NAFTA, CAFTA, do we hafta?
In last week's Central American Free Trade Agreement talks, NAFTA, now almost 10 years old, was being put forth as a success story by the World Bank and other international organizations.
But that is much too generous. The fundamental measure by which economists evaluate the success or failure of economic policy is the growth of income per person. This ignores distribution; but from a purely economic point of view, if the economy grows, there is at least the possibility that everyone can improve their living standards.
By that measure, NAFTA is a terrible economic failure. From 1994 through 2003, the Mexican economy has grown by only 11 percent per person. This is less than one-fourth the rate of growth that Mexico experienced in the 1960s and 1970s. This is the relevant economic comparison for anyone who wants to evaluate Mexico's experience with NAFTA.
Of course, the reforms embodied in NAFTA did not begin in 1994 - they started in the early 1980s. But if we take the longer view, it looks even worse: From 1980 to the present, income per person in Mexico has grown by about 19 percent. This compares to 93 percent for the 1960-1979 (somewhat shorter) period. In other words, there is no economic evidence that the NAFTA model is a success.
In fact it appears that past performance, when the Mexican government had a much larger role in the economy, was much more successful - in spite of any inefficiencies. The same is true for the region as a whole. Replacing development policy with a mere opening up of the economy to international trade and investment, as NAFTA and CAFTA seek to do, simply has not worked. Many Latin American leaders are aware of this problem, and they are also aware of the growing discontent with the region's long-term economic failure.
These agreements have also lowered wages and salaries for the majority of U.S. employees, as even the research of pro-trade economists clearly demonstrates. After 40 consecutive months of manufacturing job losses, some Republican strategists are wondering aloud whether they want to try to squeeze this agreement through Congress in an election year. They might ask President Bush: NAFTA, CAFTA, do we hafta?
Mark Weisbrot is codirector of the Center for Economic and Policy Research
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