The 1% Connection: Mexico and the United States, Crony
Capitalism and the Exploitation of Labor Through NAFTA

by Mark Karlin,
Truthout News Analysis

Truthout
July 15, 2012

http://truth-out.org/news/item/10309-the-1-connection-mexico-and-the-united-states-crony-capitalism-and-the-exploitation-of-labor-through-nafta

[This article is a Truthout original. This is the ninth
article in the Truthout on the Mexican Border series looking
at US immigration and Mexican border policies through a
social justice lens. Mark Karlin, editor of BuzzFlash at
Truthout, visited the border region recently to file these
reports. You can find links to the previous coverage at the
end of this article.]


The Richest Person in the World, Carlos Slim, Lives in
Mexico

According to Forbes Magazine, Carlos Slim, 72, is the
wealthiest person in the world, accumulating $69 billion in
net worth as of March 2012.
http://www.forbes.com/billionaires/list/

Born and raised in Mexico City (of Lebanese Christian
descent), Slim was well on his way to becoming a very rich
man when he struck pay dirt. Under the Mexican presidency of
Carlos Salinas, who served from 1988 to 1994, Slim jumped on
the Milton Friedman-inspired south-of-the-border rush to
privatization and led a buyout of the state run Telmex phone
company.

It was crony capitalism at its finest. Salinas relied on the
relatively small group of Mexico's oligarchy to supply him
with campaign (and perhaps personal) funds, in return for
the sale of state assets at favorable rates and terms. (For
example, Slim was essentially able to pay for Telmex out of
the future profits of the company.)

So in 1990, Slim obtained (with some other backers) a
monopoly on the telephone system in Mexico, guaranteed for
years. The profit earned from the acquisition of Telmex was
the fuel that allowed Slim to finance his telecommunications
empire, still dominating the Mexican telephone landline
market as well as the nation's cell phone user business
through a spin-off firm, Telcel. In turn, the enormous
revenue generated by the original sweetheart deal has helped
finance Slim becoming the developer and owner of the largest
mobile phone company in Latin America, Am,rica M¢vil.

All Is Not Well in "Slimlandia"

But for consumers and the economic growth of Mexico, some
economic analysts have argued that many Mexicans have not
fared well under the economic shadow of the world's top
plutocrat.

According to a 2007 Fortune article:

George W. Grayson, a professor of government at the
College of William & Mary, coined the term
"Slimlandia" to describe how entrenched the Slim
family's companies are in the daily life of
Mexicans.

It's not a reverential term. Many Mexicans hoped
privatization, which began in the early 1990s, would
create competition and drive prices down
drastically. That hasn't happened. "Slim is one of a
dozen fat cats in Mexico who impede that country's
growth because they run monopolies or oligopolies,"
says Grayson. "The Mexican economy is highly
inefficient, and it is losing its competitive
standing vis-.-vis other countries because of people
like Slim."
http://money.cnn.com/2007/08/03/news/international/carlosslim.fortune/index.htm

The Organization for Economic Co-operation and Development
(OCED), an international agency that advises governments,
found that Mexican consumers, under the telecommunications
dominance of Slim, have recently (2005-2009) been
overcharged $6.5 billion a year for landline usage alone.
OCED estimates the total loss to the Mexican economy of
Slim's dominance in telecommunications at $129 billion over
a five-year period, due to excess charges and poor
investment in infrastructure. In its report on the lack of
serious competitiveness in Mexico's telecommunications
industry (Slim's formal monopoly has now expired), OCED
bluntly stated: "Relative to other OECD countries, Mexico is
ranked last in terms of investment per capita. Profit
margins [are] nearly double the OECD average."
http://www.oecd.org/dataoecd/7/38/49536828.pdf

In short, Slim is the richest man in the world in large part
due to his profiteering by both overcharging consumers on
the one hand and poorly developing and maintaining what was
once a public utility owned by the citizens of Mexico on the
other hand.

This year, according to Forbes, Slim "was fined $1 billion
by Mexican regulators for monopolistic practices, but is
appealing the decision." But as with recent fines against
Barclays and GlaxoSmithKline in the US, the profits of Slim
and the US companies far exceed the fines, so it hardly
discourages breaking the law when the penalties are far less
than the profits.
http://www.forbes.com/profile/carlos-slim-helu/
http://blog.buzzflash.com/node/13572
http://blog.buzzflash.com/node/13580

Salinas Reversed Mexican Land Reform to Usher in NAFTA

Just as Carlos Salinas turned the assets of the people of
Mexico over to his cronies and contributors - exemplified by
Slim - he prepared for the economic tsunami of NAFTA (which
became effective in 1994) by allowing for the expropriation
of public land for big agriculture, transnational
corporations, mining companies etc.

