Free-Market Upheaval Grinds Mexico's Middle Class

By Ginger Thompson
First published in theNew York Times Sep 4, 2002
By Mexican standards, Álvaro Álvarez and Alma Amarillas are a solid middle-class couple. But in the 20 years they have worked to build a stable life for themselves and their children, the economic ground beneath them has never stopped shaking.
She works double shifts as a public school teacher and administrator. He has quit teaching to work as a personnel manager for the government. Together they make about $24,000 a year. But they have little more to show for their life's labor than the roof over their heads.
They have not been able to save a penny. They spend more than half their monthly income on their mortgage. Their safety net is a credit card with a $300 limit. And they have diminishing hope that their two daughters will live better than they do.
"We live day to day," Ms. Amarillas said. "We never know when there will be a new crisis. I panic when the girls get a fever or the car sounds funny.
"I don't think much anymore about how our situation will improve," she added. "I worry more about how it could get worse."
It has been two decades since Mexico committed itself to free-market reforms aimed at propelling this country into the developed world. The North American Free Trade Agreement, considered the centerpiece of the new Mexican philosophy, has generated a quarter trillion dollars in cross-border trade with the United States. The treaty helped turn a closed, inefficient economy dominated by state-owned companies into one that was flooded by foreign investment and driven by foreign competition.
But government statistics show that economic liberalization has done little to close the huge divide between the privileged few and the poor, and left the middle class worse off than before. Battered by a series of severe recessions, teachers and engineers, nurses and small-business men, all find themselves swinging above and below the poverty line with the rise and fall of the peso, interest rates and the unemployment rate.
According to a recent government report, in the year 2000 half the Mexican population lived on about $4 a day, with scarcity shifting along with the population from rural regions to cities. Some 10 percent of Mexicans at the top of the income pyramid controlled close to 40 percent of the nation's wealth.
Meanwhile, the 35 percent of Mexico's population that lives in the middle - with average earnings of about $1,000 a month - spirals slowly downward.
The economist Rogelio Ramírez de la O said that in the 1970's, when Mexico's population was 50 million people and the country had begun to enjoy the benefits of an oil boom, some 60 percent of Mexicans were middle and working class. Their numbers and buying power have declined "dramatically" since then, Mr. Ramírez said.
"The promises of economic modernization have not been fulfilled," he added, and Mexico's middle class "now has less buying power than a generation ago."
The development of a middle class was a shining achievement of the Mexican revolution, said the historian Lorenzo Meyer. Incubated in a closed economy that was driven by state-owned monopolies, the middle class grew steadily from the 1920's to the 1970's. Faced with declining economic efficiency and a mounting public debt, successive presidents opened Mexico's protected economy, igniting an industrial revolution that turned the country into one of the world's leading exporters.
In an effort to reduce its external debt, the government simultaneously slashed spending for higher education, transportation and health care - all traditional pillars of middle-class life.
"The idea of Mexico as a middle-class country is a delusion," Mr. Meyer said. "This is a country of extremes."
It is not a unique predicament in Latin America, a region that has long suffered some of the greatest inequalities of wealth in the world. However, it seems a sorry outcome for a nation that adopted the economic tenets of globalization as gospel. It is particularly bitter for the middle class, the very people who powered the rise of President Vicente Fox, whose election two years ago brought down the dictatorial 71-year regime of the Institutional Revolutionary Party.
In addition to advocating the expansion of Nafta, Mr. Fox, a former Coca-Cola executive, also promoted a more even distribution of wealth. He promised to create more than a million new jobs a year, increase government spending on education and health care and make low-interest loans available to small and medium-sized businesses.
In his state of the union address on Sunday, Mr. Fox highlighted how his sound fiscal policies had helped keep the country afloat, while Mexico's neighbors to the south had become mired in crises that have crushed their middle classes. The Mexican peso is strong, inflation is projected to decline to 4 percent annually and levels of foreign investment have remained stable. A government welfare program started by Mr. Fox's predecessor, Ernesto Zedillo, has been renamed and expanded to include more than two million new families.
"We have achieved change without violence, without crisis, with great economic stability," Mr. Fox said in a conversation with foreign correspondents last week. "That is very important."
Still, the benefits of the nation's current economic stability have yet to ripple through a Mexican society that increasingly measures itself by North American standards. More than a million jobs have been lost since Mr. Fox was inaugurated, many of them in manufacturing. Congress has blocked or watered down Mr. Fox's tax and energy plans, aimed at increasing government funds for social programs and at increasing the supply of electricity to keep up with soaring demand.
Several new plans for stimulating economic growth in 250 of the poorest regions of Mexico, including infrastructure projects and micro-loans that help peasants start homespun businesses, have just come off the government's drawing board. A survey in Mexico City found that only 30 percent of small and medium-sized businesses used banks for financing because of high interest rates and stringent terms.
The financial roller-coaster ride of Salvador Jiménez, a college-educated accountant, is typical. Mr. Jiménez decided to go into business for himself nine years ago, and then nearly lost his shoe store at the end of 1994 when the peso was devalued by 50 percent and the principal of his business loan doubled.
With contributions from his family, Mr. Jiménez, 39, has managed to pay off his debt. His store is back in the black, but earns profits of only about $800 a month. To make ends meet, the single father of 13-year-old twin boys does accounting work for all his neighbors. And his former wife, a lawyer in Chicago, regularly sends money.
"The middle class is falling, falling, falling," he said. "We need help. We need credit."
A government demographer, Rodolfo Tuiran, referred to the 1980's and 1990's as "lost decades," and said the Mexican middle class responded to the cycles of crisis by sending women and children to work and by incorporating members of their extended families into their households.
An increasing number of middle-class men and women have joined the exodus of Mexican immigrants to the United States, Mr. Tuiran said, with one out of 17 professionals abandoning the country in the last two decades.
"That is a significant loss of human capital," he said. "It is an expression of the growing gap between the expectations people have for access to higher education and careers, and the realities of our country, which is not opening sufficient opportunities."
©2002 New York Times