Looking Askance at Picketty’s Inequality from the Third World

1. Introduction

Thomas Piketty’s book (2014) and the ensuing debate refocused our attention on wealth and inequality. His discussion centered on conventional measures of stocks of wealth and monetary flows rather than the structural conditions and social relations that underlie the changing economy. In the end, this led him to direct his popular discussions towards the challenge of designing an appropriate fiscal policy for redistributing these flows. But from the perspective of Latin America, and Mexico, the problem is starkly different.

Inequality in Mexico has been increasing notably during the past half-century and probably throughout all of the XX century. Real wages rose steadily during a long period (1935-1976), much of which was known as the “Mexican Miracle,” with sustained high rates of economic growth averaging about 6 percent per year. The process was guided during most of that time by policies of “stabilizing development” (Ortiz Mena 1969) and “import-substituting industrialization” highly influenced by the prevailing doctrine that was formulated by the principal theoreticians who were shaping their ideas in the newly created Economic Commission for Latin America (ECLA or CEPAL for its Spanish abbreviation) in 1949. Promoted by its first executive director, Raul Prebisch (1959), this approach called for a policy state-led inward-looking development, with a heavy emphasis on controlling inflation through direct intervention to fix prices of basic commodities and “manage” wage agreements within the rapidly expanding industrial labor force. In Mexico, real minimum wages rose almost five-fold between 1946 and 1976. In spite of these achievements, however, the personal and the functional distributions of income deteriorated substantially throughout the period (Barkin 1991). ¹

A virtual (bloodless) coup d’etat in the early 1980s, with its change in leadership and neoliberal reform package, led to the implementation of what later became enshrined as the “Washington Consensus” (Williamson 1999). Since then the real value of the minimum wage has fallen more than 80 percent together with substantial declines in real incomes and a dramatic increase in poverty; a similar deterioration of conditions for rural workers, peasants, and indigenous groups accompanied the opening up of agricultural and foodstuffs to international trade in the context of the proliferation of free trade agreements following the signing of the North American Agreement in 1992. Accompanying this change in the fortunes of Mexico’s working class and peasants was a deliberate expansion of investment opportunities for foreign capital and the elimination of the onerous restrictions that limited this investment in natural resources exploitation. The result of this combination of policies was a dramatic change in the functional distribution of income, reducing labor’s share to less than one-third of the national income (from almost half thirty years prior), lower than all but one country (Peru) in Latin America (Abeles et al. 2014; Samaniego 2014).

In December 2014, during the presentation of the Spanish translation of his best-seller, Piketty commented on the worsening situation in Mexico. He reported, somewhat off-handedly, that even on the very inadequate foundation of self-reporting, which is the only source of data on personal incomes in Mexico, inequality has been growing quite rapidly with the opening of the economy and the flow of foreign capital into ventures with local magnates that are controlling virtually every sector of the economy, especially those previously closed to such collaboration by restrictions raised by the revolutionary tradition that emerged from the first successful uprising of the XX century. Emphasizing the important underreporting of incomes in most countries, but particularly in Mexico because of inadequate institutional mechanisms for collecting or making available this information, he clearly distinguished the high concentration of incomes that most people measure from the even more striking concentration of wealth, about which even less is known. ² Somewhat laconically, from the perspective of Mexican members of the audience, he commented that “it would be very useful to have information on tax data.”

Apparently contradicting his optimistic prescription for addressing the growing inequality, a wealth tax on the very rich, during his presentation he emphasized the implications the contradiction of a notable finding of his analysis: the evident wealth of European countries and many of their populations in the face of poor governments. He explored the implications of the structure of the patrimonial (inherited wealth-based) societies of the “old world,” where these huge stocks are more significant than incomes in forging the structure of inequality and power that is so important in Europe. It also seems ironic, then, that he examines and accords so much importance to spending for social sector services as a possible counter-weight to the present situation in which the capitalist world finds itself, in societies where there is growing evidence that the economic returns from education have proved less than expected by economists and policy makers.

2. The Structural Origins of Impoverishment: Social and Personal

Today’s imperialisms appear different than those of yesteryear. They are taking advantage of free markets for goods and unbridled expansion of capital, as well as virtually unlimited access to land, water, and natural resources; the process is leading to increasing government indebtedness and rising prices for basic commodities (foodstuffs) while wreaking havoc on the environment, occasioning disproportionate burdens on those least able to adapt to the increasing impacts of climate change.

In Mexico, as in most other Latin American countries, the growing inequality is the result of the deliberate transformation of the economic model, with wage repression and the renewed emphasis of reverting to the productive structure of past epochs. The region is (re)emphasizing primary sector production, welcoming the global push to increase mining and in some countries permitting what has become known as “land and water grabbing” (Borras et al. 2012). These activities are particularly profitable but do not generate a demand for employment that manufacturing and off-shore assembly produced. The one exception is fruit and vegetable production, which is notorious for deplorable working conditions and prevailing low wages as well as its excessive demands for water and its toxic releases that poison the environment, workers, and neighboring communities.

