Category: Uncategorized

First Part: Reviewing the Past

The victor in Mexico’s July 2, 2006, presidential election faces many of the same domestic policy challenges as his predecessor—fiscal dependence on volatile petroleum revenues, enormous pension liabilities that expand with Mexico’s aging population, insufficient investment capital in the energy sector, declining global competitiveness, weak job creation and growth, corruption, inadequate rule of law, and increasing crime. How these problems are addressed during the six-year tenure of the new president will determine Mexico’s economic and political course well into the future. The main contenders for the Mexican presidency present a fairly broad array of programmatic solutions to Mexico’s challenges, ranging from continued heavy reliance on the free market to a more activist state that promotes and regulates private economic activity. Rarely have Mexican voters been able to make such an important choice about the future course of their nation. The stakes for the United States in this election are large as well. Finding a solution to the immigration question inevitably involves Mexico. A politically and economically stable Mexico is necessary to manage the flow of Mexicans into the United States, coordinate binational efforts to fight drug trafficking, and resolve a long list of border issues. A stable Mexico plays an important role in fostering U.S. national security. And a stable and prosperous Mexico can contribute significantly to U.S. efforts to ensure its energy supplies and to enhance the global competitiveness of important sectors in the U.S. economy.1 The United States has also come to rely on Mexico as an important ally in trying to secure a hemispheric free trade agreement and mitigating the efforts of Venezuelan President Hugo Chávez to build an anti-U.S. block of Latin American states. The outcome of the 2006 election will determine the tenor of U.S. relations with its southern neighbor and will therefore place Mexico squarely at the center of both the U.S. domestic and foreign policy agendas.

As investment capital returned to Mexico, encouraged in part by the North American Free Trade Agreement (NAFTA), which institutionalized Mexico’s opening to the international economy, Mexico’s political leaders lauded the resulting spurt in economic growth as clear evidence of the success of their market-based strategy. Unfortunately, many Mexicans blamed the ensuing collapse of the peso in 1994–95 and its associated economic crisis on the very same economic strategy. A 7 percent drop in economic activity in 1995, an increase in unemployment, and the spectacular and costly failures of the recently privatized banking and highway systems soured Mexicans on privatization and reinforced the position of politicians who opposed the “neoliberal” economic model. When the opposition took control of the Congress in the 1997 midterm elections, economic reform ground to a halt, leaving behind a broad array of structural weaknesses in the Mexican economy that today threaten the country’s capacity to generate growth and jobs.

Before the 1990s, Mexican foreign policy was based on broad principles—self-determination, nonintervention, and the peaceful resolution of disputes—rather than specific national interests. This policy focus made pragmatic sense for a country that lacked the capacity to stop great powers from meddling in its internal affairs. It also was feasible because Mexico’s insular model of economic development created very few economic interests that needed protection in the international arena. The opening of the Mexican economy to international trade, however, created Mexican national interests that could be protected only by engaging the international community, including the need to ensure access to markets and to protect domestic producers from unfair competition. Since the vast majority of Mexico’s international economic interactions involved the United States, foreign policy innovations focused on its relationship with the United States.

The deepening of these bilateral ties, however, was hindered by domestic opposition in Mexico and the 1994–95 economic crisis. Important segments of the Mexican populace were never comfortable with this new foreign policy focus. Many in the political and intellectual elite, the media, and the urban middle class believed this institutionalization of Mexico’s dependence on the United States was a mistake. NAFTA’s role as the symbol of the new U.S.-Mexico relationship and its association with Mexico’s broader economic opening also made the country vulnerable in the aftermath of the 1995 economic crisis. The crisis weakened the president, forcing him to choose his political battles carefully. Although President Zedillo solidified the bilateral cooperation established by his predecessor, he downplayed the significance of these cross-border ties and did little to promote their expansion or formal institutionalization.

