The Gloom Behind The Boom

Fernando Wachnovetzky, a Mexican who makes teddy bears, doesn't share President Carlos Salinas de Gortari's enthusiasm for free trade with the United States and Canada. Ever since Mexico opened its protected economy to outsiders in the late 1980s, many smaller businesses like Wachnovetzky's have struggled with the new competition. Shortly after higher-quality U.S. imports started to pour in, a third of the companies in Mexico's toy industry went belly up. As for Wachnovetzky's firm, it has lost half its domestic-market share. Why? Mexican suppliers, unlike those north of the border, cant provide him with the fabric and parts he needs to make a soft teddy bear that closes its eyes--now a must among Mexican children. "Mexicans now think any import is better than what we make," he says.

Fear of lost jobs among U.S. autoworkers has made the North American Free Trade Agreement a political hot potato in some presidential primaries. But south of the border, Mexican businessmen are worried about losing their shirts. They say they still face too many Third World handicaps--such as poor infrastructure, technology and education--to be competitive with the First World. The commerce group that represents Mexican business in the NAFTA talks is suddenly urging the negotiators to recognize the "disparity" between Mexico and the rest of North America. Salinas says NAFTA will allow his private sector ample transition time and the foreign investment the pact should attract will offset any short-term pain. But as Maria Teresa Kasuga of the National Manufacturers Chamber says, " Things are moving too fast. We need more time to restructure."

Such gloom hardly squares with Mexico's boom, which was triggered, after all, by Salinas's reforms. The economy grew nearly 4 percent in 1991 and the stock market soared more than 100 percent. The signs of new prosperity are increasingly apparent. Monterrey, a modern industrial showcase, sports the world's highest concentration of satellite TV dishes. The new on-the-hour air shuttles between Monterrey and Mexico City on Mexico's two newly privatized airlines are packed. On the ground, auto dealers report long waiting lists for the imported Lincoln Town Car. And that toy of prestige, the cellular telephone, is now being used by tens of thousands of Mexicans. Even 25-year-old Eduardo, a management consultant. "You don't believe I have a girlfriend in the United States?" says Eduardo, sitting in a Mexico City bar. He pulls a phone out of his Armani raincoat: "Here, call her yourself." Then there are the hostesses, who adorn status-hungry business gatherings. Business at the largest agency for these Mexican free-trade femmes is up 30 percent since last fall.

But entrepreneurs caution that beneath the new go-go gloss, Mexican society hasn't reformed itself enough to thrive under NAFTA. Despite Salinas's sweeping privatization program, the infamous state bureaucracy has maintained its bloat. As a result, companies complain that they continue to jump through too many hoops to make capital improvements. It can still take more than a year to get a phone line installed by the newly privatized phone company. Says a Monterrey business leader: "Before external free trade, we need internal free trade." Which explains why many Mexican enterprises, such as the largest brewery, Monterrey-based Visa, are looking for joint ventures with U.S. companies rather than head-on competition. But that isn't always so easy, either. Recently a Missouri pipe maker came to Guadalajara to set up a joint venture with a Mexican firm. "All the people with the permits tell me I can't make a move unless I see the local party boss," he said. "But he can't see me until next month."

Salinas's rebuttal: free trade is the push Mexico needs to solve those problems. "We won't fix our own house unless pressured to do so by free trade," says economic analyst Sergio Sarmiento. Mexican businessmen, he says, are worried about losing the obscene profit margins-often more than 50 percent--enjoyed under protectionism. Instead, they should be focusing on serving their customers--and realizing they still have a lot to learn. Courteous service, for example, is still anathema to many stores. One impressive example of reform is the privatized airline Aeromexico, whose service used to be among the world's worst but is now among Latin America's best. Its on-time record even annoys some Mexican business travelers, who are used to flights leaving comfortably late. But that seems fine with Salinas, who wants to make sure Mexico doesn't miss its flight to the 21st century.

In only three years, the flow of products from the United States to Mexico has increased 62 percent.

U.S. Exports to Mexico 

1988         $20.6 Bil.

1989         $24.9 Bil.

1990         $28.3 Bil.

1991         $33.3 Bil.