Friday, April 18, 2014

Raymond Robertson's review of Sidney Weintraub's Unequal Partners: The United States and Mexico

Raymond Robertson's review of Sidney Weintraub's 2010 book Unequal Partners: The United States and Mexico offers, in the process, a compact and perceptive overview of my father's work on Mexico, US-Mexican relations, and North American economic integration;  it also conveys a good sense of the debates in which he was intervening.  I've posted the review below (with Prof. Robertson's kind permission).

One of the highlights of my father's career as an economist and public-policy advocate was his role as an influential proponent of the North American Free Trade Agreement (NAFTA), signed in 1994.  (For some further discussion of this point, see the video clip of the talk by Dr. Rafael Fern├índez de Castro of ITAM at the end of this post.)  This was a project to which he was strongly committed, not just as a political economist but also as someone who cared deeply about Mexico and its people.  He was convinced, rightly or wrongly, that a free trade agreement would greatly benefit both the US and Mexico.  (He also expected that, if the US and Mexico made visible progress toward a free-trade agreement, Canada would ask to be included—which, indeed, is what happened.)

My father is widely considered one of the intellectual fathers of NAFTA—a distinction that has made him "revered" in some circles (as someone once put it to a friend of mine) and rather less revered in others, depending on people's views regarding NAFTA and its overall consequences. Thus, it is not surprising that Robertson's review puts a considerable emphasis on NAFTA as "perhaps the most significant example of U.S.-Mexican partnership."

One of my father's key interventions into the debates that eventually led to the passage of NAFTA was his 1984 book Free Trade between Mexico and the United States?  The fact that the book's title ended in a question mark was no accident.  In 1984 its advocacy of a free-trade agreement between Mexico and the US ran very much against the prevailing consensus in both countries.  Analysts who have much more expertise in this area than I do share this retrospective impression.  Robertson's review, for example, includes this paragraph:
As a pillar of Mexican studies, Weintraub is in a perfect position to examine the evolution of Mexican political economy and the U.S.-Mexican relationship. His 1984 monograph "Free Trade between Mexico and the United States?" predated the North American Free Trade Agreement by nearly a decade and was written at a time when many experts were incredulous about the possibility of such an agreement, given Mexico's staunch tradition of resisting the powerful influence of the United States.
And a passage in the 2010 review of Unequal Partners by Jorge Dominguez made this point even more strongly:
With regard to US-Mexican trade, Weintraub has long been not just a perceptive analyst but also a visionary in the best sense of that word. In 1984, the Brookings Institution published his book, Free Trade between Mexico and the United States?, in which Weintraub analyzed the pathologies that existed then in the highly restricted bilateral trade between the two countries, examined the foregone opportunities that a trade opening would likely provide and, as the book’s title implied, recommended a bilateral trade agreement between them. At the time when he wrote that book, Weintraub’s well constructed work seemed like political lunacy because Mexico was strongly wedded to a highly protectionist set of policies in trade, investment, energy, and other sectoral policies, and adamant in resisting a closer association with the United States. Weintraub was, therefore, a scholarly pioneer who articulated the case for North American free trade and thus increased the likelihood that the idea would become a reality, as it would be through the ratification of the North American Free trade Agreement (NAFTA) in late 1993.
A few months ago (at the suggestion of my stepmother Elizabeth Midgley) I went back and checked some of the reviews of the book written around the time it appeared. They all strike a similar note. For example, a brief notice in Foreign Affairs by William Diebold, Jr. began:  "'Impossible!' is the answer most informed people would give to the question in the title. But Professor Weintraub of the University of Texas [....]"  A 1985 review by Cathryn Thorup in the Political Science Review (http://www.jstor.org/stable/2151079) began:  "Sidney Weintraub challenges the prevailing wisdom that political obstacles and economic costs outweigh the potential benefits of free trade between the United States and Mexico with an extremely informative and accessible book certain to spur both academic and policy debate."  The 1985 review by Donald Rousslang in the Journal of Economic Literature, which endorsed the main thrust of the book's substantive argument, indicated that the book "is primarily concerned with refuting the accepted view in Mexico that the free trade area would cause Mexico to become an economic backwash, unable to develop or even sustain its industrial base in the face of competition from the United States."