In the economic realm, the country deepened and institutionalized previous policy advances rather than adopting additional measures to ensure future growth and democratic stability. Consequently, the competitiveness of the Mexican economy fell steadily over the past five years. (Mexico surrendered its position as the number two exporter to the United States to China.) The country is still unable to generate more than a fraction of the formal sector jobs needed to absorb new entrants into the job market. The underlying causes of these economic problems are weak investment in human and capital infrastructure and inefficiencies in the country’s energy and labor sectors. Mexico has not yet implemented fiscal reform to increase tax collection, which remains one of the lowest rates in the Western Hemisphere, 11 percent of gross domestic product (GDP). Such a move could generate the funds urgently needed to finance investments in human and capital infrastructure while reducing the government’s dependence on volatile petroleum revenues. Nor has it undertaken changes to the national petroleum company, Pemex, in which declining production and a profound shortage of investment capital threaten the economic viability of a firm that generates a quarter of Mexican exports. Finally, Mexican labor law has not been revised to allow for the increased flexibility characteristic of modern labor markets and to encourage uni*n democracy and transparency in order to eliminate the traditional practice of Mexican uni*n leaders enriching themselves at the expense of workers and economic efficiency. The pension liabilities of the Mexican government, meanwhile, are already greater than the country’s GDP and growing rapidly.

The culprit was a series of structural and transitory factors that undermined governability throughout the Fox administration. Understanding the nature of these obstacles, and particularly the balance between the structural and the more transitory barriers to effective governance, is essential to determining their probable long-term impact. As the last five years have demonstrated, it is not sufficient to propose viable technical fixes to Mexico’s political and economic problems; they also require the political capacity to act. The impact of the 2006 elections on Mexico and U.S.-Mexico relations, therefore, depends heavily on the policymaking environment that will greet the new president, how it interacts with his particular policy preferences and political skills, and his consequent ability to deal with Mexico’s pending reform agenda. Excerpts from Pamela K Starr’s June 17 Report from the Council on Foreign Relations(2005)

You want to pinch yourself reading this story. A Texas probation office works with local school district to educate kids out of trouble, resulting in a decreased criminal justice budget for youth enforcement? The reduction in Texarkana detentions may have something to do with recently completed juvie halls elsewhere, reducing contract assignments, but we are more in a mood to believe with Socrates that expediency and justice are really quite the same thing, and that Texarkana offers a clue why. Thanks to the Yahoo Prison Movement list for this little gem: Bowie’s detention center holding fewer juveniles

By Greg Bischof

Texarkana Gazette

Of more than 16 office budget requests reviewed by the Bowie County Commissioners Court last week, most requested the same amount of money, but one asked for much less for the upcoming fiscal year.

For the 2006-2007 fiscal year, which starts Oct. 1, the Bowie County Juvenile Probation and Detention Center asked for a 21 percent cut in funding.

During last week’s budget hearings, Bowie County Chief Juvenile Probation Officer Bruce Ballou asked for $1,357,901 — $515,000 less than he received for this fiscal year, which ends Sept. 30.

The Bowie County Auditor’s Office attributed this to a decrease in the juvenile population during about the last three years — not only in terms of Bowie County inmates, both long- and short-term, but also out-of-county contracted inmates (both long- and short-term).

The center is holding about 50 children ages 10 to 17. This amounts to just under a third of the center’s capacity.

The Auditor’s Office attributes the dwindling population, in part, to the fact that more Texas counties have built their own juvenile detention centers.

However, Ballou also attributes a portion of the decrease to what appears to be an overall decline in the county’s juvenile crime rate during the last three years.

Three years ago, the county averaged about 1,000 juvenile arrests on an annual basis. That has dropped to about 580 — a 47 percent decrease since 2003.

Ballou said some of the decrease could be attributed to the center’s effort at reforming juveniles and setting them back on the right path for their adult lives.

The center, licensed by the Texas Juvenile Probation Commission, is staffed by faculty provided by the Liberty-Eylau Independent School District to provide regular classroom education to both pre-adjudicated and post-adjudicated inmates, Ballou said.

LEISD has also provided a new, top-of-the-line computer system classroom, which inmates will use once the school year starts.

“We focus on teaching the kids daily living skills during the time they are sent here,” Ballou said. “But during the time the kids are here, the state requires that each one have at least six hours of classroom instruction.”

Juveniles are processed in, just like adult inmates in adult prisons. This includes being fingerprinted and photographed.

Then the inmates are placed in a holding cell until a judge can determine whether they will be sentenced for a period of time to the center, or released immediately to their parents’ custody.