In 1917, land reform was written into the nation's
Constitution, guaranteeing public ownership (for individual
farming use) of large areas of land, which became known as
ejidos. This was a revolutionary act for Latin America, in
that it took agricultural and ranch land from the hands of a
few owners and distributed the large parcels to the many.
This was particularly important in the rural southern part
of Mexico, which has little industry, where many indigenous
poor who have relied on self-sustaining farming.

As the advocacy group Witness for Peace describes it:

Entry into a free trade agreement with the United
States and Canada required intense preparation for
Mexico. To quell U.S. investors' fears of political
upheaval (and thus, possible confiscation of foreign
property), the authors of NAFTA included an
extensive section on expropriation and confiscation.
Mexico was also pressured by the World Bank and the
United States to re-write Article 27 of its
Constitution - a pillar of the new government that
grew out of the 1910 Mexican Revolution -
effectively [whittling down] the ejido system of
collective land ownership.

This opened up traditional Mexican territory for
sale to foreign investors eager to buy up land. The
ejido system had been a cornerstone of indigenous
and peasant rights in the Mexican agricultural
system. Eliminating ejido protections and
privatizing traditional landholdings left the most
marginalized populations even more vulnerable.
http://www.witnessforpeace.org/downloads/hemisphere_1.pdf

This resulted in a disastrous impact on the rural poor of
Mexico, according to David Bacon, author of "Illegal People:
How Globalization Creates Migration and Criminalizes
Immigrants." Bacon, a frequent writer for Truthout, noted
recently in an article in The Nation:

In a 2005 study for the Mexican government, the
World Bank found that the extreme rural poverty rate
of 35 percent in 1992-94, before NAFTA, jumped to 55
percent in 1996-98, after NAFTA took effect [in
1994]....

By 2010, according to the Monterrey Institute of
Technology, 53 million Mexicans were living in
poverty - half the country's population. About 20
percent live in extreme poverty, almost all in rural
areas.

The growth of poverty, in turn, fueled migration. In
1990, 4.5 million Mexican-born people lived in the
United States. A decade later, that population had
more than doubled to 9.75 million, and in 2008 it
peaked at 12.67 million. About 5.7 million were able
to get some kind of visa; another 7 million couldn't
but came nevertheless ... .

Raul Delgado Wise, a professor at the University of
Zacatecas, charges that "rather than a free-trade
agreement, NAFTA can be described as ... a mechanism
for the provision of cheap labor. Since NAFTA came
into force, the migrant factory has exported
[millions of] Mexicans to the United States."
http://www.thenation.com/article/165438/how-us-policies-fueled-mexicos-great-migration

In essence, NAFTA (the model that other free trade
agreements have been built upon) is an agreement in which
corporations are given the right to seek the lowest-cost
labor across international boundaries (in the case of NAFTA:
the United States, Canada and Mexico). In addition, the
corporations receive special protections that allow them to
supersede sovereign laws, including environmental and labor
protections, in areas such as agriculture, mining and
lumber.

Small Mexican farmers have been forced out of business by
big US agricultural firms that initially dumped corn and
other produce on the Mexican market at artificially low
prices. Meanwhile, the Mexican government restructured its
agricultural subsidy program to comply with NAFTA, making it
more beneficial to larger growers, according to a Woodrow
Wilson International Center for Scholars report "Subsidizing
Inequality: Mexican Corn Policy Since NAFTA." The impact on
subsistence farmers in Mexico was devastating.
http://www.wilsoncenter.org/sites/default/files/Subsidizing_Inequality_Ch_0_contents_and_summary_findings.pdf

With NAFTA, Corporations Formalized the Beginning of a New
Global Infrastructure, One That Is Not Accountable to Any
Electorate

In an analysis by the Economic Policy Institute in 2003,
"The high price of 'free' trade: NAFTA's failure has cost
the United States jobs across the nation," the precedent set
by NAFTA for corporations creating a system of arbitrating
bodies that have jurisdiction above national laws is
explained:

NAFTA included unprecedented guarantees to protect
the value of corporate investments and even the
rights to earn profits in the future arising out of
changes in government regulations or policy. In
particular, NAFTA created specific clauses that
provide for compensation for lost investments and
loss of future profits due to regulations that are
"tantamount to expropriation" (NAFTA Secretariat
2003, article 1110).

No other part of NAFTA has generated as much
controversy as this "investor state" clause. To
date, 27 cases have been reviewed under this clause
by companies alleging that their foreign investments
or their right to earn profits in other countries
have been expropriated (Hemispheric Social Alliance
2003, 68-74). These claims, several of which have
resulted in damages paid or regulations rescinded,
have had a chilling effect on government efforts to
regulate private businesses throughout the
hemisphere.
http://www.epi.org/publication/briefingpapers_bp147/

In addition, signatories to NAFTA and other such treaties
are required to adapt laws to conform with the protocols of
free trade agreements to allow corporations and financial
firms to maximize the conduct of business without being
limited by national boundaries.

