriculture and mining, migrant labor sending their earnings home, and from tourism and investment.

 

The emphasis on industrialization brought new and necessary investments in infrastructure such as communications and energy, and in agriculture. Agriculture, the main source of export earnings would finance the economic strategy.

 

During the Alemán regime, large investments were made in irrigation and roads, which absorbed 22% of the federal budget. But in this instance, the developed lands were not ejidos, but private estates and agri-business.

 

AVILA CAMACHO (1940-46)

 

The Mexican people knew little about Avila Camacho prior to the 1940 election. In fact, he was name the "unknown soldier". Upon assumption of the presidency he embarked on new programs and phased out old ones.

 

Land distribution slowed. Cardenas had distributed over 49 million acres, while Avila Camacho parceled out less than 12 million acres. Avila Camacho favored private ownership and he deemphasized the importance of the ejido.

 

Avila Camacho's educational program also reflected a change of direction. First, the idea that the school should indoctrinate students in socialist education was ended and a greater emphasis was placed on private initiative and volunteerism to end illiteracy in Mexico.

 

Avila Camacho represented a wholesale shift to the right and this was very apparent in his policies toward organized labor. He replaced the Marxist labor leader Vicente Toledano with the more conservative Fidel Velásquez. Under Velasquez administration, government support for the CTM was minimized.

 

The union won token wage increases for the Mexican working class, but they did not keep pace with the rapidly growing inflation between 1940 and 1945. It was obvious that the entire philosophy of the labor movement had changed. The government limited the right to strike and the union said almost nothing.

 

What had happened under Avila Camacho and his crony Velasquez was that the socialist ideals of the Mexican labor movement that were born out of the revolution were abandoned in favor of the cooptation, incorporation and control of labor by the state through the CTM.

 

It was under Avila Camacho that the Bracero Program was created where Mexican labor would be recruited and sent to the US to work in agriculture. The draft in the US had created a need for cheap labor and the braceros would fill that need.

 

By the spring of 1943 the program was expanded to include non-agricultural labor as well despite a great protest by US unions. By 1945 the bracero program was well established and some 300,000 Mexicans had worked in 25 different states and many sectors of the US economy had become dependent on cheap Mexican labor.

 

MIGUEL ALAMAN (1946-1952)

 

The election of Miguel Alamán was the first time since Carranza that Mexico had a pure civilian politician. The new president reduced the military spending to less than 10% of the budget.

 

Alaman was a modernizer of the Mexican infrastructure and spent much on improving the communications grid and modernized the rail roads. It was also under Alaman that Mexico completed its segment of the Pan-American highway. Also Alaman saw that tourism would be important to the economy and constructed a modern four lane highway that connected Mexico city with Acapulco.

 

PEMEX also expanded and doubled its production during the Alaman presidency. But the most spectacular project was the new University city that was built to house the National University of Mexico. The campus was three square miles and was one of the most modern in the world.

 

Alaman had very cordial relations with the US and was the first Mexican chief of state to visit Washington. He also invited US president Henry Truman to visit Mexico city.

 

Because the US was able to count on Mexico during the cold war, loans from the Export-Import Bank flowed to Mexico at an accelerated pace. In 1952 400,000 US tourists had visited Mexico and had left hundred of millions of dollars.

 

But there was also much corruption and many millionaires were created. Conspicuous consumption was everywhere among the growing wealthy. At the same time in the impressive buildings of the new university there was little equipment and books.

 

While there had been an expansion in new school construction, the salaries of teachers were so low that there were no teachers and it was impossible to staff them with qualified professionals.

 

SOCIAL STRUCTURE: THE SONG REMAINS THE SAME

 

There were great social changes in the forty years after Cardenas. In 1940 Mexico was a relatively underpopulated country with 19.6 million people. Between 1820 and 1940 the population of the country increased three fold. But after 1940 it took only 35 years to triple Mexico's population again.

 

As in the past the population was not evenly distributed geographically. The north of the country was still unpopulated. But cities grew at a tremendous rate. In 1940 only 7.9% of the population lived in urban centers of 500,000 or more people. In 1960, it was 18.4%. In 1970, it was 23%. By 1970 more than 45% of the population lived in cities of more than 15,000 inhabitants.

 

Also the demographics of the population changed. Mexico after 1940 became a county of young people, in contrast to the modern industrial nations. In 1940, 41.2% of the population was younger than 15. In 1970, it was 46% of the population was under the age of 15. The social problem was the need to create jobs for greater and greater numbers of young people.