And so on.  Everything I've read conveys the same picture regarding the academic, political, and ideological context into which my father's argument in his 1984 Free Trade book was launched. The consensus at the time seems to have been (and still seems to be, in retrospect) that my father's advocacy of a free-trade agreement challenged "the accepted view," "the prevailing wisdom," and so on to such a degree that many people were skeptical or even "incredulous" about whether this kind of agreement would be either beneficial or feasible. Therefore, it seems fair to describe my father's argument as "pioneering," "seminal," and perhaps even "decisive" (as Raymond Robertson put it in a conversation I had with him).  It does seem to have played a significant role in helping put the idea of a US-Mexico free trade agreement on the agenda of serious political and policy debates.

One other quotation from Cathryn Thorup's 1985 review is also interesting and thought-provoking in this connection. Her assessment of the book's argument was fairly skeptical, but she concluded by saying this:
Weintraub begins with the assumption that ideas matter and that greater understanding can lead to regime transformation. If not finally convincing in what is, in essence,a judgment call regarding the merits of the free trade option, Weintraub's thoughtful and lucid essay will certainly contribute to a less emotional and more informed debate.
Of course, that formulation about Weintraub's "assumption that ideas matter" reminds one of Keynes's famous remark that "The ideas of economists and political philosophers, both when they are right and when they are wrong, are more powerful than is commonly understood."  My father's role in the long-term process leading up to the enactment of NAFTA seems to be one case that accords with Keynes's dictum.

—Jeff Weintraub

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Journal of Economic Literature, Vol. 49, No. 1 (March 2011), pp. 146-150
[ http://www.jstor.org/stable/29779761 ]

Unequal Partners: The United States and Mexico. By Sidney Weintraub. Pitt Latin American Series. Pittsburgh: University of Pittsburgh Press, 2010. Pp. xv, 172. $60.00, cloth; $24.95, paper. ISBN 978-0-8229-4387-7, cloth; 978 0-8229-6058-4, pbk.   JEL 2010-0463

    Every scholar who has studied Mexico is familiar with nineteenth century Mexican president Porfirio Diaz's comment: "Poor Mexico! So far from God and so close to the United States." In this pithy volume, Sidney Weintraub examines the often contentious relationship with a primary focus on Mexican political economy. The book contains eight chapters. After a brief introduction (chapter 1), the book contains six "issue" chapters. The first two directly address the issues at the core of the North American Free Trade Agreement: trade and finance. These are followed by chapters on narcotics, energy, migration, and the border. The last chapter summarizes the book and suggests several policy recommendations.

    One might get the impression from the title that the book is about the relationship between Mexico and the United States, but that is only partly true. It highlights several areas in which the two countries directly clash, such as over narcotics and the border, and others in which they cooperate, such as trade and foreign investment. But the book is really about Mexico and the title and text simply reflect the idea that it is very difficult to understand Mexico without understanding the influence of the United States.

    This monograph fits neatly into a progression of monographs that analyze the changes in Mexican economic policy, such as Daniel Levy and Gabriel Szekely's 1982 Mexico: Paradoxes of Stability and Change and Nora Lustig's 1998 Mexico: The Remaking of an Economy. Weintraub's book is similar to these in that it tells the story of recent economic reforms and changes in politics and economic policy that shape both Mexico's current economic situation and the relationship between Mexico and the United States. Both of these previous books, with their insightful analysis of key issues facing Mexico, became widely adopted and read by students of the Mexican economy. This book could become the next component of this sequence.

    The central thesis of the book has two parts: Mexico approaches the United States with diffidence and the United States approaches Mexico with dominance. The author's implicit message is that this imbalance creates suboptimal policies and his explicit goal is to advocate equalizing the relationship. Weintraub acknowledges, however, that the first step is to equalize their per capita income levels. While it is not clear that similar per capita incomes have mitigated the power dynamic between, say, the United States and Canada, Weintraub s suggestion goes to the very heart of development economics. If we knew how to move countries from middle to high income status, we might see more countries making the jump. What is novel about this book, however, is that it points out that Mexico has had essentially a decade of relatively good macroeconomic management: a floating peso, stable monetary growth, and relatively stable fiscal policies. On the other hand, the United States has done far less to help Mexico than the European Union did to assist, for example, Spain. Together Weintraub makes the argument that, in 2010, Mexico's poor economic policy choices deserve much less of the blame for its relative lack of development than in the past.

    The North American Free Trade Agreement (NAFTA) was perhaps the most significant example of U.S.-Mexican partnership. Since the goal of NAFTA was to increase both trade and investment, it makes sense that these issues are the first two discussed. The chapters on trade and investment are quite similar in spirit to previous books that describe Mexico's liberalization in that they start with "Import Substitution Industrialization" and discuss the path Mexico took to liberalization. The trade chapter focuses on the political economy of trade policy (such as the debate over NAFTA) more than the nature of the uniqueness of the trade relationship. There is little focus on the maquiladora sector and the fact that for much of the 1990s it was the primary driver of Mexican manufacturing growth. In addition, several academic studies suggest that the combination of foreign investment, migration, and trade polices effectively integrated Mexico into the North American production chain—for better or for worse (Raymond Robertson 2000, 2007).

