Business Forum: NAFTA helped increase flow of illegal immigrants

The debate about illegal immigration rarely mentions the North American Free Trade Agreement, known as NAFTA. That’s regrettable, since the flood of illegal Mexicans in 2006 empirically challenges the philosophy that guided NAFTA’s design.

The slogan of those who championed NAFTA was, “Trade, not aid.”

The pact would solve our problems with little or no transfer of funds from richer Canadians and Americans to poorer Mexicans, it was widely believed.

By raising Mexican living standards and wage levels, Attorney General Janet Reno predicted, NAFTA would reduce illegal immigration by up to two-thirds in six years. “NAFTA is our best hope for reducing illegal migration in the long haul,” Reno declared in 1994. “If it fails, effective immigration control will become impossible.”

NAFTA succeeded, at least on its own terms. As Jaime Serra Puche, Mexico’s former trade minister and chief NAFTA negotiator recently observed, “When you look at NAFTA in terms of what NAFTA was made for, which were trade flows, investment flows, and in general technological transfer and so on, you can say that NAFTA has been a successful enterprise.”

Trade now constitutes 55 percent of Mexico’s gross domestic product, up from about 30 percent in 1990. Foreign investment in Mexico has increased by more than 225 percent since 1994.

So when you look at the pact in terms of what it was intended to do, based on what those who wrote it said it was intended to do, it has been a smashing success.

At this point, bringing up an old medical adage might be appropriate: “The surgery was successful, but the patient died.” NAFTA achieved its intended goals. But the flood of illegal immigrants to the United States is up, and the standard of living of the average Mexican is down

Real wages for most Mexicans are lower than when NAFTA took effect. And Mexican wages are diverging from rather than converging with U.S. wages, despite the fact that Mexican worker productivity has increased dramatically.

As NAFTA intended, Mexico has become an export-dependent economy. But this has not benefited most Mexicans. Sandra Polaski of the Carnegie Endowment for International Peace points out that Mexican manufacturing increasingly is based on a production model in which component parts are imported, then processed or assembled and then re-exported. The spillover effect of such operations on the broader economy is very limited.

Ironically, one might argue that illegal migration is the only thing saving Mexico from the ravages of NAFTA.

Illegal migration serves as an important safety valve. In the past 10 years, Mexico’s working-age population has expanded by about 1 million per year, but the number of jobs has expanded by only half as much, according to a Carnegie study. The annual exodus of 500,000 to 1 million Mexicans reduces labor unrest inside the country.

Migration serves another even more important function: national financial safety net. In 2005, Mexicans in the United States remitted some $20 billion home, about 3 percent of Mexico’s national income, according to a March story by Knight Ridder’s Washington bureau. Remittances now exceed tourism, oil and the maquiladoras as the country’s top single source of foreign exchange.

NAFTA boasted that trade, not aid, would boost the lot of Mexico and Mexicans. Ironically, the only thing that is keeping the wolf from Mexico’s door is aid from the United States, via Mexicans living in the United States, not trade.

The European model

It didn’t have to be this way. Consider the recent history of the European Union. Europeans realize that the flow of migrants increases when the income gap between countries widens. Thus the European Union invested hundreds of billions of dollars in its poorer countries to reduce the income gap and intra-European tensions between farmers and workers.

This massive investment enabled the E.U.’s four poorest members — Greece, Ireland, Portugal and Spain — to boost their per-capita GDP from 65 percent of the overall E.U. average in 1986 to 78 percent in 1999.

Unlike Americans, Europeans knew that both trade and aid are needed to make economic integration work.

I would add only one other ingredient to this recipe for success: internally generated development. Sustainable economic development comes from within, from expanding internal markets and internal production that supplies those markets.

Sustainable economic development comes from strengthening, not weakening, local and regional trade networks. And this, in turn, depends on strengthening and not weakening local and regional social networks.

People don’t leave their communities, their friends, their families and their cultures because they want to. They leave when they have to.

NAFTA’s designers promised it would keep Mexicans at home. Yet its very objectives undermined that possibility. Now leaders in all three countries are trying to pick up the pieces.

One hopes they would use this opportunity to revisit their original premise and model as well.

David Morris is vice president of the Institute for Local Self-Reliance, based in Minneapolis and Washington, D.C. (www.ilsr.org).