Beneath the Surface

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In reflecting on Shannon O’Neil’s account of U.S.-Mexican relations, I was struck by the similarity between the choices facing international policymakers and those facing investors. Financial planners have often identified two enemies of sound investment–fear and greed. Fear leads an investor to flee from the ups and downs of the market by sticking to only the safest and most predictable of investments, thus settling for too low a return. Greed leads an investor to chase extravagant returns that often turn out to be illusory. Most sensible investors neither bet the farm on the latest hot stock, hoping to make a killing, nor run for the exits at the first sign of trouble. They maintain a diversified portfolio of assets with calm confidence that they will receive their fair share of a growing economy’s benefits.

Fear and greed have often characterized U.S. attitudes towards Mexico and Mexicans. Those who would close the door to migration and trade are afraid that Mexicans will take our jobs, undermine our culture, or become a burden on taxpayers. And some of those who advocate more open policies are greedy for one-sided economic relationships in which businesses exploit Mexican laborers and take advantage of their lack of rights. Having a poorer country with a weak democracy so near can be profitable, as U.S. businesses learned in the nineteenth century. Employing Mexican migrants in the U.S. while keeping them undocumented and vulnerable to deportation has also been profitable. With greater confidence in the future of both countries, we could base policies on the expectation that our peoples can prosper together, and that their relationship can be a win-win instead of a loss for one side or the other.

Mexican immigration

Compared to the brief spurts of immigration from countries like Ireland, Germany and Italy, Mexican immigration has been going on for a long time. Among the forces driving it have been “economic needs, demographic trends, and deep family and community connections on both sides of the border.” O’Neil says that a particularly large wave of immigration has occurred since the 1980s, but “this wave is already receding, and is unlikely to ever rise again.” Net immigration reached zero in 2011, with the U.S. economy still suffering from high unemployment, but the reasons for tapering immigration go deeper.

One cause of the recent wave of immigration was the 1982 Mexican debt crisis and its aftermath, which left unemployment higher in Mexico than the United States. A return to economic stability and growth, especially since the late 1990s, has alleviated the pressure to migrate. Another temporary factor was demographic. As in most developing nations, health improvements brought down the mortality rate–especially the infant mortality rate–and the surviving children were too numerous for the labor force to absorb. More recently, this population explosion has been slowed by a dramatic decline in the birth rate, with the average number of children per family dropping from about six to two since the 1970s. O’Neil also notes that as fewer young adults enter the Mexican labor force, the large baby-boom generation will be leaving the U.S. labor force, so migrant laborers may be seen as less of a threat and more of a blessing.

Many readers may be surprised to read that “nearly all economists agree that immigration presents a net benefit for the U.S. economy and for U.S. wages.” The harm that migrants may do by taking low-wage jobs may get most of the attention, but everything migrants add must be factored into the equation:

[T]he U.S. job market is not a zero-sum game. Immigrants and their families help spur growth and new jobs by buying groceries, going out to dinner, and shopping at the local mall. Also, long-time locals and new arrivals gravitate toward different jobs. U.S.-born workers are more likely to serve food in restaurants, check out shoppers as retail clerks, check in families at hotel front desks, hold manufacturing jobs, or manage construction or janitorial crews that have less-than-perfect English. In fact, study after study shows that foreign-born and native workers more often complement than substitute for one another.

States with large immigrant populations do not generally have either lower wages or higher unemployment than other states. Some groups of workers may be hurt by immigrant competition, especially men with a high school education or less, but the impact on wages is generally small.  And where wages are held down, the solution may be to upgrade the status and rights of workers rather than trying to get rid of them.

Academics also find that the pressure on low-skill wages stems not from immigration per se, but from the illegal nature of so many of today’s arrivals, which allows unscrupulous employers to underpay, undercut, and underprotect employees. One such study suggests that if immigrants were legalized, wages for all workers— citizens and noncitizens alike— on the bottom educational rungs would increase rather than fall.

