40 years ago the US sent Mexico into a financial crisis — and it transformed the narcotics industry

Borderland Beat posted by DD republished from Business Insider

By  Carmen Boullosa and Mike Wallace, "A Narco History"

In this excerpt from A Narco History: How the United States and Mexico Jointly Created the Mexican Drug War, coauthors Carmen Boullosa and Mike Wallace explain how the US and Mexico jointly created the Mexican Drug War.

 In the mid 1970s, the United States had added to its woes of recession those of inflation, due in considerable measure to OPEC’s success in raising oil prices.

To “whip inflation now,” the Federal Reserve Bank helmed by Chairman Paul Volcker began to raise interest rates, eventually driving the prime rate from 12 percent to 21 percent.

By 1980, this had precipitated a far deeper downturn, which did lower inflation, but only by driving up unemployment to levels not seen since the Great Depression of the 1930s.

The recession Volcker engineered in the US had an even more devastating impact on Mexico, as the interest rate on rolling over its short term loans nearly doubled.

By 1982, simply meeting interest payments would have required more than $8 billion per year. Worse, just as expenses soared, oil prices sagged.

Mexico made clear it could no longer make its interest payments.

US banks were terrified. Thirteen of the biggest stood to collectively lose $60 billion if Mexico went under — 48 percent of their combined capital.

And if Mexico fell, most of Latin America would come tumbling down behind it, likely triggering a collapse of the entire international financial system. The United States, accordingly, put together a multi-billion-dollar package of loans and credits, and worked out an unofficial debt moratorium.

 The World Bank and IMF were wheeled in to provide Mexico with emergency loans with which to resume paying the US banks, rescuing them from their own recklessness. These institutions in turn — following the model first worked out in New York’s fiscal crisis in 1975 — now imposed “structural adjustment” on Mexico.

Three boys in the street read a newspaper announcing better salaries for Mexican workers November 16, 1993 as Mexico anxiously awaits the outcome of a crucial vote in the US congressional session on the North American Free Trade Agreement.

 The creditors demanded privatization of public services, cuts in government social programs, a wider opening to foreign investment, and a ruthless concentration on paying back loans and interest. This arm-twisting was given an ideological gloss, reviving hoary shibboleths about the inherent superiority of market over state, repackaged as “neoliberalism.”

Executing these demands fell first to President de la Madrid and then to his successor Carlos Salinas de Gortari (1988–1994). Both believed the state apparatus was a burden upon Mexican business that should be thrown off, along with much else in the Partido Revolucionario Institucional (PRI) inherited project and ideology. Structural adjustment prompted privatization, the opening of the country to foreign investment, and the reorientation of the agricultural sector towards exports.

Mexican President Carlos Salinas de Gortari waves to the crowd after he gave his 6th State of the Nation address before the Mexican Congress, November 1, in Mexico City

 The 1980s were known as la Década Perdida, or “lost decade,” wherein 800,000 jobs evaporated and dispossessed farmers streamed into urban centers.

Salinas continued the policies, selling off large public enterprises at bargain basement prices. The process created a new class of Mexican tycoons. In 1987 there was one Mexican on the Forbes billionaire list. When Salinas left office in 1994 there were twenty-four.

Labor, conversely, was battered. When public enterprises were privatized their collective agreements were scrapped, benefits removed, “flexible” work rules imposed. Salinas also distanced the party from its long-affiliated labor unions, and ordered a series of attacks on more militant entities.

Various unemployed Mexicans offer their skills as handymen, fixing everything from light bulbs to toilets, by Mexico City's Metropolitan Cathedral October 30, 1995.

 At the same time, state subsidies that had kept the price of basic foodstuffs low were suddenly removed. The price of milk, tortillas, petrol, electricity and public transport shot up at the same time wages were being slashed. The provision of basic social services was similarly cut so that fewer people had access to free health care and education.

The neoliberal offensive was particularly devastating to farm labor, partly as a consequence of the establishment of the North American Free Trade Agreement (NAFTA) (which Salinas negotiated with George H. W. Bush, and which went into effect under Bill Clinton).

A principal US condition for entering the agreement was that Mexico undo the agrarian reforms embedded in Article 27 of the Constitution, a principal legacy of the Revolution. Communal land could now be divided and converted into private property. Price regulation of staple crops was scrapped. Tariffs and quotas on agricultural imports were removed. Subsidies that had supported small-scale farmers were deleted

US President George H. Bush offers a toast to his host, Mexican President Carlos Salinas during a luncheon in Monterrey on November 27, 1990.

The results of establishing a putatively equal trade between grossly unequal partners was that US agribusiness pushed thousands of Mexican farmers out of their own markets.

The price of corn dropped by around 50 percent after the NAFTA agreement, and the number of farmers living in poverty rose by a third. In the six years following the introduction of NAFTA, two million farmers abandoned their land. They flocked from country shacks to the burgeoning barrios of Mexico City; to the spreading slums of Tijuana and Ciudad Juárez to work in factories across the border.

The crisis transformed the narcotics industry.

Indeed it is impossible to understand the tremendous changes in the drug business during the combined sexenios of Salinas and Zedillo (1989–2000) without taking into account the massive political, economic, and ideological transformations wrought during that decade and the previous one by the PRI-governed state.

Farmers, unable to sustain themselves due to the removal of subsidies and the arrival of competition from US agri-corporations, found the burgeoning market for marijuana and poppies their only avenue to surviving on the land. The army of the urban unemployed gave the cartels a deep pool from which to recruit foot soldiers, and the miserably paid (and eminently corruptible) police and military provided the muscle with which to protect their interests.

The spread of everyday crime — aided by the rapid declension and corruption of local police forces — demoralized civil society, and provided a climate within which grander forms of criminality would flourish.

 

The adoption of free trade, and the deeper integration of the Mexican economy with that of the United States, dramatically increased cross-border traffic, making it far easier to insert narcotics into the stream of northward-bound commodities.

 
Some NAFTA rules were of particular help: because factory workers were exempt from tariffs and subject to only minimal inspections, Mexican smugglers began buying up such factories to use as fronts for shipping cocaine.

A Mexican soldier stands guard as over one ton of Colombian cocaine goes up in smoke on the Carribean island of Cozumel in the southern Mexican state of Quintana Roo February 27, 1997.

 Narcotrafficking had formerly been integrated into the PRI corporatist state, an under-the-table equivalent of labor, peasant, and business organizations. As such it was subject to a certain degree of regulatory control, and to unofficial taxation, in return for the de facto licensing of smuggling.

The state’s abandonment of this form of corporatist inclusion contributed to the independent growth and power of organized crime syndicates.

The glorification of wealth and entrepreneurialism provided a cultural environment that boosted the social standing of narco businessmen.

As in the former Soviet Union and other post-communist regimes, a neoliberal shock treatment simultaneously produced millionaires and gangsters, a twinning that Forbes registered by including them on the same list.

A soldier carries blocks of cocaine to a pile for incineration at a naval base in Matamoros, in Tamaulipas state April 29.

 The weakening of the state and the glorification of “free enterprise” conferred authority and legitimacy on the private sector in which drug traffickers were now key players. As Peter Watt and Roberto Zepeda have argued, neoliberals prioritized accumulation of profit over social welfare, ruthless competition over cooperation, and the sanctification of private property and wealth over community and civic responsibility.

These propositions — the cornerstones and guiding principles of free-market ideology — also formed the dominant ideology of crime syndicates.