What Lies Beyond NAFTA?
One of the defining issues in the 1992 U.S. presidential election, NAFTA, has fallen off the radar in the current campaign. This suggests either that many in the U.S. have lost interest in it or, more likely, the subset who visit the HBS Working Knowledge site are generally comfortable with the results that NAFTA has produced. But it seems not to have receded in interest among at least one group of readers of this column. The column "What Lies Beyond NAFTA?," with a focus on future responses to issues concerning migration between Mexico and the U.S., elicited comments largely from Mexican readers—not surprising in view of the central role that Vicente Fox, the president-elect of Mexico, is expected to play in upcoming discussions of NAFTA 2.0.
There was little argument among respondents about the positive impact of NAFTA on both U.S. and Mexican consumers and economies. The conclusion is that it has created jobs on both sides of the border while sharpening the ability of Mexican companies to compete. The Mexican business community is learning to cope not only with foreign competitors, but also with rising labor costs caused by more competition for the skills of the Mexican labor force. In the words of Alejandro Jaime, "American society needs Mexico and vice versa."
Nor was there any argument that illegal immigration into the U.S. from Mexico is a dehumanizing process for both countries. As Diego Martinez put it, "Illegal immigration is a terrible thing. Not only does it create a new social class of underground activity in the U.S., but it also creates millions of broken homes ... in Mexico." He concludes that legalizing the free flow of labor into the U.S. "could be equivalent to the abolition of slavery in the nineteenth century."
And respondents seemed largely in agreement that Vicente Fox is well equipped to help foster a serious discussion of ways of dealing with the labor migration that will take place one way or another between the two countries. In addition, Xavier Ponce de Leon expressed the hope that something might be done to foster the creation of wealth (and jobs) in Mexico through the removal of structural barriers that inhibit entrepreneurial behavior.
However, before action might be taken to correct the problems created by illegal immigration, respondents would first gather some facts. According to Martinez, "There is probably some research done on the inflationary impact of regularizing illegal residents in the U.S." Roberto J. M. Rodriguez asks, "What is the U.S. economic labor demand that could be satisfied by Mexican workers? What is the Mexican labor (pool) available to satisfy the U.S. demand?" Devdip Ganguli asks, "... will neighboring countries be justified in considering it their right that the privileges be extended to them as well?" It's hard to argue with his conclusion that "In the end, we have more questions than answers." What do you think?
Sometimes it's the smallest books on our shelves that contain the most provocative ideas. Take, for example, a little book, The Nature of Mass Poverty, based on series of lectures given by John Kenneth Galbraith more than twenty years ago. In it, Galbraith argues that poverty in developing nations has to be dealt with much differently than in economies of plenty, that what works in a developed nation may be irrelevant to a nation of mass poverty.
In a developed economy, the bias is toward greater income and the means and effort to achieve it. The assumed essentials for economic development have long been, in Galbraith's words: "savings over current consumption to purchase capital; a progressive technology to embody or make use of the capital; a political and social system that allows and encourages the individual to seek his (or her) own betterment; and a regulation of the whole process, in the main by the market." He later added a fifth essential, that the society not "breed (producing population growth) up to the limits of its subsistence." (The words in parentheses are mine.)
In contrast, where mass poverty exists, particularly in predominantly rural societies, increased income sets in motion forces that "restore the previous level of deprivation," thus thwarting individual motivation and the likelihood of emergence from conditions of mass poverty. There is no excess of income over current consumption, hence no saving, accumulation of capital or resulting improvement in income. Without capital, innovation is not rewarded. In fact, it is regarded as risky. Failure can produce starvation. Therefore, labor-intensive practices do not change. What security there is results from the procreation of many children who can someday support their parents. When investment from outside does occur, it may extend life expectancy, thereby increasing population until it consumes the higher level of output produced by the investment, restoring the previous condition of poverty. Galbraith called this "the equilibrium of poverty."
In Galbraith's view, there is an answer: migration from poor to rich countries, with benefits for both. In the coming months, be prepared for a reopening of a discussion of these issues. It will be led by a John Wayne-like figure, Vicente Fox, the president-elect of Mexico. In this case, Mexico's version of Duke (who, whether on his horse or not, even looks a bit like John Wayne) will be coming to the rescue of those in his country who are afflicted by the equilibrium of poverty. The discussion will address this in the context of a review of what lies beyond NAFTA.
Regardless of who Fox's counterpart in the U.S. may be next year, what is the appropriate response? Given the labor shortage in the U.S., is it now appropriate to open our borders to an unlimited number of neighbors from the South, essentially legalizing what is now happening illegally anyway? If so, what is the appropriate response to what assuredly would be opposition from U.S. labor unions? Or is there an intermediate step perhaps involving renewable work permits requiring a periodic return to Mexico, something many migrants do anyway? If concessions are made to Mexicans, will they have to be extended to more distant neighbors? What are the benefits and costs for a U.S. economy already straining at its limits? How should this be translated into policies regarding immigration?