A recent article in Truthout, "America the Beautiful: A Fire
Sale for Foreign Corporations," emphasized that the
forthcoming Trans-Pacific Partnership (TPP) free trade
agreement is NAFTA on steroids in this respect:

But 26 of the 28 chapters of this (TPP) agreement
have nothing to do with trade. TPP was drafted with
the oversight of 600 representatives of
multinational corporations, who essentially gave
themselves whatever they wanted; the environment,
public health, worker safety, further domestic job
losses be damned....

Even if you are oblivious to environmental concerns,
you should be outraged at the total circumvention of
national sovereignty. Foreign investors could bypass
our legal framework, take any dispute to an
international tribunal and pursue compensation for
being denied access to our resources at fire-sale
prices - with much of the [United States] West on
fire as we speak.

It gets worse. Those tribunals would be staffed by
private-sector lawyers that rotate between acting as
"judges" and as advocates for the corporations suing
the governments.
http://truth-out.org/news/item/10195-america-the-beautiful-a-fire-sale-for-foreign-corporations

Lower Wages and Increased Poverty on Both Sides of the
Mexican-American Border

If there's any question about free trade agreements such as
NAFTA being a corporate race to the bottom in pursuit of the
lowest labor costs and weakest workers' rights, just look at
the impact on industrial and retail workers in the United
States.

According to the Economic Policy Institute's report:

The growth in U.S. trade and trade deficits
[resulting in part due to trade agreements such as
NAFTA that make it easier for corporations to move
jobs to much lower-cost settings] has put downward
pressure on the wages of workers without a college
degree, especially those who have no formal
education beyond a high school degree. This group
includes most middle- and low-wage workers,
including the 68.5% of the total workforce with the
lowest pay, those earning a wage that is equal to
200% or less of poverty level wages in 2001. In
March 2000, the base year used for data, these
workers earned wages of $16.93 or less per hour.
These U.S. workers bear the brunt of the costs and
pressures of globalization.

And it has gotten worse, much worse for US middle- and low-
wage workers since 2000. The cumulative effects of having an
ever-increasing number of consumer and industrial products
manufactured and assembled in low-cost labor countries (such
as in the maquiladoras in the Mexican free trade zone) has
been devastating to the blue-collar worker in the United
States.

The Economic Policy Center points to the increasing negative
impact of NAFTA in the US on workers: "The loss of these
jobs [in the US] is just the most visible tip of NAFTA's
impact on the U.S. economy. In fact, NAFTA has also
contributed to rising income inequality, suppressed real
wages for production workers, weakened workers' collective
bargaining powers and ability to organize unions, and
reduced fringe benefits."

Workers on Both Sides of the Borders Lose Out in NAFTA as
Corporations Pocket Increased Profits

Truthout asked Bacon, who travels to Mexico frequently to
write about the impact of NAFTA, how he responds to critics
who argue that NAFTA is bringing jobs to Mexicans in need
through the maquiladoras. "The Mexican government ...
prevents union organization, undermines workplace safety
laws, undermines the rule of law on the border by not
enforcing labor laws and so on. So the jobs in the
maquiladoras (over 2 million working in the assembly
plants), they come at a very high price." He also pointed
out that prices of products assembled in Mexico have not
necessarily resulted in a lowering of consumer costs in the
US.

A recent McClatchy Newspapers article is entitled, "Mexico's
'maquiladora' labor system keeps workers in poverty":

By day, Sergio Martinez labors in a modern air-
conditioned factory a few miles from the Texas
border, a human cog in the global supply chain that
helps build pickups and tractor-trailer cabs. He
wears a smart uniform at work.

At night, he comes home to a dirt-floor shack with a
bare light bulb and no indoor plumbing. Mosquitoes
buzz incessantly. He and his family live like poor
dirt farmers.

His salary of $7.50 a day is enough to provide for
the family dinner table, the cost of bootleg water
and electricity, and an occasional article of
discarded clothing for his wife or two girls, but
rarely anything else.