One part of the center is designated for pretrial (or short-term inmates—meaning from 1 to 10 days) while the other part is designated for sentenced or long-term, post-adjudicated inmates (for periods that could last up to six months or longer).

Apart from the traditional inmate reform program, the center also offers students expelled from either the Texarkana, Texas, independent School District or LEISD a Juvenile Justice Alternative Education Program, which stipulates that an expelled student must complete 45 days of good behavior before being released to return to school.

“What this does is get the troublemakers out of school so as to allow teachers to go ahead and instruct the public school students who are behaving well,” Ballou said.

Besides academic instruction, the center also provides students with vocational education through an automotive technical and body frame repair shop, which the JDC opened about two years ago.

“The kids learn everything from oil changing to engine overhauling in this workshop,” Ballou said. “This includes brake work, tire rotation, frame repair and auto body repainting.”

Ballou said the vocational training has been and continues to be particularly valuable because of trade skills it teaches the juvenile.

“Here the kids learn the importance of working at a legitimate job for a living, rather than selling dope on the streets,” he said. “They learn how to be an asset to society, not a liability.”

http://www.texarkan agazette. com/articles/ 2006/07/17/ local_news/ news/news07. prt

The Wall Street Journal’s Econoblog presents a civil discussion about the economics of immigration, showing mostly that there is no huge case to be made either for or against migrants when it comes to the numbers used by economists and business planners.

Migrants do tend to enrich capitalists. I get emails reminding me of that about once a week. OK. But these days, who doesn’t enrich capitalists? Now I’m all for a national discussion about capitalism, but scapegoating is what happens when some unlucky guy gets to take the blame for everyone else.

As the WSJ discussion makes clear, any effect of migrants on the overall economy – and certainly this includes the migrants’ value to corporations – has to be cast in pretty small percentages. The discussion is worth archiving below:(gm) ECONOBLOG

Immigration’s Costs — And Benefits
June 26, 2006

Illegal immigration has been painted as a costly problem, an economic necessity and a political football as the debate surrounding it has gathered steam.

The Wall Street Journal Online asked economists Gordon Hanson of the University of California, San Diego, and Philip Martin, of the University of California, Davis, to discuss the underlying causes of immigration (both legal and illegal), its historical roots and the nature of the current political uproar over the issue.

Gordon Hanson writes: For all the heat that the debate about immigration has generated, the net economic impact of immigration on the U.S. economy appears to be remarkably small. First, some thoughts on legal immigration, before we address illegal immigrants.

By bringing new workers into the economy, immigration allows existing U.S. capital, land, and technology to be used more efficiently. Also on the plus side, immigrants pay property taxes, sales taxes, Social Security taxes, and income taxes.

ABOUT THE PARTICIPANTS

Gordon Hanson obtained his bachelor’s in economics from Occidental College in 1986 and his doctorate from the Massachusetts Institute of Technology in 1992. Before joining UCSD in 2001, he was on the economics faculty at the University of Michigan and at the University of Texas. He has written more than 50 publications in academic journals and other academic volumes. His current research focuses on causes and consequences of Mexican migration to the U.S., how and why multinational firms globalize their production activities and the factors that shape countries’ export capabilities. His most recent book is “Why Does Immigration Divide America? Public Finance and Political Opposition to Open Borders.”

Philip Martin is a professor of agriculture and resource economics at the University of California, Davis. He also chairs the University of California’s Comparative Immigration & Integration Program and edits the monthly immigration newsletter, Migration News. He studied labor economics and agricultural economics at the University of Wisconsin, Madison, where he earned a Ph.D. in 1975. His research focuses on farm labor, labor migration, economic development, and immigration issues, and has testified before Congress and state and local agencies numerous times on these issues. His most recent book is “Managing Labor Migration in the Twenty-First Century.”

In the negative column, immigrants use public services in the form of public education, fire and police protection, government assistance, etc. Add the positive and negative elements together and you get what looks like a very small number.

We can calculate the gain to U.S. GDP due to immigration, known in econ parlance as the immigration surplus, using a simple formula that is a function of three things:

• The importance of labor to the U.S. economy

• The size of the immigrant labor inflow

• The change in U.S. wages due to immigration

Whether legal or illegal, immigration generates a gain in national income by making U.S. business more productive. George Borjas and Larry Katz have examined the specific consequences of immigration from Mexico for U.S. wages.

