The following article was first published in Proletarian Revolution No. 49 (Summer 1995).
Mexico is plunging headlong into a major depression. Whole sections of the working class and peasantry face ruin and immiseration, as the corrupt ruling class attempts to unload on the backs of the exploited masses the costs of the world-shaking financial crisis that broke out early this year when the government devalued the peso.
As workers are booted out of industry and peasants driven from their lands, a political crisis also looms. Until now, throughout the years of hardship since the explosion of the debt crisis in 1982, Mexican capitalism was able to create the illusion of progress and development with the hope for a better future for the masses. Now that the game of smoke and mirrors has been revealed, the ruling class faces a massive loss in confidence: the workers and peasants no longer believe they have a future under capitalism.
The crisis in Mexico is but the first of a series of shock waves that threaten to undermine the foundations of international capitalism. Mexicos debt crisis reflects the fragility of the capitalist world market bloated by the accumulation of fictitious capital. And unable to qualitatively develop the productive forces of society, capitalism more and more engages in a savage cannibalization of the existing forces of production to meet the competing claims for a share of the surplus value produced by the working class. Ruthless and intensified exploitation of the proletariat is the order of the day.
World capitalisms declining rate of profit since the 1970s led it to seek out high-profit but high-risk investments in the so-called developing nations like Mexico. Under the banner of progress and development, such countries were driven by their ruling capitalist classes to take on massive debts, with the false promises of future payoffs. In reality, the debts of Mexico and elsewhere were means for imperialist powers to suck out capital from weaker nations. While the local rulers stashed away their share of the plunder abroad, the workers were left to foot the bill.
Mexicos crisis is no sudden development. Since 1982, it has undergone at least 8 or more bailouts. Indeed, prior to the current devaluation, Mexicos workers still hadnt come close to regaining the buying power they had before 1982.
The idea that President Clinton and the U.S. ruling class are running to rescue Mexico is a cruel joke. For years, Wall Street and other imperialist investors enjoyed superprofits based on the exploitation of low-wage Mexican workers. Huge debt service payments not only are highly profitable for the creditors, but have served as a rationale for slashing the social wage and reducing the income and living standards of Mexican workers. With the development of the maquiladora factories along the U.S. border and former president Carlos Salinass privatization and free market reforms, Mexico became an investors paradise and a workers nightmare.
Low-wage export industries were supposed to fuel the drive to payoff the huge debt. The problem was that to develop the export economy meant attracting foreign investment (oil revenues were insufficient as a result of the worldwide decline in oil prices). Mexico had to increase its debt, gambling that this would lead to enough economic growth to pay it off.
By the late 1980s, with the level of export-oriented growth proving still insufficient to solve the debt crisis, the Salinas regime began putting up whole sections of the economy for sale in order to increase the flow of investment. While attention was paid to the import of foreign capital, little was said of the drain of capital leaving Mexico. Foreign funds were used to buy imports: capital and luxury goods from the U.S., Japan, Germany and other imperialist nations.
Selling out the last shreds of Mexicos independence, Salinas tied Mexicos future closely to the U.S. economy. With the signing of the North American Free Trade Agreement, Mexico seemed to be on the way to becoming a U.S. colony. As we warned in 1992 in opposing NAFTA, its chief purpose is to permanently undo Mexicos traditional nationalist protectionism. (PR 42.) NAFTA aimed to extend the cheap-labor maquiladora conditions to all of Mexican industry, undermining the wages and living standards of workers in Mexico (and in the U.S. and Canada as well).
Under NAFTA, the Mexican trade deficit soared to $30 billion in 1994 (most of it to the U.S., the basis for Clintons claim that NAFTA would lead to U.S. job growth at Mexicos expense) - hardly a way to payoff the huge debt. Still, even without taking into account the cost of imports, the payment of the debt service proved to be even greater than the income from Mexicos exports.
Salinas economic miracle was a fraud based on an overvalued peso. Mexico attracted foreign investment by promising exorbitant rates of return that could not be sustained. Like a pyramid scheme, Salinas & Co. could only payoff investors by continuing to attract new cash. The problem was that this required state intervention to prop up the peso in order to insure investors they would get the full value on their dollars. In effect, the government was subsidizing foreign investors, giving out inflated profits by squeezing the workers and peasants. Even this proved insufficient. Eventually, the Mexican government ran out of cash reserves and was forced to devalue.
