Mexico’s development challenges spin around a unique situation. Mexico, more than anywhere else in the world, is attempting to foster a middle class that manifests services and products for the United States import market. Almost eighty percent of Mexican exports are U.S. imports. The opportunity is fabulous but also imposing. Since the nineteenth century Mexican Revolution that freed Mexico from Spanish rule, one of the primary Mexican reforms was land distribution. The idea was to break up the large land holdings, which were previously held by Spanish aristocrats, and begin supporting the peasantry’s growth towards middle class agrarian status.
Problems Of Middle Class Growth
A hundred years of struggle with land reform, corruption, and political conflict have produced a highly polarized economy. The disparity between rich and poor is as great in Mexico as anywhere on the planet and it follows the break between urban and rural population. With the advent of NAFTA this disparity is reinforced, because the trade opportunities that NAFTA produces are substantially manufacturing and service opportunities that require education and infrastructure, which, in Mexico, are mostly urban features. In a sense the border between Mexico and the United States is the border between the English colonies that developed on the east coast of North America and the Spanish colonies that had taken hold earlier in Mexico and South America. It’s a clash of empires played out differently in every century, but still influenced by the original forces set in motion by Europeans.
The path to middle class growth in Mexico doesn’t offer as much opportunity to rural farmers who seek a way of rising into the middle class without migrating to a city. In other countries the advent of cell phones and online access have been producing modest growth in rural development towards middle class without requiring a move to a city. For example in Peru the indigenous mountain people’s incomes have risen due to better connectivity. It’s true that oil, gas and mineral exports are the foundation of economic growth in Peru, but the digital revolution is helping the rural poor. In Mexico there is a different situation.
Almost a quarter of the Mexican population live in rural villages. That’s about thirty million people and they are substantially disconnected from modern development. Thus far cell phone providers in Mexico are focused on urban areas and when the geography gets difficult, which is to say, becomes rural, they discontinue their efforts to expand. The state-run phone company, Telecomm is now planning a satellite system which would connect its sixteen hundred rural phone networks. If this works it will bring mobile phone service to the rural areas of Mexico, especially in the South.
For now the rural poor are part of a stream of emigrants that leave Mexico and enter the U.S. often illegally. The U.S. gets inexpensive labor, while Mexico gets a flow of remittances sent home to family and loved ones. Those remittances represent over two percent of Mexico’s GDP and over eighteen billion dollars. For these rural Mexicans the path towards middle class life is emigration or migration out of their rural region to a Mexican city. Without access to developed infrastructure the possibility of staying home on the farm and finding a way of growing into the middle class is unlikely. So the difficulty for these people is finding a way to gain value from the huge foreign trade opportunities with the United States while staying home. The learning curve is huge.
It Happens In The Cities
The other side of Mexico’s development is urban. Here is where the opportunities offered by Mexico’s entry into the NAFTA trade agreement has returned big rewards. Of all the cities in Mexico, Guadalajara has gained the most. Often called “the Silicon Valley of Mexico,” Guadalajara was quickly adopted by many high tech U.S. firms as the ideal place to set up shop in Mexico. Since 1996 the city’s social structure has been significantly affected by multinational corporation that came, mostly from the U.S. to set up manufacturing and service facilities. Guadalajara has the third-largest economy and industrial infrastructure in Mexico, and is the second largest city, behind Mexico City. A long list of foreign companies have arrived her in the last fifteen years, including, Cognizant Technology Solutions, IBM, Hewlett Packard, General Electric, Siemans, Flextronics, Oracle, Jabil Circuit, Intel, Hitachi, Freescale Semiconductor and Motorola. The city has become Mexico’s main producer of electronics, software and digital components. In fact, about a quarter of Mexico’s telcom and computer equipment exports come from Guadalajara.
The city has a distinct socio-economic divide between well-off middle class people and poor people, but, there is opportunity here that doesn’t exist in rural Mexico, even for the poor. The best technical education facilities are here and available to those who can compete. Mexico’s growth is in services and industry, both of which require education and infrastructure. The unique challenge for Mexico is to distribute those growth opportunities to rural areas in ways that won’t require the rural poor to emigrate. For now Mexico is ahead of the development curve with exports but behind the development curve at distributing growth opportunities to their poor citizens.