But illegal immigration differs from legal immigration in several important respects. First, illegal immigrants tend to have low skill levels, which means they end up in jobs in agriculture, construction, household services, landscaping, low-end manufacturing, or restaurants and lodging. Employers in these industries (and consumers of the goods these industries produce) are primarily the ones who benefit from illegal immigration. In a recent study, Patricia Cortes, a graduate student at MIT, finds that U.S. cities that have higher larger immigrant inflows have lower prices for housekeeping, gardening, and other labor intensive services. Ten percent more immigration lowers prices for these services by about 1.3%.

Second, illegal immigrants, by virtue of their low income levels and their tenuous attachment to the legal economy, don’t pay all that much in taxes. Yet their kids still attend school and their U.S.-born kids still get access to Medicare. What does this mean for the net fiscal consequences of illegal immigration? The Center for Immigration Studies, an anti-immigration think tank, estimates that the short-run net fiscal impact of illegal immigration is negative, on the order of $10 billion in 2002, or 0.09% of U.S. GDP in that year. This is not a big number.

As with immigration overall, what upsets people is not the aggregate impact of illegal immigration, which, as with legal immigration, seems to be more or less a wash. It is that the benefits of illegal immigration are enjoyed by one group — the employers who hire them (and the consumers of their services) — while the costs are incurred by other groups — low-skilled workers and taxpayers in states where illegal immigrants reside.

Philip Martin writes: Gordon is right: Immigration, whether legal or illegal, adds workers, most of whom get jobs, which makes the U.S. economy larger. If there are economies of scale, as when producing more lowers the cost of production, the prices of some goods fall, benefiting those who buy those goods at home and abroad.

Most of the benefits of immigration go to the immigrants who earn higher wages in the U.S. than they would at home. In the standard triangle analysis, there are no net economic benefits to the U.S. economy (the triangle in the Hanson and Borjas papers above, as well as in my book “Promise Unfulfilled: Unions, Immigration, and Farm Workers”) if wages do not fall with the addition of immigrant workers.

It has been very hard to agree on how much wages declined because of immigration, but the 3% estimate of Borjas is reasonable.

With migrants getting most of the gain from immigration in their wages, and owners of capital and land getting most of the rest in higher profits and rents, the surplus triangle is 1/10 of 1% of GDP. Pro-immigration people stress that immigration is positive, a net economic benefit, and in a $13 trillion economy, 1% is $13 billion. Anti-immigrant people stress that immigration adds $13 billion, or about two weeks’ growth in an economy growing 2.5% a year.

Economists agree that the immigration generates a small net economic benefit for the U.S. and in doing so redistributes income from workers to owners of capital and land. Perhaps this is why immigration is such a political hot potato; it’s mostly a distribution issue and, for governments that are in the business of redistributing income via taxes and subsidies, regulating immigration is another redistribution tool.

How many, from where and in what status are the core questions of immigration policy. Could the U.S. get a larger economic benefit if changed the mix of immigrants arriving?

The National Research Council data suggest the answer is yes. Making often heroic assumptions about how well immigrants and their child
ren
will fare in the U.S., the NRC calculated the present value of a typical immigrant arriving in the U.S. in the mid-1990s to be $89,000, that is, taking into account the taxes paid of immigrants and assuming that their children and grandchildren are like their U.S.-born counterparts, the NRC estimated that the present value of the taxes paid will exceed tax-supported benefits consumed by $89,000 over the next 50+ years.

However, the same study emphasized that the key to the benefits of immigration for the U.S. are their level of education. Those with more than a high-school education had a net present value of almost $200,000, while those with less than a high-school education had a net present value of negative $13,000.

Gordon writes: I think few would argue that we are living through an unprecedented moment of immigration from Mexico and Latin America. Where disagreements might arise is over what brought this moment about and how long it might last.