Prior to the devaluation carried out in late 1994 by Salinas successor, Ernesto Zedillo, many of the big investors had already abandoned ship. Both domestic and foreign capital had been taking the profits and running for a number of years. In fact, most of the investment did not go into factories and long-term capital investment but rather to speculation in high yielding stocks and bonds. Investors made huge profits that were not reinvested but sent abroad.
While politically-connected capitalists and government officials made out like bandits, most Mexicans, including sections of the capitalist class, got no benefits at all. Mexico is left with even more debt and very little to show for it. On top of all this, the imperialists now want guarantees that they will continue to enjoy superprofits while they demand sacrifices by the masses if Mexico is to continue to borrow more at usurious rates.
To critics who pointed out that opening up Mexico would lead to mass suffering, the imperialists and their agents answered that this was the price that has to be paid for progress. Yet no sooner had the crisis revealed by the devaluation threatened foreign investors, than the free traders screamed for government intervention.
As journalist William Greider put it (Rolling Stone, March 9):
In its broad outline the Mexican bailout resembles another disastrous financial scandal from recent history--the Savings-and-Loan debacle of the 1980s. ... The circumstances are quite different, of course, but both episodes contain the same glaring contradiction: Finance capital wants to be free from government regulations or social obligations so it can roam the globe in search of the most profitable investments. Then, when those investments go sour in a big way, the players insist that government rescue them from the consequences of their own folly. Like the S&L operators before them, the global investors reaped the profits on the upside, while the general taxpayers are supposed to cover their tab on the downside. ...
This system calls itself free market capitalism, but maybe the right name for it is free-ride capitalism.
For the working classes, the chief lesson to be drawn is that no capitalist leader is at all interested in bailing out the impoverished masses. One Mexican government after another will continue to squeeze out more surplus value from the workers to pay the ever-growing debt - unless the working class makes its proletarian socialist revolution that, among other things, dares to repudiate the imperialist debt.
NAFTA was proclaimed to symbolize the victory of free trade and privatization over protectionism and statism. It represented the logic of George Bushs call for a New World Order in the aftermath of the collapse of Stalinism in the ex-Soviet Union and Eastern Europe. Yet the first crisis under NAFTA reveals imperialisms hypocrisy. The bailout of financiers by the imperialists is an attempt to protect investors through state intervention while demanding privatization and free markets in developing areas.
Developing nations are lectured by imperialist politicians and the International Monetary Fund (IMF) on the need to cut the social wage and stop subsidizing the meager living standards of the masses, but subsidizing capitalists is another matter. Of course, since U.S. workers would not accept granting direct subsidies to Wall Street, it was necessary to pose the handout as an effort to rescue Mexico.
Bushs call reflected the tremendous openings for private capital to penetrate third-world nations at the end of the Cold War. From 1989 to 1994, while official aid to developing countries rose from $42.6 billion to $54.5 billion, private capital investments more than quadrupled from $41.9 billion to $172 billion. In the last 3 years Mexico alone attracted $45 billion in mutual funds investments!
As in Mexico, much of this investment takes the form of short-term assets like mutual funds and stocks, not long-term plant and equipment investments. In Mexico, 80% of foreign investment went into stocks and short term Treasury bonds (tesobonos). Privatization and free trade have become catchwords for plunder and looting of whole nations.
Beyond the specific investors rescued by Clintons plan, the bailout aimed to allay the fear that if Mexico defaulted it would bring down markets and the international banking system in a meltdown. Wall Street this winter was full of talk about panics, and an economic domino effect was bolstered by the pounding of Latin American and Asian financial markets.
Above all, Mexico was touted as a model for free trade and privatization as opposed to protectionism and state-led economic development. Its collapse would undermine the marketizing efforts in the former Stalinist states and third world nations. Free traders feared that without U.S. intervention, Mexicos fall would lead to a withdrawal of foreign funds from other poor countries as well as to capital flight from heavily indebted imperialist nations like Sweden, Italy and Canada.
Marxists have long understood that in capitalisms epoch of decay, state intervention becomes necessary to save private property. The contradiction between this drive and current ruling-class ideology is blatant. As one capitalist put it, Its ironic that to encourage capitalism in emerging economies you must socialize the risk for U.S. investors. (New York Times, Feb. 12.)
Despite imperialisms need to prevent a collapse that would undermine world financial markets, the U.S. Congress was divided and paralyzed over Clintons bailout plans. Dominant sections of the U.S. ruling class favored it, and a split among the Republicans developed, with party leaders Dole and Gingrich supporting Clinton. But many new Congressmen representing the increasingly protectionist petty bourgeoisie opposed the bailout.