    Weintraub addresses NAFTA critics by arguing that NAFTA was oversold in both the United States and Mexico and therefore the fact that NAFTA did not bring Mexico into the ranks of the high-income countries (and therefore did not solve immigration, inequality, and poverty) should not be held against the agreement per se. Weintraub argues that NAFTA was primarily designed to increase trade and investment and, although NAFTAs contribution might be debatable, it is clear that both trade and investment increased after the agreement went into effect.

    The finance chapter also covers banking, and Weintraub very effectively relays the problems involved with the 1982 nationalization and 1991 92 privatization of the banking system. It is also a chapter that skillfully weaves both positive and normative analysis in a way that presents reasoned and balanced positions. For example, he highlights the principle-agent problems that tainted both the U.S. bailout of Mexico during the peso crisis and the Mexican oversight of the domestic financial sector. Although he calls the privatization process, which he notes was mainly driven by the government's desire to maximize revenue, "sad" since it lacked sufficient regulatory oversight, he praises Mexican financial management during the early 2000s, arguing that the effects of the U.S. financial crash would have been much worse in Mexico if Mexico had not so effectively reformed the financial sector.

    One might argue that Mexico's 2010 was dominated by domestic drug-related violence. Weintraub's fourth chapter covers both U.S. and Mexican anti-drug polices, highlighting the problems and failures in both countries. As written, the chapter seems to present thinly veiled support for some form of drug legalization in the United States as an alternative to current policies, while at the same time acknowledging that such a policy lacks sufficient support to be a currently realistic option. The chapter is an extremely useful primer on the current situation and tension between the two countries because it blends the evolution of policies and relatively current political milestones. For example, he discusses the June 30, 2008, Merida agreement in which the United States agreed to support Mexico's anti-drug efforts, and Secretary of State Hillary Clinton's acknowledgement of U.S. drug demands role in Mexican drug violence on March 25, 2009.

    Chapter five focuses on energy or, more specifically, oil. As all students of Mexico are deeply aware, there are few, if any, issues that have deeper roots in Mexican nationalism than Mexico's constitutional control over its oil. Weintraub masterfully explains the history and recent policy developments that affect both Mexico's oil production and, consequently, the energy-related relationship with the United States. His discussion briefly touches on Mexico's dramatic nationalization of oil in 1938 but focuses mainly on current problems facing Mexico's national oil company, PEMEX. PEMEX, for example, devotes insufficient resources toward investment because PEMEX revenues are a significant component of Mexico's national budget. The lack of investment probably explains falling production, and, since the United States has relied on Mexican oil, has caused the United States to consider alternative relationships (such as Brazil).

    On the other hand, however, the oil chapter presents clear exceptions to the overarching thesis of the book—that Mexico defers to its more dominant northern neighbor. At the end of the chapter, Weintraub lists five ways in which Mexico said "no" to the United States in energy policy. But, instead of explaining what we learn about the overarching thesis of the book, the conclusion of the chapter presents frank assessments of options, mostly for Mexico, which are as sound as they are unpopular. For example, Weintraub argues that Mexico needs to relax its deeply held beliefs of national control over energy resources by allowing joint ventures with foreign companies or increase its domestic tax collection to save its domestic oil production.

    The sixth and seventh chapters focus on migration and the border region. These chapters deal with the daily manifestations of the deep integration between the two countries: border crossings. As Weintraub notes, there are more than one million crossings each day along the U.S.-Mexican border—more than across any other border in the world. Some of these involve migration of workers seeking higher wages in the United States, but also involve tourism, shopping, cargo transportation, and other motives. In both chapters, Weintraub mentions the controversy surrounding the U.S. decision to erect a fence along the border. He also discusses the widely inefficient cargo-transport system that involves three steps for every shipment crossing the border and the trucking dispute, which lingers as an example of the U.S. failing to comply with provisions in the NAFTA. The trucking dispute, in which the United States delayed allowing Mexican truckers from carrying freight in the United States as specified in NAFTA, is the result, according to Weintraub, of the political influence of the AFL CIO more than economic reasoning. Like the other chapters, these two are full of practical examples and rich with detail. At the same time, however, the lack of references to more academic sources is surprising and in several cases would have complemented the discussion. For example, the migration chapter focuses mainly on each administration s views on migration and the failure to achieve a migration agreement, but does not mention other relevant work, such as Gordon H. Hanson (2005), who reviews the foundation of the U.S. immigration debate, or the debate between George J. Borjas (2003) and Giovanni Peri and Chad Sparber (2009) about the effects of immigrants on wages in the United States.