If you go back to the middle of the 20th century, immigration from Mexico just wasn’t a big deal. The share of Mexican immigrants in the U.S. labor force actually fell from the 1920s to the 1960s. Now, these numbers don’t include temporary immigrants that entered the U.S. under the Bracero program from 1942 to 1964, but I think the importance of that program is easy to exaggerate. Since braceros had to return home at the end of each year, the program represented a one-time increase in the U.S. labor force of just a few hundred thousand workers. Even at its height in the late 1950s, when over 400,000 Braceros entered the U.S., these workers represented less than half a percent of the U.S. labor force.

Today, however, the scale is entirely different. Mexican immigrants now account for about 5% of the U.S. labor force (and 35% of the immigrant labor force), up from less than 1% in 1970. What happened?

I would cite two events. Since 1982, Mexico has had several major economic contractions and has been unable to string together more than a few years of solid growth. As a result, per capita income in Mexico has steadily fallen relative to per capita income in the U.S. Why stay in Mexico when incomes are rising faster in the U.S.?

Compounding migration pressures has been the entry of Mexico’s baby boom into the labor force. While fertility rates in Mexico have dropped sharply in the last three decades (from five kids per woman in 1970 to three kids per woman in 2000), it wasn’t that long ago that the typical Mexican woman had nearly a half dozen children. Mexico’s high fertility years produced a demographic bulge, the members of which in the last 20 years have come of age and started to look for work. As luck would have it, Mexico’s baby boom entered the labor force during Mexico’s two decades of dismal economic performance and decidedly lackluster growth in labor demand. The result has been the surge in Mexican immigration that we have been witnessing.

What makes the current surge in Mexico-to-U.S. migration hard to slow is that today’s generation of Mexican young people do not have a memory of good economic times in Mexico. Many may have lost faith in Mexico’s ability to provide them with a decent future. Such a change in expectations is a powerful force because it implies that Mexico would have to produce unexpectedly strong economic growth for a sustained period to get Mexican workers to believe in the Mexican economy, again. In the meantime, Mexican labor will keep heading north.

Philip writes: Gordon has nicely laid out the failure of Mexico to create jobs for its baby-boom generation and the challenge of generating stay-at-home development after repeated disappointments in Mexican economic development. I think that the Bracero experience has relevance for today’s policy debate, in which both the House and Senate agree on more border and interior enforcement, and both seem to favor guest workers, but only the Senate offers a path to legal status.

The Bracero (“strong arm”) program was very important in setting Mexico-U.S. migration in motion. There were actually two periods of programs, between 1917 and 1921 and again between 1942 and 1964. The second period was important for several reasons: It gave Mexicans experience migrating legally and illegally to the U.S., made farmers familiar with Mexican workers, and introduced the nemeses of guest-worker programs everywhere: distortion and dependence.

Opening legal channels for guest workers doesn’t necessarily curb illegal immigration. Between 1942 and 1964, some 4.6 million Mexicans were admitted to do farm work; many Mexicans returned year after year, but between one million and two million gained legal U.S. work experience.

The Bracero program is another example of the maxim that there is nothing more permanent than temporary workers. The economic decisions of U.S. farmers became distorted as they made investment decisions that assumed Braceros would continue to be available. There was no need to raise the piece-rate wages that most Braceros earned, so it became profitable to plant orange and apple trees in remote areas. If the Bracero program were ended, these plantings would be unprofitable, explaining why farmers argued that they would go out of business without migrants. The program was nonetheless ended at the behest of President Kennedy, who believed that Braceros were “adversely affecting the wages, working conditions, and employment opportunities of our own agricultural workers.”

Today, 75% of U.S. hired workers on crop farms were born in Mexico, and more than half are unauthorized. If we substitute “unauthorized Mexican farm worker” for “Bracero,” we get the same debate as we had in the early 1960s and the early 1980s, before IRCA was enacted.

Perhaps the best way to minimize the distortion inherent in guest-worker programs is to charge employers for the privilege of employing legal migrants, and to use the taxes or levies collected to help them to mechanize and restructure jobs. In agriculture and many other U.S. industries that hire Mexican workers, it can be hard for an individual employer to mechanize, since, e.g., the crop must be packed or processed in a facility that is set up to handle machine-picked or hand-picked produce, but not both.

