This year, NAFTA - the North American Free Trade Agreement among and between Canada, the United States and Mexico - is 20 years old.
As a result, we will be showered by statistics showing its glowing success, while others will be only too happy to point out its perceived deficiencies. Independent of all of that, there a few salient points very much worth remembering. First and foremost the context in which any discussion about the NAFTA should be framed:
THE GLOBAL KNOWLEDGE ECONOMY
The Economic Crisis Backdrop
Financial and economic crises tend to make people feel vulnerable and anxious. Thus, it is understandable that they would want to withdraw into their comfort zones where they perceive they would be safe.
Worldwide, the gravity of the financial crisis of 2008 with its draconian economic repercussions - most especially its dearth of jobs - has been no exception. Protectionist and populist sentiments have tended to surface, and people have tended to look inward seeking domestic solutions. Were it were otherwise, but unfortunately, looking for safety in all the wrong ports is nothing more than a chimera.
Globalization Is Here to Stay & Is Advancing at Warp Speed
Wouldn't it be great if we could all just hark back to the era when competition was basically a local, intramural sport? Yes. Problem is, we can't. We can't just hop on a time machine and run the clock back. At this stage of the game, the world's economy is not only pretty thoroughly "globalized," but the pace of the world's interconnection and interdependence is moving at warp speed thanks to technology. And - for better or for worse - the continual advances in technology will only accentuate the trend.
One also needs to add to the mix the fact that the fuel of today's global economy is knowledge. Some have even posited that we have moved on from the knowledge economy to the intelligence economy.
What does all this mean? It means:
1. Competition has long stopped being local and the onslaught of the digital age has made even the most local of local jobs subject to international competition; and
2. The lack of the requisite knowledge the 21st century requires, is going to make it very difficult, if not impossible to move up the social-economical ladder.
And, yet, of late, most discussions about the world's economies, economic growth and jobs, completely and blithely ignore the fact that countries have become ever more interdependent, and that what happens in one country affects what happens in others. Thus, if one country offers a knowledgeable labor force who can and will do any job for less money, like it or not, it sets a bar for the competition from other countries. Everyone ignores that fact at their own peril.
In open markets, consumers vote with their dollars. Competitive products which provide value added for the buck will pretty much always win, no matter who produced them or where. This axiom is especially true in down economic times when people feel the need to guard their spending and prefer to spend wisely. The key, then is to produce value-added products at a price people will pay - which, depending on the value that is added, need not necessarily be the lowest price.
Protectionism is rarely the answer, as it strikes at the heart of free competition, which in turn kills innovation, and generally leads to higher priced goods of lesser quality (if you've ever lived in a closed economy, you'll know exactly what I am talking about) - which most especially hurt those with lower incomes.
U.S. Was Hemorrhaging Jobs to Asia
At the time NAFTA was being negotiated, jobs were migrating to China and other Asian countries. In an effort to remain competitive in the global economy and to conquer new markets, many companies started setting up shop in diverse countries and moving production to lower-cost emerging markets, China and India being the main beneficiaries. Those jobs were irretrievably lost.
Had NAFTA not come about, jobs would have continued hemorrhaging to Asia. At least, with its rules of origin, production plants had to be established in the North American zone to obtain the benefits NAFTA conferred upon products produced within it. A win-win production-sharing came about, which tended to salvage at least high-end jobs heavily dependent on intellectual content.
(If the "energy revolution" in the U.S. does come about, there is a better than good chance that manufacturing jobs could come back to U.S. When you combine that with Mexico's historic reform of its energy sector, North America could become a competitive colossus.)
NAFTA was also a boon for small and medium sized companies which no longer had to establish a physical presence in Mexico to do business with and in that country. Pre-NAFTA, only the big companies could jump over the tariff walls.
Moreover, people often forget - or have not realized - that Mexico has consistently been the 2nd purchaser worldwide of U.S. goods, which translates into more American jobs being retained in the U.S. In 2010, Mexico purchased US$149 billion of U.S. goods, exceeding China's US$82 billion.
IN AN ERA THAT DEMANDS CREATIVITY & INNOVATION, NAFTA WAS THE ULTIMATE INNOVATION IN PUBLIC POLICY
The consensus today appears to be that creativity and innovation are the kingpins at the cross roads of competitivity. We are told to think boldly; to blaze trails where others have not ventured.
Well, in its time, NAFTA was a breath-taking innovation in public policy, international affairs and geoeconomic thinking and positioning. Never before had two developed countries signed a free trade agreement with an emerging economy and perfect demographic complement. Never before had there existed a free trade agreement of the scope and breadth of the NAFTA - it even superseded the GATT (the General Agreement on Tariffs and Trade - the predecessor of the World Trade Organization.)
Sure it was disruptive. It was meant to be so. In Mexico, it wrested the economy from 15 families to open it up to all comers. Small and medium enterprises hitherto shut out of the market, were especially benefitted. Further, it helped tame a galloping inflation within Mexico, that at its peak had reached 150% - and nothing robs the poor more than an unchecked inflation.
Thanks to the NAFTA, Mexico also got religion on protecting the environment better, and, in general became much more transparent. Major legal reforms were undertaken which insured greater competition and opened the door to a whole new mental paradigm which has borne fruit in terms of innovation and entrepreneurship.
NAFTA was never meant to be the answer to all problems. It was envisioned as the fulcrum of a spoke of continued and major reforms. Unfortunately the tequila crisis of 1995, when the Mexican economycontracted 10%, brought everything to an abrupt halt while the country worked its way out of the crisis. Political changes also ensued which made continuing with the reforms practically impossible. None of which was NAFTA's fault. Au contaire, an argument could be made that Mexico was able to come out of its crisis sooner rather than later thanks to the NAFTA.
AT A GLOBAL LEVEL, THE COMPETITION IS BETWEEN AND AMONG REGIONAL ECONOMIC ZONES
The economic endgame of today is competitivity. Individuals, companies, countries, and regions will fall or rise depending on their competitiveness - and
if competing against China was bad enough, competing against the ASEAN+3 countries - the Association of Southeast Asian Nations: Indonesia, Thailand, Malaysia, Singapore, Philippines, Vietnam, Myanmar, Brunei Darussalam, Cambodia, Lao PDR + China, Japan and South Korea - as a group, is worse. Then there is the European Union, Mercosur, the Andean Community, APEC, etc.
NAFTA endows the North American region with a special competitivity through natural synergies, making the whole greater than the parts. Even without NAFTA, there already had been a historical cultural/economic convergence among the 3 countries, which has been difficult, if not impossible, to stop - most especially given the demographic trends of the 3 countries. NAFTA just provided an institutional framework.
Competing on a worldwide basis is not going to lessen or disappear - it's only going to get more intense. Acquiring the necessary skills has to be priority No. 1; priority No. 2 has to be to use all the tools at one's disposal to become more competitive at all levels: individual, enterprise-wise, institutionally, government-wise, country-wise. In that regard, NAFTA not only has not been a problem, it has been part of the solution. NAFTA 2.0 should be as bold in its vision as was NAFTA 1.0.
✨
The End
✨
© 2014 Alina A.C.E. Aldape / Dra. Alicia Catalina Gonzalez Aldape. Todos los Derechos Reservados. All Rights Reserved.
No comments:
Post a Comment