O’Neil also debunks the claims of some cultural conservatives that Hispanic immigrants are less assimilable than earlier waves of immigrants. She finds the Mexican story similar to those of other ethnicities: the first generation struggles and clings to many of its traditions, while the next generations quickly adapt. Ninety percent of second-generation Hispanics speak English very well, and educational attainment approaches the national average by the third generation. Assimilation weakens many other traditions too, such as the close-knit Hispanic family: “Native-born Hispanics now divorce their partners just as frequently as native-born whites (three times the rate of recent immigrants.” (Not everyone’s idea of progress, but at least it shows assimilation!)

O’Neil concludes that recent immigration policy has been based too heavily on unfounded fears. The benefits of trying to exclude immigrants are too meager and the costs too high. Now that the border has been “hardened,” many immigrants who might have made the crossing more easily still manage to get here anyway, but with the aid of organized crime. The proportion of immigrants who settle here permanently instead of temporarily has risen, perhaps because border enforcement has made traveling back and forth too difficult. Economic studies have concluded that rounding up and deporting undocumented workers would be extremely expensive, and would actually shrink the economy of any state that accomplished it.

O’Neil would maintain the distinction between legal and illegal immigration, and even enforce laws against the employment of undocumented workers more strictly. However, she would allow more immigrants into the legal category, for example by making it easier for relatives of Mexican-Americans to be admitted. She would also provide more avenues to citizenship for migrants who are working here legally.

Free trade

O’Neil regards the North American Free Trade Agreement (NAFTA) as a “net win for both countries.” Since its approval, Mexico’s exports to the United States have increased by a factor of five, but U.S. exports to Mexico also increased by a factor of four. Mexico is now second only to Canada as an importer of U.S. products.

The free trade agreement made it much easier for U.S. firms to invest in Mexican production and then import the products back to the United States. That aroused the fear voiced by presidential candidate Ross Perot of a “giant sucking sound” as jobs were lured south of the border. While many manufacturing jobs did go south, they were offset–maybe a little more than offset–by jobs created by U.S. production for the expanding Mexican market. And while more Mexicans did find jobs in booming border cities, workers in small-scale farming and other traditional employment lost work as markets became more open to international competititon.

If the impact on overall employment has been modest, the benefits for economic growth, income and consumption have been large, especially in Mexico. Mexican per capita income more than doubled between 1996 and 2011, while the new flood of manufactured goods dramatically reduced the cost of consumer goods.

The main effect of free trade has been to closely integrate the two economies in processes of production and distribution. For many products, the distinction between “made in America” and “made in Mexico” is no longer meaningful because workers in both countries do the making. “The Chevy Malibu sold in Omaha, Nebraska, may have crossed the border not once but multiple times, as parts combine into components, components into systems or modules, and finally modules into cars. Every Ford Fiesta sold in Guanajuato, Mexico, is no different.”

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Shannon K. O’Neil. Two Nations Indivisible: Mexico, the United States, and the Road Ahead. New York: Oxford University Press, 2013.

The title gets straight to the heart of the matter. The author’s thesis is that Mexico and the United States have become irrevocably interconnected, although neither public opinion nor public policy have entirely come to terms with that fact. They stand to gain more than they lose from acknowledging their ties and working together on the economic and political issues that affect them both. “Perhaps no other nation affects the United States on a day-to-day basis as much as Mexico. Geography, environment, companies, supply chains, people, communities, beliefs, and cultures bind together the two nations and their futures.”

Shannon O’Neil is Senior Fellow for Latin America studies at the Council for Foreign Relations.

Mexico is a country of 116 million people, the second largest (after Brazil) in Latin America as well as the second largest (after the U.S.) in North America. Public opinion in the U.S. may focus primarily on Mexico’s problems–poverty and drug-related violence–but that misses the bigger picture: “Mexico’s real story today is one of ongoing economic, political, and social transformation led by a rising middle class, increasingly demanding voters, and enterprising individuals and organizations working to change their country from the inside.” O’Neil is not saying that Mexico’s future is assured, but only that it has come far enough to have a decent shot at democracy and prosperity. She describes the country as being at a crossroads, facing two possible futures: “It could evolve into a highly developed democracy such as Spain, or it could deteriorate into a weak and unreliable state, dependent on and hostage to a drug economy, an Afghanistan.”

