That giant sucking sound is being heard again. A decade ago überbusinessman H. Ross Perot coined the uneuphonious phrase in assailing Nafta, famously arguing that the free trade agreement with Mexico would send U.S. jobs south of the border.
These days the sucking sound is coming from the shocked intake of breath by U.S. protectionists on the right and left. They slam the Bush administration for its trade policies, particularly its tolerance of “Benedict Arnold” companies (as presumptive Democratic presidential candidate John Kerry likes to call them) that export jobs, purportedly contributing in large measure to America’s so-called jobless recovery.
The economics of free trade, though, are more complicated than most critics would like to admit. Just consider the position that Mexico finds itself in, ten years after the signing of Nafta. The giant sucking sound it now hears, as Contributing Editor Lucy Conger notes in “Reforma School” (page 53), is not that of jobs being pulled from the U.S. to its cities and towns but of jobs leaving Mexico on their way to China and other more-efficient producers.
In good part this is Mexico’s own fault, as leaders like central bank chief Guillermo Ortiz tirelessly point out. The country has not carried through needed structural reforms in taxes, energy and law and finds itself competing with lower-cost competitors that can also offer a more up-to-date infrastructure. President Vicente Fox has tried to push several needed reforms but has been stymied by a fractious Congress. Perversely, his efforts are also being hampered by a recovering economy that has reduced the short-term urgency for fundamental long-term changes.
Economic ironies aren’t limited to Mexico, either, as Conger notes in this month’s cover story, “Peru’s Paradox” (page 66). The Peruvian economy is humming along smartly -- averaging GDP increases of about 4 percent or more in each of the past three years -- but President Alejandro Toledo is nearing rock bottom in popularity, with one recent opinion poll according him a voter approval rating of just 7 percent. His efforts to combat the main problem -- a bribery and corruption scandal involving his former intelligence chief -- include overhauling his cabinet last month. These measures have relieved some of the pressures on Toledo, but he will lose his job by statute when his term runs out in 2006.