The other issue is the dependence of some areas of Mexico on the U.S. labor market. Economic theory suggests that areas sending and receiving migrants should see convergence in wages, but this anticipates higher wages in areas losing workers. Wages have risen in Mexico, but many of the rural areas from which most migrants come have been described as filled with nurseries and nursing homes, reflecting the fact that working-age adults are in the U.S. Remittances can lead to better housing and spending that generates multipliers and helps nonmigrants, too, but may not lead to the economic development that would keep young Mexicans seeking a brighter future at home.

The Bracero program sowed the seeds for subsequent Mexico-U.S. migration, which makes me cautious about beginning another large-scale guest-worker program. Second, if a new guest-worker program does not deal with the distortion that invariably creeps into the decision making of guest-worker dependent employers, there will be future “I will go out of business without migrant” protests. Third, if Mexico cannot absorb its labor force entrants in good or formal sector jobs, there will continue to be strong incentives to cross the border.

Gordon writes: Where do we go from here? Congress is battling over how to manage illegal immigration, with a plan to expand a guest-worker program being the most popular current policy option. In a nutshell, the idea would be to convert illegal immigrants into guest workers, which the U.S. government could regulate.

A guest-worker program, at least how it is envisioned by Congress, would be a disaster. For as maligned as illegal immigration is, it has some attractive fea

tures in terms of economic efficiency. Illegal immigration delivers U.S. business the types of workers they need (low-skilled labor, which is increasingly in short supply), when they need them (during times when the U.S. economy is expanding), and where they need them (in regions where job growth is strong).

A guest-worker program would have none of these properties. Given the snail’s pace at which the Department of Homeland Security operates, U.S. employers would likely have to apply for guest workers long in advance of when they actually need them. The flexibility and adaptability of current illegal inflows would be lost. In response, many employers would probably go back to what they are doing now, which is hiring illegal workers.

Successful policy reform would require rethinking both illegal and legal immigration in the U.S. Why not convert most family-sponsored immigration visas into visas awarded on the basis of skill? Why not make the number of immigrants awarded visas conditional on U.S. economic conditions? Why not have the price of a U.S. immigration visa be determined by market conditions? These are questions that in the current debate should be asked but sadly are not.

Philip writes: I hate to think that illegal migration, with migrants dying in the desert and sometimes subject to unscrupulous employers, is the best we can do. I think the first priority is to agree that hiring unauthorized workers is a serious offense and devote the resources needed to change the behavior of employers and migrants. We can do this; we have done it for child labor, and we can make hiring unauthorized migrants just as unacceptable, as is true in northern Europe and Germany.

After 1986, both U.S. employers and Mexican migrants thought for a short time that the U.S. government was taking unauthorized migrants as seriously as child labor. But they soon realized that it wasn’t, and they went back to hiring the unauthorized workers who showed up seeking jobs. There was also a layering in the labor market, with many employers turning to labor contractors to hire crews of workers on separate payrolls, cutting the link that allowed for some earlier Horatio Alger stories of ambitious workers climbing the ladder within a corporation when discovered by the right manager.

Labor migration is a process to be managed, not a problem to be solved. An effective migration-management process is one that uses economic incentives and disincentives to encourage employers and migrants to obey government-set rules, since we will never have enough enforcers to get compliance that goes against economic interests. In guest-worker programs, these economic incentives and disincentives involve payroll taxes; in general legal immigration, we have to answer the question whose interest migration is to solve.

If migration is to benefit natives, the key is to select immigrants most likely to be successful: young, healthy, well-educated English speakers. If migration is to allow the world’s “huddled masses” to breathe free, there will be different selection criteria. The inability of policy makers to answer these questions may reflect American ambivalence about immigration.

“Border surveillance now consists of more than 200 cameras sending images back to border patrol stations, but the system is inconsistent at best and gives agents no analytical information to determine threats,” reports Rob Thormeyer this week for GCN (Government Computer News).

“For SBInet to have any real impact, the system needs to mix the surveillance equipment with a real-time communications element that lets border patrol agents respond quickly to incursions.”

Which makes it interesting to think about the Boeing commercial that I just saw on the stock market channel (CNBC) which images the company as a master of remote surveillance technology.
I can’t find on the internet any mention of this recent media campaign by Boeing, but it sure targets the image that the Department of Homeland Security is looking for as DHS considers who will get the huge SBInet contract for border security (now valued at $2 billion).

