A Mexico Marshall Plan?

Interesting opinion article in the Saturday Washington Post by Steven Hill of the New America Foundation. Hill argues that the United States should imitate the European Union's policies toward its new members, policies begun when Ireland, Portugal, and Greece were added to the EU and then applied to applicant nations in central and eastern Europe. These include "massive subsidies–billions of dollars' worth–to help construct schools, roads, telecommunications, and housing," and requirements that new members "raise their standards on the environment, labor law, health, and safety–and more. The incentive of admission to the European club was used as a carrot to pull the poorer nations toward acceptance of human rights and political democracy. There won't be any border maquiladoras in the European Union."

I learned something about the EU policies when I attended a conference in Zagreb, Croatia, in 2003. Croatia was in the process of trying to conform its laws and institutions to EU requirements. This struck me as a mixed bag. On the one hand, it was surely a plus that Croatia, with its unhappy history, was being pushed toward the rule of law. On the other hand, it was not clear to me that harmonizing Croatia's economic regime with those of old EU members was a good idea. EU bureaucrats are trying to get new members like Estonia and Poland to get rid of their low-tax policies, which have stimulated economic growth, and imitate the high-tax policies of France, Germany, and Italy, which have choked off economic growth.

Here's Hill's program. First:

"It would start with massive subsidies from the United States to Mexico, a Tex-Mex Marshall Plan, with the goal of decreasing disparities on the Mexican side of the border and fostering a climate riper for investment. This would create more jobs in Mexico and foster a middle class; homeownership; and better schools, roads, and healthcare. Fewer Mexicans would then want to emigrate north. Instead, they'd stay home, becoming consumers of U.S. products."

Then:

"Under this scenario, more Americans also would begin emigrating to Mexico. With the cost of living spiraling along the U.S. coasts and in U.S. cities, many Americans would find not only the cheaper prices but also the warm climate and palm trees of Mexico a more attractive alternative than relocating to South Dakota or Kansas.

"Call it the Mexican safety valve, with American workers migrating to Mexico in search of jobs, homeownership, even to start businesses. In other words, they would chase the American dream in Mexico. Already we see the beginnings of this, with American expatriate communities springing up around cities such as Guadalajara."

My first reaction was that this is wacky pie-in-the-sky stuff. Congress is not going to approve "massive subsidies" to Mexico. And even if it were, no Mexican government is going to approve massive U.S. aid. Mexico's ruling class has a fierce nationalistic pride, and Mexico has in fact built massive projects on its own. Cancún«this needs the accent-jeb» and the other big tourism centers were government developments. Mexico has some fine toll roads and is building more, etc. Moreover, the Mexican political class is not going to cede control of these operations to the United States—both because Mexicans understandably want to control their own public services and, alas, because Mexican officials want to harvest the under-the-table profits.

But my second reaction is that Hill is on to something sensible, and that in fact some of what he is proposing is already going on. Our time of maximum leverage with Mexico was during the negotiations for the North American Free Trade AgreementNAFTA, which was ratified in 1993. But Mexico's leaders have continued to be concerned about the attractiveness of their country to outside investors. I remember that when I visited Mexico in 1994, a presidential election year, I was told that President Carlos Salinas was bragging about Mexico's high-tech voter identification card—far more sophisticated than any identity card in the United States, even now—to Goldman Sachs and JPMorgan. The current president, Vicente Fox, has tried to change Mexico's petroleum laws to end the monopoly of state-owned and labor-union-run Pemex to allow foreign investment in the energy field; unfortunately, the opposition PRI and PRD have a majority in the Congresso and have prevented any change.

NAFTA included provisions on Mexico's labor and environmental standards, and later free-trade agreements with Chile, the Central American republics, and the Dominican Republic have also included such provisions. Some Democrats and U.S. labor unions have charged that they are insufficient. But in any case, the United States, like the EU, has been using the leverage of opening its markets to influence the domestic laws of nearby countries with far less advanced economies.

As for Americans moving to Mexico, this is a bigger movement with more potential than most of us realize. Walter Russell Mead of the Council of Foreign Relations in his book Power, Terror, Peace, and War: America's Grand Strategy in a World at Risk, writes (pages 208–209):

"The U.S. (and Canada) should negotiate agreements with interested and willing partners in the region to provide favorable tax, customs, and other treatments with interested and willing partners in the region to encourage American (and Canadian) citizens to retire south of the border—and provide a suitable legal framework for issues like taxation, insurance, property rights, and inheritance. The president would also ask Congress to provide the necessary legislation that would allow qualified and licensed healthcare facilities to receive reimbursement under Medicare for treating eligible Americans. These reimbursements would be at some discounted percentage of the payments offered in the U.S., allowing the U.S. government to save money from the lower healthcare costs in Mexico and elsewhere.

"This kind of development policy is win-win. . . . Taking advantage of Mexico's lower costs will reduce the Medicare deficits . . . while creating, literally, millions of new jobs and billions of dollars in new investments in the region. And by creating hundreds of thousands of jobs in Mexico and the Caribbean this policy reduces the pressure for illegal immigration. . . . In addition to spending on consumables and medical care, there would be major investments in housing, infrastructure, recreational, and tourism facilities and a whole range of related activities. Florida was a swamp and Arizona was a desert before waves of retirees transformed those once sleepy economies. Hosting U.S. retirees is a way for countries like Mexico to create jobs, finance infrastructure development, and jump-start lasting economic growth."

This, I take it, is what Steven Hill is proposing, and it sounds like a good idea. Such a good idea, in fact, that it may already be happening without government action. With or without the agreements Mead and Hill envision, migration is a personal decision; retirees will move to Mexico only if they decide it is the kind of place they want to live. Mexico (or most of it) already has an attractive climate, and it has a class of entrepreneurs who may see these opportunities. Government agreements would probably help, but the market can also move in this direction by itself.

Hill, unfortunately, ends his piece with a silly paragraph I just can't ignore.

"In the meantime, the United States is missing out on huge economic opportunities while the European Union has grown to the largest trading bloc in the world, poised for the 21st century. Old Europe is looking spry on its feet, while the United States is looking clumsy and stuck to the flypaper of old ideas."

Spry on its feet? Old Europe has been stumbling along at a 1 percent or so economic growth rate, while the supposedly clumsy United States has been growing at 4 percent. The EU policies that Hill endorses without reservation actually have the potential of slowing growth in new Europe to the pace of old; let's hope they don't succeed. It seems that some on the center-left can't resist the idea that the market-oriented United States is somehow inferior to government-led old Europe. Please. I'm sorry that Hill felt obliged to end his thought-provoking article with this mindless bit of America-bashing.