Which would we rather have as a neighbor sharing a thousand-mile border, a Spain or an Afghanistan? On the one hand the U.S. could have the security of an alliance with a strong democracy and the financial rewards of trade with a strong economy. On the other hand it could have larger waves of poor migrants pouring into the country and prohibitive security expenses. “The troops and resources required to secure the U.S.-Mexico border from drug traffickers, migrants, and terrorists would far outstrip those sent to Afghanistan or Iraq.” O’Neil considers policies based on fear alone unrealistic and counterproductive. Trying to wall ourselves off from Mexico geographically, economically and politically will make it harder for Mexico to become the kind of country the U.S. would prefer it to be.

Historically, the United States has had a very troubled relationship with Mexico, often characterized by political and military dominance, uneven economic benefits, and mutual suspicion. After Mexico’s independence from Spain in 1821, the U.S. took advantage of its political weakness to acquire large chunks of its territory, including the border states of Texas, New Mexico, Arizona and California, as well as parts of Colorado, Utah and Kansas. The U.S. intervened in Mexican affairs on a number of occasions, partly to protect its economic interests against interventions from European nations. Mexico was especially open to U.S. investment during the Porfiriata, the long rule of General Porfirio Diaz (1884-1911), resulting in substantial U.S. control over Mexico’s resources, with profits primarily for U.S. businesses and a small Mexican elite. After the civil war that began in 1910, Mexico struggled to regain domestic control over its resources, culminating in the nationalization of the oil industry in 1938.

For much of the twentieth century, relations between the two countries were rather distant and mutually suspicious. The United States allowed Mexicans into the country when it needed their labor, as it did during and after World War II, but excluded them when jobs were scarce, as in the Great Depression. In Mexico, the ruling political party for over seventy years, the PRI, “justified its own excesses as necessary for defending the nation against the ‘Yanquis’ next door.” And yet the forces that would eventually strengthen interconnection were already operating. Mexico relied on U.S. capital investments to modernize the economy. Rapid population growth and displacement from traditional occupations encouraged Mexicans to seek jobs to the north. The bracero guest-worker program (1942-64) allowed millions of Mexicans to establish a foothold in the U.S., which encouraged many others to follow legally or illegally.

The recent history of U.S.-Mexican relations includes new forms of cooperation, but also new insecurities and resistance to closer ties. The Immigration Reform and Control Act of 1986 (IRCA) created a path to citizenship for over two million undocumented immigrants. The North American Free Trade Agreement (NAFTA) signed in 1992 reduced trade barriers, with complex and controversial results to be discussed later. Since 2000, however, security concerns and economic fears have come to the forefront, and U.S. public opinion about Mexico has turned more negative. The comprehensive immigration reform proposed by George W. Bush failed to get through Congress [and the one proposed by Barack Obama also faces serious opposition]. Positions on these issues don’t divide neatly along party lines. On immigration reform, pro-business Republicans are more supportive than culturally conservative Tea Partiers. On free trade, “blue-dog” Democrats are more supportive than pro-labor Democrats concerned about the potential loss of domestic jobs.

Whether the United States stands to gain or lose from closer ties with Mexico depends on what Mexico is believed to offer. If it offers only drugs, violence, economic dependency and subsistence wage labor, then the losses might outweigh the gains. But in O’Neil’s view, that is not the Mexico that is coming to be:

Ask most Americans— and not a few Mexicans— about Mexico and they will emphasize poverty, corruption, and violence. Though not patently false, these views are misleadingly incomplete. Poverty continues, but the middle class now outnumbers the poor. Corruption is widespread, but Mexico is more transparent today than at any time in its past. Violence, though widespread, is still concentrated, and Mexico is taking steps that, if they continue, will stabilize and deepen its democratic rule of law— the building blocks for long-lasting security. Lost in the headlines, Mexico’s real story today is one of fundamental political, economic, and social transformation: from authoritarianism to democracy, from a closed to an open economy, and from a poor society to a middle class nation. Mexico’s hard-fought changes are creating a very different country on the southern U.S. border.

Later posts will explore several aspects of U.S.-Mexican relations in more detail: immigration, economic development, democratization and drug-related violence.

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