Boeing is heavily reported in the news today because of investor interest in costly delays for the company’s surveillance airplanes, which are 18 months behind schedule for delivery to Turkey and Australia.

“The defense unit, known as Integrated Defense Systems, recently has suffered execution glitches with several projects, including new radios for the Army and a new generation of spy satellites,” writes Ameet Sachdev in today’s Chicago Tribune.

Meanwhile, Associated Press reporter Dave Carpenter has a helpful roundup of Boeing’s image problems, including the following note on a forthcoming settlement with the USA Justice Department:

“On the legal and political front, McNerney has pushed to resolve a three-year Justice Department investigation into defense contracting scandals. The company announced it expects to take a second-quarter charge reflecting a settlement with the U.S. Justice Department in which it will pay the government $615 million _ the largest financial penalty ever imposed on a military contractor _ without having to face criminal charges or admit wrongdoing.”

For a nice wrapup of the SBInet bidding contest see the June 12 (2006) story by Alice Lipowicz at Washington Technology: Teams vie for SBINet

Part Two: No Reason to Worry about the Leftists

Whoever wins the July 2006 presidential election will likely face a divided Congress, political parties that continue to be separated by profound programmatic and personal disputes, governors struggling to expand their still limited autonomy, and uni*ns and business leaders working to preserve their traditional privileges. The task of transforming this political raw material into a governing coalition will not be easy for any of the three leading presidential contenders—Andrés Manuel López Obrador of the Democratic Revolutionary Party (PRD), Felipe Calderón of the National Action Party (PAN), and Roberto Madrazo of the PRI. Each candidate has a different strategy for building a governing coalition and for exploiting the nonlegislative powers of the presidency. Each also has a very different set of policy preferences that he would pursue with governing capacity. But they all agree that Mexico must sustain democratic practices, invest in human and capital infrastructure, increase energy production, create jobs and enhance economic competitiveness, and preserve a good relationship with the United States. [Here the author reviews how the USA president got angry at the Mexico president when the latter failed to support the former’s UN campaign for war in Iraq, and how Mexicans as a whole have been insulted by the Congress of the USA for its recent exploitation of the immigration issue.]

The sobering effect of these experiences suggests that Mexico’s next president will move the country away from Fox’s tight embrace of the United States, rekindle efforts to build ties with the rest of Latin America, and renew its reliance on the principles that have traditionally guided Mexican foreign policy: self-determination, nonintervention, and the peaceful resolution of disputes.

This does not mean, however, that Mexico will become hostile to the United States, embrace the Latin American left, or end its participation in international institutions. Mexico realizes that its future is inevitably intertwined with its northern neighbor. Mexico obtains two-thirds of capital flows into the country and virtually all of its $20–25 billion in annual migrant remittances from the United States. It also sends nearly 90 percent of its exports to the United States, and more than 80 percent of tourists visiting Mexico are Americans. Mexico cannot afford a profound alienation from the United States. The Mexican population is also largely supportive of a warm relationship with the United States.

Indeed, behind the scenes the relationship has become increasingly institutionalized and stable regardless of who occupies the U.S. and Mexican presidencies. The NAFTA dispute resolution mechanism (as well as the World Trade Organization [WTO]) provides a formal framework for resolving trade disputes, and cooperation on security matters and efforts to combat drug trafficking are increasingly close and institutionalized. Regardless of who is inaugurated president on December 1, 2006, Mexico is unlikely to embrace Latin America’s radical left. There is little support for such a policy at home and a clear understanding that it would be of little practical advantage, especially given the damage it would cause to Mexico’s all-important relationship with the United States.

López Obrador is also very unlikely to embrace Hugo Chávez. To the contrary, he is the only Mexican presidential candidate in memory from the left who has not employed anti-American rhetoric.

Although López Obrador is not a great fan of free trade treaties, he is unlikely to pull Mexico out of its existing trade agreements with the European Uni*n, Japan, Chile, and other countries. But a López Obrador presidency is not likely to continue its predecessors’ support for a Free Trade Area for the Americas. Finally, López Obrador’s nationalism, his sensitivity to criticism, and his tendency to speak his mind freely will make him a prickly partner who is susceptible to perceived slights by the United States or its representatives, a historically common source of tension in the bilateral relationship.