 

In 1970 over 5.8 million people were underemployed or 23% of the economically active population. This was a rate three to four times higher than industrialized nations. In 1970 41% of the population worked in some form of agriculture. In 1980, 18% of the economically active population worked for industrial companies.

 

For some technocrats the solution was to promote a kind of industrialization different from that of industrialized nations: a combination of productive factors where labor was more important that capital and thus used in an intensive way.

 

But there was a problem with the this strategy for labor can substitute for capital only up to a certain point. The creation of jobs along with an increase of food production were the two priorities of the federal government on the eve of 1982.

 

THE BURGEONING MIDDLE CLASS

 

Everything indicates that the Revolution favored the growth of the middle class and this was precisely one of its greatest achievements. By 1960, the middle class had doubled its 1910 numbers. By 1960, 17% of the population were middle class and many saw this as proof that Mexico was on its way to becoming a more just society.

 

Data shows that monthly family income rose for all social groups after the revolution, but it also shows that not all sectors of the population benefited equally from the growth in income. It showed that the wealthy got incredibly wealthy and that Mexico was not on the path towards social and economic justice.

 

This unequal distribution of wealth was disturbing since the search for equality was one of the legitimizing goals of the political system.

 

According to the social and economic philosophy of Miguel Alemán (1946-52) and his successors, the priority of creating wealth required first to have an initial concentration as a form of capitalization prior to the distribution of wealth.

 

Furthermore changes that favored the middle class were offset by the growing impoverishment of the lower classes. And bad income distribution was due in part to industrial, agricultural, commercial and financial concentration.

 

In 1965 1.5% of businesses controlled 77.2% of all capital. Several analysts proposed that tax policy would aid in the distribution of wealth in Mexico. But the resulting tax reforms after 1968 were insufficient. Expenses by the federal government went up from 23% of the total in 1970, to 42% in 1976.

 

But this impressive jump was financed by foreign debt, and greater taxes of a general character and taxes aimed at the middle class. And this affected the Mexican elite very little.

 

The determined opposition of the Mexican business classes and the most conservative elements of the government bureaucracy prevented the progressive taxation of capital gain. Without a capital gains tax and with the use of excise taxes social inequality was not lessened, but actually grew after the 1970's.

INSTITUTIONALIZATION

 

In contrast of the great changes experienced by Mexico from 1940 on in economics and class struggle, the characteristic feature of political life was one of permanence, but not immobility.

 

The structures on which power was based were those left in place by Cardenismo. After Cardenas, very Mexicans can escape state control. Directly or indirectly the great majority of Mexicans are affected by the actions of the government. And this trend is becoming increasingly stronger.

 

From 1940 the central elements of the political system were more clearly defined and even enlarged. The presidency and the republic remain the cohesive nucleus.

 

Changes in the social and economic structure after 1940 favored the accelerated concentration of capital ands the concentration of material resources in the hands of a few powerful groups of entrepreneurs.

 

But this economic power did not always translate into political power though it was common for this to occur. Between 1940 and 1980, entrepreneurial groups increased their political power at a rate greater than other political forces.

 

On one hand they did not achieve direct control over the government, but on the other they have achieved veto power over the initiatives of the so-called political class headed by the president.

 

On some occasions the veto action of the business elite is does not affect the determined actions of the government. This was proven in 1982 when Mexico nationalized private banks against the wishes of the business class.

 

Until 1982 and certainly by the 1970's many observers believed that the state had lost ground to the other main forces of the nation, especially big capital. According to this position large business groups such as the Monterrey Group or the Televisa Group had become increasingly more powerful politically.

 

In fact during the oil boom of the 1970's, the goal of the government in the second half of the 1970's was to use oil revenues to fortify the government and avoid the loss of its charavters as the leaders of Mexican economic development.

 

The 1982 bank nationalization and crisis greatly weakened certain business sectors which had to appeal to the protection of the state to face such basic problems such as finding credit and backing for the renegotiation of public debt.

 

In formal political terms the official party changed its name in January of 1946 from the Party of the Mexican Revolution to become the Institutional Revolutionary Party. But the name change did not affect its nature or its broad control over the political life of the country.

 

The PRI, like the PNR and the PRM did not lose the presidency, or a state governorship until very recently. When municipal elections went to the opposition they invariably returned to the PRI. Partisan opposition in spite of having its own life and strength, has been able to act only to the extent that it is permitted to do so by the PRI.