Accompanying this reshaping of the productive sectors of the economy, the financial services sector is contributing to distorting resource allocation throughout society. A palpable concentration of economic and political power is contributing to the dramatic increase in luxury residential construction along with accompanying commercial developments with their concomitant demands for infrastructure investments that are diverting public investment from a much needed focus on basic public services for the poor. An important part of this growth in financial services is the result of the unfettered access to domestic banking and capital markets by foreign capital, with the inevitable risk of volatile short-term movements that have moved the central bank to increase its foreign currency reserves and contract with the IMF for an “emergency” line of credit to attempt to avoid the chaos created by the 1994-1995 financial crisis that continues to impose a monumental burden on the country’s working classes (Dussel 2000; Griffith-Jones 1997).

Another notable consequence of the changes in the productive and social structure of the economy is the seemingly deliberate impoverishment of the peasant and indigenous sectors. As part of the neoliberal restructuring, following the coup d’etat, the constitutional agrarian reform provision was amended to permit, or even encourage, the privatization of the plots distributed during the previous 70 years, plots that had been distributed as usufruct rights to members of communities charged with communal administration, although not generally as collective units. Together with the opening of trade in agricultural products, the result has been a massive influx of foodstuffs, now accounting for about 40 percent of the domestic food bill. ³ Another effect has been the abandonment of rural employment by millions of peasants who initially sought opportunities in the United States, an escape valve that was soon closed as immigration enforcement mechanisms were imposed and tightened. Domestic policy changes also squeezed indigenous communities whose marginalization was accelerated with the rapid spread of foreign capital into their territories, armed with contracts for wind power installations and mining exploration, contributing to growing regional inequalities as these activities wreaked havoc on the quality of life while transferring profits and commercial activity to wealthy urban centers. Ironically, even tourist centers were part of this dynamic, generating profit for international interests while creating seasonal low-wage employment for people, many of whom migrated from nearby rural areas.

Countervailing tendencies are emerging as there has been considerable pushback from the many groups who have been impacted by these processes. There is no space to go into these complex and widespread movements; I will simply mention a few of the most significant. Internationally, the best known is the Zapatista “uprising,” timed to coincide with the formal entrance in operation of the NAFTA in January 1994; they had been organizing for more than ten years prior to their eruption on the national scene and it is a tribute to their steadfastness and their adaptability that the half-million members of the communities still offer a vibrant alternative model for challenging the neoliberal reorganization of Mexican society. Likewise, dozens of other indigenous communities in other parts of Mexico are also experimenting with their own models of autonomous development based on their own cosmologies and their possibilities for socio-economic and environmental advance ⁴ ; in addition to the inspiration that they are drawing from their brethren in Chiapas, many are also involved in networks in which lessons are shared with participants from Bolivia and Ecuador, where the heritage of “buen vivir” (good living) is being disseminated and has been incorporated into the constitutions of both countries. ⁵

This pushback also includes increasingly well-organized movements against the corporate expansion of mining and forestry and infrastructure megaprojects for hydroelectricity, toll roads, airports, and interbasin water transfers. Many of the groups involved in these protests are threatened by the loss of their territories for their basic productive activities (agriculture, grazing, forestry) and in some cases of their homes. These often involve violent confrontations in which some people have been killed and others jailed. This process has led to the formation of self-defense groups which are challenging local police and national military forces often charged with repressing these movements in support of international capital.

The violence spilled over to conflicts with political and criminal groups who are taking advantage of the lack of a viable system of law and order for their own purposes. In the face of the lack of gainful employment opportunities, drug trafficking and other criminal activities are an attractive alternative for young people. This is not the place to go into detail about this matter, but suffice it to say that it is yet another way in which the high concentration of wealth in Mexico is serving to reinforce the ability of the rich and powerful to further polarize society by creating a reign of terror and a downward spiral of impoverishment. ⁶

3. Conclusions

The variety of factors mentioned in the previous section offer a hint of the breadth of the structural features that created, perpetuate, and exacerbate the inherited pattern of inequality in Mexico. This very brief introduction suggests that Piketty’s analysis, based on a market-driven process of profit generation and reinvestment, is inadequate to explain the dynamics of economic change in society. Although Mexico’s inherited pattern of inequality and social stratification clearly has its origins in its colonial history, this is insufficient to explain the present situation. The tailoring of the evolution of its productive structure to the interests of its ruling elite in the post-revolutionary period was very important for privileging a nascent domestic elite, many of whose roots can be traced back to the entrepreneurs who guided early industrialization in the XIX century independence period. Today’s inequality, however, can be traced to the more recent assumption of power by an elite who overturned the revolutionary order, committed to deepening the penetration of neoliberal policies based on a peculiar model of the “free-market.” They transformed the institutional apparatus to impose regulatory strictures to protect themselves and facilitate their collaboration with international capital as it dominated the economy. Dissatisfied with the steady advances that market forces offered for enriching themselves, Mexico is falling victim to the terrible spillovers from violent struggles among competing elites for a larger share of the spoils.