    While the central thesis of asymmetry is carried throughout the book, the books value probably does not lie in the central thesis. Clearly there is an asymmetric relationship between the two countries. After all, there are few countries in the world that would not approach the United States with diffidence, and few countries the United States would not approach from a dominant position. But even in the Mexican-U.S. relationship, the presumed implications of the diffidence dominance relationship do not always hold. For example, Mexico successfully protects its oil production and has few explicit policies to reduce emigration to the United States. These exceptions are noted but not analyzed in depth, giving the impression that the diffidence-dominance paradigm is simply a frame on which to hang the discussion of the recent evolution of Mexican political economy.

    As a pillar of Mexican studies, Weintraub is in a perfect position to examine the evolution of Mexican political economy and the U.S.-Mexican relationship. His 1984 monograph "Free Trade between Mexico and the United States?" predated the North American Free Trade Agreement by nearly a decade and was written at a time when many experts were incredulous about the possibility of such an agreement, given Mexico's staunch tradition of resisting the powerful influence of the United States. The text is terse and pithy, but leaves out several other issues that are clearly relevant for the U.S.-Mexican partnership. The U.S. share of Mexican imports fell from nearly 80 percent in 2000 to about 48 percent in 2009, a gap that was partially made up of imports from China. North American production is increasingly integrated, as was discussed in Weintraub's own work on the automobile industry (Weintraub and Christopher Sands 1998). Many of the issues addressed in the book—such as the asymmetry of power—are certainly not unique to Mexico; they may arise in many U.S. relationships. Weintraub acknowledges this directly but attributes the peculiarity of the relationship to the fact that the United States and Mexico share a 2,000-mile border. That said, it would be interesting to follow up this volume with Unequal Partners: The United States and Canada as a way to possibly separate the issues that truly are unique to Mexico. Economic asymmetries and subsequent economic growth led to Ishihara and Morita's "The Japan that Can Say No" in 1989 and "China Can Say No" in 1996. According to Weintraub, Mexico has been able to say no on several issues—most notably on energy—but does not explain what threshold must be crossed in order for Mexico to assert its independence.

    One especially nice feature of the book is that the end of each chapter includes a timeline of the relevant developments for the chapters issue. These timelines are nicely researched and detailed and, thus, extremely useful for understanding the developments of the issue and providing leads for further study into the issue.

    As a concise yet relatively comprehensive overview of the primary issues driving both Mexican political economy and the U.S.-Mexican relationship, this book is highly recommended. This book serves as a useful reference for current economic and political changes in Mexico and, therefore, should have broad appeal. It would be especially valuable for undergraduates in a course on Latin American economics as a case study focusing on Mexico.

REFERENCES

Borjas, George J. 2003. "The Labor Demand Curve Is Downward Sloping: Reexamining the Impact of Immigration on the Labor Market." Quarterly Journal of Economics, 118(4): 1335-74.

Hanson, Gordon H. 2005. Why Does Immigration Divide America? Public Finance and Political Opposition to Open Borders. Washington, D.C.: Institute for International Economics.

Levy, Daniel, and Gabriel Szekely. 1982. Mexico: Paradoxes of Stability and Change. Boulder: Westview Press.

Lustig, Nora. 1998. Mexico: The Remaking of an Economy, Second edition. Washington, D.C.: Brookings Institution Press.

Peri, Giovanni, and Chad Sparber. 2009. "Task Specialization, Immigration, and Wages." American Economic Journal: Applied Economics, 1(3): 135-69.

Robertson, Raymond. 2000. "Wage Shocks and North American Labor-Market Integration." American Economic Review, 90(4): 742-64.

Robertson, Raymond. 2007. "Trade and Wages: Two Puzzles from Mexico." World Economy, 30(9): 1378-98.

Weintraub, Sidney. 1984. Free Trade between Mexico and the United States? Washington, D.C.: Brookings Institution Press.

Weintraub, Sidney, and Christopher Sands, eds. 1998. The North American Auto Industry under NAFTA. Washington, D.C.: Center for Strategie and International Studies.

RAYMOND ROBERTSON
Macalester College

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