All three candidates agree that although migration is a dominant foreign policy concern, it should no longer define Mexico’s dealings with the United States as it did under Fox. They also accept—in principle—Mexico’s responsibility to help manage the migrant flow by creating more and better jobs, helping to administer a temporary worker program, and recognizing U.S. security concerns related to migration. And they all accept the fact that controlling the border is a U.S. sovereign right. But the three candidates also insist that the United States has the responsibility to protect the human rights of Mexican nationals who cross into U.S. territory. They also uniformly favor amnesty for Mexicans living and working illegally in the United States. But they disagree over the weight each of these issues should have in Mexican migration policy. Calderón would sustain Mexico’s current migration policy but with an added emphasis on policing the northern border. Madrazo has proposed a new, more vigorous office for migrant affairs in the foreign ministry to symbolize his promise to aggressively protect the rights of Mexicans in the United States. López Obrador argues that the recent growth in migration flows is a national tragedy and a direct consequence of the “neoliberal” economic strategy’s inability to generate employment opportunities for the majority of new entrants into the job market. López Obrador would encourage the United States to support his effort to slow migration pressures by creating jobs in Mexico while actively protecting the rights of current migrants.

All of these permutations of Mexican migration policy, however, share two limitations that have affected this policy for years. First, Mexico has not explicitly considered what it is willing to give the United States in exchange for continued access to the U.S. job market. Mexicans firmly believe the U.S. economy is far too dependent on migrant labor for Washington to seriously limit the flow. They find it difficult to comprehend that U.S. security concerns and domestic political pressures could override this perceived economic need. Mexicans tend to interpret congressional efforts toward restriction as racist posturing, which the U.S. business community will prevent from becoming law, rather than as a real reflection of public concern over the fiscal and security implications of large migrant flows. This perception has prevented Mexico from thinking seriously about what it can do to prevent a substantial reduction in its access to the U.S. job market, despite the knowledge that this eventuality would be catastrophic for Mexico. Second, Mexico’s vague promises to contribute to a comprehensive migration agreement by policing its borders and creating jobs are not credible.

Although López Obrador appreciates the importance of public security, he firmly believes that the best anticrime strategy is one that emphasizes fighting poverty and inequality. Investing more in policing strategies is important, but clearly plays a supporting role. As mayor of Mexico City, for example, López Obrador hired the security firm run by former New York Mayor Rudolph Giuliani to design an anticrime strategy for Mexico City, yet never implemented its recommendations.

The outcome of Mexico’s 2006 presidential election also matters greatly to the United States because of its impact on Mexico’s political capacity to deal with the domestic economic challenges discussed earlier in this report. Mexico’s ability to create more and better jobs is critical to any long-term migration solution and to its role as an important trading partner of the United States. Mexico’s ability to reform its petroleum sector is an essential prerequisite to ensuring Mexican oil exports to the United States in future decades. Eq

ually important but often overlooked for its impact on the United States is Mexico’s ability to improve its future economic competitiveness. U.S. companies rely heavily on low-cost production facilities and suppliers in Mexico to enhance their international competitiveness. About 80 percent of U.S. trade with Mexico is intra-industry trade designed to increase the global competitiveness of U.S. firms. In a global economy populated by the low-cost, yet increasingly sophisticated production, of countries like China and India, the integration of U.S. technology with lower-cost Mexican production will continue to be an important tool for sustaining the United States and North America’s international competitive advantage in the future.

Although the United States justifiably felt let down by Mexico’s delayed and tepid statements of sympathy after 9/11 and its lack of support for the Iraq war, U.S. officials seem to have underestimated the depth of Mexican disappointment at having fallen off the U.S. foreign policy agenda. Mexico feels underappreciated by the United States and now further disrespected by the tone of the migration debate in the U.S. Congress. Hurt feelings and wounded pride on both sides of the border have inevitably limited policy cooperation. The United States should take the lead in changing the tone of the relationship by reaching out to Mexico’s new president as a valued policy partner, and Mexico should reciprocate by thinking realistically about migration and attacking its pending domestic economic and security agenda.