North Looking South
By John Barham, Dec 15, 2006

Some thoughts on poverty and the Mexican economy

Third in a series on the Mexican economy

Last week, in an act reminiscent of the Lazaro Cárdenas presidency of the 1930s, Mexico’s new president, Felipe Calderón, announced that he and his cabinet members would take 10 percent cuts in pay. Stating that additional reductions slated for “nonessential expenditures” in all areas of government would yield savings equivalent to the finances of six ministries in his government, President Calderón declared that the 2.5 billion dollars in savings would be devoted to social programs and the construction of new schools. Furthermore, a pledge was made to single out the 100 poorest communities in Mexico for special attention.

In many ways, the Calderón presidency has begun in favorable economic circumstances, and the economy would seem to be in a growth mode, with significant expansion in construction, automobile manufacturing and the service industries. In addition, record oil prices earlier in the year had a positive effect on government income. 

Whether or not these developments will ease the lives of the nearly 50 percent of the Mexican people living in poverty remains to be seen. But, if past history is any indication, the government’s fight against poverty will be an uphill struggle, and a much greater economic expansion will be necessary to accommodate the 1,000,000 prospective workers who annually seek to enter the workforce.

At the end of 2005, the Fox administration proudly announced that it was meeting a United Nations Millennium Development Goal of cutting the category of “extreme poverty” in half, based on 1990 data. Crediting Mexico’s economic stability as responsible for dropping the extreme poverty rate to 11.7 percent, the outgoing Fox administration also hyped its Oportunidades program, which allows 25 million of the extremely poor in Mexico to avail themselves of financial assistance and health and nutritional support.

The Hemispheric Social Alliance’s Hector de la Cueva, though, has a different view of the accomplishments of the Fox administration in battling poverty, stating that, “The poverty figures from the government are very questionable and even deceptive, because one day someone is very poor and the next day they are not. To us, it is very clear that the economic system that is predominant in Mexico and the region is a factory of poverty and inequality, and the social programs that are so loudly touted do not represent a solution.” In other words, destitution as a social phenomenon is hardly eradicated or even diminished by minimal increases in income affecting government benchmarks for extreme poverty of US$52 per month for rural areas and US$70 for urban centers.

President Calderón has consistently emphasized that Mexico’s struggle against poverty will hinge on the creation of jobs. However, in order to shrink the inordinately large proportion of people affected, those jobs will need to bring with them the kind of income sufficient for families to obtain not only basic housing, food, clothing and utilities but also the education necessary to advance in society. Looked at another way, the quandary facing Mexico is how to reform an inequitable economic system in which the richest 10 percent of the population earns US$4,300 per month, while the poorest 10 percent earns US$170—in effect, an income disparity of 25 to 1, approximately the same as it was 20 years ago. And, according to the World Bank, the circumstances of those who live in extreme poverty have only been slightly bettered since the 1994–1995 financial crisis.

Professor Alain de Janvry, an economist at the University of California at Berkeley, has analyzed Mexican efforts to dispel poverty and pointed out that, at the same time that tax collections are anemic by international criteria, the failure to enact economic reforms has left the government in a feeble state to reallocate income. Furthermore, government programs that are intended to generate income and to promote competition do not reach small farmers and the indigenous communities, who remain underserved by social insurance programs. And, without an economic safety net, those who are somewhat poor have a much greater chance of falling into the category of extremely poor, or of choosing the course of emigrating from Mexico to the United States—a safety valve that is becoming less and less of a possibility. Professor de Janvry suggests that, in order to successfully tackle poverty, government plans should not be limited solely to social development. Instead, poverty, helplessness and discrimination will persis
t if social programs are not accompanied by tactics designed to generate income.

It is important to keep in mind that only about 1.7 percent of the gross domestic product is spent on poverty reduction in Mexico. Although this represents a significant increase over the last 15 years, the World Bank, nevertheless, estimates that up to 9 percent of the population subsists on little more than US$1 per day. Clearly, the new government has its work cut out as it seeks to level the playing field in Mexico.

President Calderón, who has an advanced degree from the Kennedy School of Government at Harvard, is more than a little aware of American history. Perhaps he should borrow a page from the history of Mexico’s neighbor to the north and consider how Theodore Roosevelt’s fight against vested interests early in the 20th century brought into being a stronger nation and succeeded in bettering the lot of Americans as a whole. Let us wish President Calderón well as he launches a presidency through which, hopefully, the problem of poverty might perhaps be finally addressed. The actions of the new government may possibly determine the well-being of the less fortunate in Mexico for generations to come.

John Barham, after a long career as an instructor and administrator in higher education in the United States and the Middle East, now resides in San Miguel de Allende. He frequently lectures for the international Elderhostel program and can be reached at barhamjw@yahoo.com