Chris Harman

Thinking It Through

Mexican wave

(February 1995)

From Socialist Review, No. 183, February 1995, p. 7.
Copyright © Socialist Review.
Copied with thanks from the Socialist Review Archive at
Marked up by Einde O’Callaghan for the Marxists’ Internet Archive.

‘Clinton has promised $50 billion to try and halt the Mexican collapse. But he won’t be able to stop people wondering whether the same thing can’t happen elsewhere’

The Mexican peso’s sudden plunge of 40 percent in the last days of December revealed not only the hollowness of one country’s ‘economic miracle’, but also the fallacy of one of the most widely propagated myths of apologists for policies of deregulation, privatisation, free markets and World Bank-IMF structural adjustment programmes.

This claimed that these policies would bring about Japanese levels of economic development in parts of the Third World as they encouraged an unprecedented surge of investment in ‘emerging markets’.

Typical of the hype was talk by the Financial Times in April 1993 of ‘the emergence of Latin America, phoenix like, from the ashes of the commercial bank debt crisis of the early 1980s, with the chance of joining East Asia as a second engine of developing country growth’. The talk this year is very different.

The Wall Street Journal can go so far as to suggest that ‘the region’s present financial predicament could be even more acute than the foreign debt debacle of the 1980s’.

Rarely, even in the history of the world capitalist system, has so much that was solid melted into air so quickly.

Yet the Mexican crisis was completely predictable. Nothing done in Mexico, or anywhere else in the early 1990s, did away with the fundamental instabilities associated with capitalist accumulation in the weaker parts of the world system.

The picture of these regions over the last century has not necessarily been one of unrelenting economic stagnation. There have been several spurts of growth that have transformed them completely, leading to a huge exodus from the countryside to the cities and, sometimes, to the creation of massive industrial belts.

But this growth has always been enormously uneven, with periods of frenetic accumulation of capital that have uprooted millions of people followed by long periods of stagnation and slump which have destroyed their livelihoods. As even the IMF has recognised:

‘The history of private financing flows to developing countries has been marked by repeated episodes of lending surges followed by market correction, debt servicing difficulties and curtailment of market access.’

This has not, however, deterred shallow minded economists and journalists from seizing on every rush of speculative investment into such countries as proof of what a great future the world system has.

The latest cycle of enthusiasm and disillusion began in the late 1980s as the advanced economies began to go into recession. Major corporations discovered that many of their investments in Europe, Japan and the US were not, in fact, profitable.

Wealthy individuals and financial institutions were desperate to find new profitable areas. Latin America and East and South Asia seemed to fit the bill. Governments claimed to have ‘solved’ the debt crisis of the previous decade by agreement with the Western banks.

The recessions which had followed the debt crisis had been used to restructure industry and to slash real wages by about half. Now they dropped virtually all controls on foreign investment and promised enormous profits to both overseas investors and to the local rich (who had moved billions of dollars abroad in the previous decade).

For a time, in some countries at least, this approach seemed to work. Funds did indeed flow in. Restructuring and wage cuts did allow a certain expansion of sales in Western markets – often as Western workers hit by the recession looked for cheaper, lower quality alternatives to goods they had bought previously (this explains the proliferation in Britain of £1 shops stocking goods made almost entirely in China).

But, in fact, anyone not blinded by fashion should have been able to see the approach was full of holes, even for the ruling classes, let alone for the mass of workers whose living standards stagnated or fell.

Almost everywhere imports grew considerably faster than exports as yuppified upper middle classes used the relaxation of trade controls to buy top class Western luxury goods. Indeed, although total Latin American exports grew, the continent’s share of world exports fell to the lowest point this century. And in most of these countries total debt was actually higher last year than at the height of the 1980s debt crisis – Mexico’s debt has doubled in the last 12 years.

Anyone not obsessed by the fashion for markets, deregulation and privatisation should have been able to see long ago that the basis for the boom was extremely weak. As I wrote in International Socialism two years ago:

‘If the world economy recovers from recession, interest rates internationally will rise and Latin America will no longer be so attractive to investors looking for a quick profit. But if the world economy does not recover, Latin American exports are unlikely to grow sufficiently to make the balance of payments figures look healthy enough for ... the boom to continue.’

The prophecy was borne out last year. The limited US recovery led to rising interest rates and the beginning of a movement of funds from the developing to the advanced countries – so that, for example, shares in most Far Eastern stock exchanges fell considerably. And exports still did not rise nearly fast enough to pay for imports.

Mexico was the first country to crack as its government suddenly found it could no longer maintain the value of its currency. But the problems went far wider, as was shown when the fall in the peso triggered a much wider flood of funds away from the weaker capitalisms – and not only in Latin America.

Clinton has promised $50 billion to try to halt the Mexican collapse. But he won’t be able to stop people – including the biggest speculative investors – wondering whether the same thing can’t happen elsewhere. In particular they are beginning to worry about China, where five years of unprecedented boom is running into a combination of inflation, escalating trade deficits, rural unrest and growing numbers of strikes, just as the country’s leader Deng Xiao Ping seems to he on his deathbed.

Mexico could indeed be the beginning of a tidal wave.

Last updated on 2 July 2017/p>