Martinez, 35, is emblematic of the industrial sector
of Mexico, a magnet for foreign investment hitched
to a strong U.S. locomotive. Factories in Mexico
pump out plasma TVs, BlackBerry smartphones, kitchen
blenders, airplane components and automobiles. Yet
millions of workers, like Martinez, can only dream
of climbing from the lower class to buy the
appliances, smartphones and cars they help
manufacture.
http://www.bradenton.com/2012/06/17/4076102/mexicos-maquiladora-labor-system.html

Even the pro-globalization New York Times recently took note
of the economic disparity in Mexico that NAFTA has
exacerbated:

Mexico - after nearly 20 years of expanded free
trade and minimal economic reform at home - has
essentially become a country of the stuck-in-place
glaring at the upwardly mobile. While a minority of
educated, skilled workers benefit from the dynamics
of global trade, many more Mexicans work long hours,
often at several jobs, without progressing. Census
figures show that 57 percent of the Mexican labor
force earns less than $13.50 - not in an hour, but
in a day.
http://www.nytimes.com/2012/07/01/world/americas/pocketbook-issues-weigh-on-mexico-voters.html

With a change in the statistics adjusted for wages, couldn't
the same be said for the impact of globalization on the US?
It benefits the few, while devaluing the value and dignity
of labor for the many.

Free Trade Agreements Mean That There Are No National
Boundaries for Corporations, Just People

In recent years, Slim has been expanding his time and
business presence in the United States. He has recently
spent about $180 million of his fortune on a townhouse and
office building, both on Fifth Avenue in New York. Slim has
also lent money to and become a minority stockholder in The
New York Times.
http://blogs.wsj.com/metropolis/2010/07/28/carlos-slim-takes-manhattan-townhouse-for-44-million/
http://mediadecoder.blogs.nytimes.com/2011/08/23/carlos-slim-adds-to-stake-in-times-company/

As top dog of the global financial elite, his corporate
interests cross national boundaries on a red carpet laid out
for the titans of international commerce.

Meanwhile, the stock market is going strong, corporate
profits and cash are piling up, and the private jets whisk
around the world in search of ever cheaper expendable
workers.

Free trade, such as NAFTA, is a way of exploiting labor
without national boundaries and ravaging the environment in
pursuit of higher corporate profits. Borders only exist for
poor migrants seeking money to keep themselves and their
families alive.

The victims of this trade policy - and its synergistic
companion, crony capitalism - eke out an existence on both
sides of the Mexican-United States border.

In reporting on the rise in poverty despite the gross
domestic product of Mexico actually increasing in the last
two years, the director of Amnesty International in Mexico
told The Los Angeles Times: "Behind these figures are people
with stories of injustice, dispossession, discrimination and
insecurity."
http://articles.latimes.com/2011/jul/29/world/la-fg-mexico-poverty-20110730

So it also goes in the United States. There is no border
wall for economic injustice.

=====

Previous installments in the Truthout on the Mexican Border
Series Include:

"How the US Government, Banks, Prison-Industrial Complex,
Corrupt Officials, Businesses, Law Enforcement, Racists and
the CIA Profit From Illegal Drugs"
http://truth-out.org/news/item/9937-how-the-us-government-banks-prison-industrial-complex-corrupt-officials-businesses-law-enforcement-racists-and-the-cia-benefit-from-illegal-drugs

"The US War on Drug Cartels in Mexico Is a Deadly Failure"
http://truth-out.org/news/item/8371-the-us-war-on-drug-cartels-in-mexico-is-a-deadly-failure

"The Border Wall: The Last Stand at Making the US a White
Gated Community"
http://truth-out.org/index.php?option=com_k2&view=item&id=7147:the-border-wall-the-last-stand-at-making-the-us-a-white-gated-community

"Murder Incorporated: Guns, the NRA and the Politics of
Violence on the Mexican Border"
http://truth-out.org/news/item/8004-murder-incorporated-guns-the-nra-and-the-politics-of-violence-on-the-mexican-border

"A Poet's Pain Launches a Peace Movement in Mexico"
http://truth-out.org/news/item/8921-a-poets-pain-launches-a-peace-movement-in-mexico

"The School of the Americas, the CIA and the US-Condoned
Cancer of Torture Continue to Spread in Latin America,
Including Mexico"
http://truth-out.org/news/item/9685-the-school-of-the-americas-the-cia-and-the-us-condoned-cancer-of-torture-continues-to-spread-in-latin-america-including-mexico

"Who Is Killing the Journalists in Mexico?"
http://truth-out.org/news/item/9229-the-war-on-journalists-in-mexico-remains-macabre

"Latina Leaders of Texas Colonias Help Remake Shantytowns
Into Empowered Communities"
http://truth-out.org/news/item/8638-empowering-the-texas-colonias-with-an-equal-voice

[With special thanks to David Bacon, author of "Illegal
People: How Globalization Creates Migration and Criminalizes
Immigrants," for his ongoing research on NAFTA's harmful
impact on Mexican and US workers.

Mark Karlin is the editor of BuzzFlash at Truthout. He
served as editor and publisher of BuzzFlash for ten years
before joining Truthout in 2010. BuzzFlash has won four
Project Censored Awards.

This article is a Truthout original. Published with
permission of the author.]

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