Polls showed that popular sentiment was overwhelmingly against Clinton. Right-wing populists like Rush Limbaugh and Pat Buchanan attacked the bailout as a handout to corrupt Mexican politicians and Wall Street. As it became clear that a divided Congress would not act, Clinton was forced to bypass it. His new plan actually bailed out Congress as well -- even supporters of the bailout were anxious to avoid a vote on something so unpopular yet so necessary for capitalism.
The circus atmosphere surrounding the bailout debate hid the fact that most Mexicans, especially workers and peasants, had no wish to be saved by U.S. imperialism. After years of being bled dry and forced into economic ruin under U.S. tutelage, Mexican workers saw the bailout as another sellout by their rulers to the imperialists. In particular, the stipulation that Mexican oil revenues would be held hostage to payoff the debt showed how far the capitalists had gone in selling out Mexican independence. The nationalization of foreign-owned oil companies in the late 1930s had symbolized a high point in the anti-imperialist struggle of the Mexican workers.
As bad as the known aspects of the agreement were, many wondered what secret deals had been cut behind their backs. And Mexican workers have good reason to worry. They are already being told they will have to tighten their belts in order to weather the depression induced by the U.S.- IMF bailout plan.
As the full crisis hits, strikes and outbreaks threaten to topple the shaky Zedillo regime. Even the once safe maquiladora industries have been hit by strikes as workers struggle to survive the massive attacks on their living standards. The dangerous situation for Mexicos rulers is accentuated by their inability to suppress the peasant uprising in Chiapas that began in January 1994. Despite the Zapatista leaderships disdain for a proletarian revolutionary strategy, the Chiapas revolt remains a rallying cry for angry workers and peasants.
The ruling class is scrambling to avoid massive social unrest. In February there was a huge series of protests against the deal in Mexico City. A report circulated on the Internet described the scene at the Zocalo, Mexico Citys immense main plaza (the EZLN is the Zapatista army):
The young men appeared fearless as they painted their Slogans and the assorted pro-EZLN messages. They painted in broad daylight, in front of on-lookers and guards. Some wore ski-masks, but others did not, even as they were being videotaped and photographed. They painted on the building of the pro-government newspaper Excelsior, on the sidewalks and streets, and even entered McDonalds on Calle Madero to paint inside on windows and on their floors.
When I asked them if they were afraid that the police might come, they all answered that they no longer had any fear. As one masked youth who went straight up to the national palace doors and painted EZLN said, In Mexico we were born with fear, but there is nothing to fear anymore. Either we die fighting or we die of hunger. Another youth took his resistance even farther as he unzipped his pants and pissed on the symbolic seat of the national government.
Several unions had a strong presence, including the electrical, telephone, and petroleum workers. These workers expressed their disgust for Fidel Velazquez, the leader of the pro-government union federation CTM, who recently commented that workers should give a days salary to help pay the debt and that those who support the Zapatistas are acting illegally and should be punished.
More recently, the government ordered the cancellation of the traditional May Day demonstrations. This did not stop over 70,000 workers from filling the Zocalo. According to the Washington Post, workers spray-painted the National Palace with slogans, including The fatherland is for sale.
While the Chiapas revolt plagues the ruling class, the solution to Mexicos crisis can only be found in a working class-led socialist revolution. More than ever, Mexico is tied hand and foot to the world market. Imperialism can only be defeated by a revolution that overthrows capitalist power, reorganizes society and fights for international revolution.
This is the only possible strategy for revolutionary workers in Mexico. The program of expropriating industry and the banks, giving land to the peasants and repudiating the debt would rally millions of workers and peasants against the handful of parasitic rulers tied to imperialism. To accomplish this, revolutionary workers in Mexico need to build their authentic communist party, a section of a recreated Fourth International, to lead the fight.
For years, the working class has been bombarded with defeatist propaganda about its weakness. Capitalism, not the working class, we are told, has become internationalist, as capital moves rapidly across borders to free itself of the restraints of class struggle.
But this means that capitalism is even more vulnerable. A crisis in one region quickly spreads throughout the whole imperialist system, pointing to its underlying fragility and weakness. So far, the imperialist rulers have been fortunate to have to deal with only a financial crisis in Mexico that has yet to mature into a full-blown social and political one.
Compared to the Revolution of 1910, the second Mexican Revolution would be vastly more influential. A revolutionary Mexico ruled by the working class would be a mighty beacon to the oppressed nations of Latin America, Africa, and Asia where maturing, revolutionary proletarian forces look for leadership in the struggle against imperialism.