 

This has been a traditional strategy of the PRI and the Mexican political system. The strategy has been not to close the doors to expression dissent. This was especially true after the 1960's, when the explosiveness of opposition shook the system since there were no institutional channels to express itself. This occurred with the railroad strikes of 1958, the student protest of 1968, the rural and urban guerrillas of the 1970's and the Chiapas rebellion of 1994.

 

DISSONANCE

 

The stability of the Mexican political system since 1929, and even more since 1941, has been impressive. The authoritarian but flexible control exerted by the PRM-PRI on the political life of Mexico contrasts with almost all the rest of Latin America. It has been described as the "Perfect Dictatorship".

 

Unlike other authoritarian systems, the Mexican system is not interested in being exclusionary, in other words it is not designed to keep people out of the system, but rather in attracting them and incorporating them into its ranks. But conflict is such a heterogeneous political culture was not always resolved within established bureaucratic channels.

 

Examples of this were the 1958 railroad strike that was declared illegal by the government which also gave into to a 16.6% salary increase. The strike was over but labor continued to agitate until the government and the army attacked the railworkers union using great violence and repression. Once all the labor leaders were imprisoned or dead, the government held new elections for union leadership, and by doing so reestablished its control over the union.

 

For the next ten years political life was relatively calm and conflict was contained within institutional channels. But in 1968 trouble returned and the challengers making demands were not workers or peasants, but rather educated urban middle class. The setting was Mexico city, the center of power.

 

Immediately after the revolution some politicized sectors of the middle class had criticized the lack of democracy in the system. In July of 1968 middle class students demonstrated for political reform and an opening of the system and this touched on the deep discontent that some sectors of the middle class felt towards the government.

 

By September the conflict had degenerated into the most open widespread agitation in contemporary Mexican history. Large student groups demonstrated in the streets and openly attacked the president and his close official and the system itself. Traditional student organization tied to the PRI and the central government had lost all control and had been replaced by new student leadership born out of confrontation with the state.

 

After a series of demonstrations just before the opening of the 1968 Olympics, on Oct. 2 the army and the police put an end to the protest by means of an indiscriminate massacre of demonstrators at the Plaza of the Three Cultures in Tlateloco. The leaders were arrested and state terror prevented the emergence of a new movement.

But the base of legitimacy of the regime had indelibly eroded in the eyes of the urban, educated middle class. The administration of Luis Echeverría, who assumed power in late 1970, was especially sensitive to the university world and followed a policy of "democratic aperture" to try to at least incorporate some of the groups alienated by the massacre.

As the government coopted the university crowd it repressed urban and rural guerrilla movements of the 1970's that had been spawned by Tlateloco.

 

The development model followed by the post-revolutionary governments accelerated the accumulation of capital, but did not completely resolve the conflict represented by the privileged relation between the political elite and the foreign and domestic bourgeoisie.

 

The Mexican political system is such that the government tries to maintain its control over all political forces, including the powerful private sector of the country. But the mechanism of capital accumulation requires that the businessman become increasingly stronger vis a vis the government, and in critical moments make the state modify its decisions. This happened in during the attempted tax reform of the Echeverria government in the 1970's.

 

From the early 1960's Mexican and foreign observers insisted that the social stability and economic health of the country demanded some redistribution of income through tax reforms that would give the government a higher percentage of the national product. Of 72 nations studies by the IMF only 5 had taxes lower than Mexico.

So in 1971 the government for the first time in Mexican history proposed to tax the wealthy and to do it as a permanent policy. But the business sector reacted more strongly than expected. The reaction forced the Echeverria administration to postpone and then retreat on plans for progressive taxation in Mexico.

 

With its abandonment the government lost much of its energy and public investment had to increase to compensate for the little private investment. The tax issue turned off the private sector in cooperating and supporting financially the populist rhetoric of the government.

 

By 1976 the situation had become impossible and the government was forced to pay for its clash with the private sector over the tax issue. A commercial deficit existed of 1.8 billion dollars and a foreign debt of more than $20 billion. There was massive capital flight and the government suddenly had to face the economic necessity and political shock of a 100% devaluation of the peso.

 

The economy had become stagnant and lack confidence had become pervasive. Thus, the Echeverria administration had to face one of the most difficult periods in the post-revolutionary era.