As Mexico revels in its biggest political overhaul in more than 70 years, it’s looking like the Southern California economy also could become a big winner as a result of the landmark election.
If Mexican president-elect Vicente Fox follows through on his campaign promises to strengthen his nation’s support of the North American Free Trade Agreement and reduce corruption, it could go a long way toward accelerating economic activity between Southern California and Mexico, according to local business leaders and academics.
In essence, they said, the reforms promoted by Fox amount to a brand new rulebook that could ease the concerns of wary investors and businesses north of the border when doing deals in Mexico.
“(Fox) is clearly a supporter of NAFTA,” said Fernando Guerra, director of the Center for the Study for Los Angeles at Loyola Marymount University. “He’s made no bones about wanting to further integrate the Mexican economy into the U.S. and Canadian economies.”
That could translate into benefits for Orange County and the rest of the Southland, including:
n More daily commutes across the border.
n More investment on both sides of the border.
n Increased activity at the ports of Los Angeles and Long Beach.
n More public-private partnerships to facilitate contact between local companies and their Mexican counterparts.
Fox’s pro-business National Action Party, known by its Spanish acronym PAN, won the Mexican presidency and the most seats in that country’s legislature July 2, becoming the first opposition party in nearly three generations to unseat the Institutional Revolutionary Party, or PRI.
Fox has laid out primary goals of reducing corruption, reforming the judiciary, reducing the influence of the executive branch, and increasing financial accountability in the government,all of which could serve to increase the stability of the Mexican economy.
“These things speak to a much more open system, where investments can be pursued in a less-risky fashion,” Guerra said. “I think Fox, PAN and Mexicans are going to look to the U.S. for support and investment, specifically to California and Texas.”
But the resistance to such change is likely to be substantial.
“All of the individuals,who because of their political power, economic position and social relationships benefit from the existing system,are going to be resistant to many of the changes Fox is going to attempt to implement,” Guerra said. “He can get everybody in (Mexico’s) congress to agree, but if nothing happens, corruption will continue.”
In some ways, Fox will be trying to boost an ongoing improvement in economic relations between Mexico and this country. For example, cross-border commerce, from daily commutes to capital investment, has been steadily increasing in recent years.
“With the new president, it could expedite how quickly these things occur,” said Ross DeVol, director of Regional and Demographic Studies at the Milken Institute in Santa Monica.
The strong relationship between Texas and Mexico is reflected in the volume of trade. In 1998, the latest year for which data are available, Texas exported $36.3 billion worth of goods to Mexico, compared to $13.3 billion exported to that nation by California.
OC’s 1998 share of exports to Mexico was $1.4 billion, up 131% since 1993. Much of what local companies send to Mexico now is high-tech components used in plants along the border that crank out many of the televisions, consumer electronics and computer gear that are sold in the U.S. The plants, run mostly by Asian manufacturers, used to rely on components from Japan, South Korea, Taiwan and China.
But now they are turning more to OC, Silicon Valley and other spots north of the border. Starting next year, products shipped from Mexico’s border plants will have to be 50% or more made of components from Mexico, the U.S. or Canada to qualify for benefits under NAFTA. The shift already is benefiting OC exporters. In the first quarter of this year, statewide exports to Mexico were up 36% to $4.2 billion, with electronics and other high-tech goods accounting for half.
Not everyone in Southern California is ecstatic about the future of Mexico under Fox. A possible increase in the number of U.S. manufacturing jobs lost to lower-paid workers in Mexico has local AFL-CIO officials withholding judgment until Fox’s intentions are more clearly spelled out.
“Right now, we’re going to withhold comment on the election until we see concrete policies coming out of the new administration,” said Neal Sacharow, communications director for the Los Angeles County Federation of Labor.
Owners of small firms in the Southland, however, are excited about the opportunities, said Ruth Lopez Williams, chairwoman of the Latino Business Association. “The opportunities are endless,” she said.
Williams points out that Latino-owned businesses in Los Angeles and Orange County already share a language, culture and close family ties with Mexico.
“There is one thing that is very powerful about our community, and that is we have larger families, and our families are on both sides of the border,” Williams said. “The doors will go back and forth probably a lot more.”
Williams believes pro-business PAN policies will create a political climate that supports private-public partnerships that are likely to increase commerce. To that end, the LBA sponsored a local business-to-business event in March attended by Gov. Alberto Cardenas Jimenez of the Mexican state of Jalisco. The conference helped match up a total of 20 firms in Jalisco and California that could be interested in doing business with each other.
Still, it’s unclear just how decisions made at the federal level in Mexico will affect the way local Mexican officials do business.
“You would hope with the PRI losing the presidency and the legislature as well, there’s going to be a high turnover at the local level, and fewer state and government officials whose offices are almost institutionalized,” DeVol said. “They’ve been part of the crony system.”
Williams agreed. “There’s a vast potential, if Fox can follow through,” she said. “The jury is still out on that. But it creates a fabulous hope for some people that there is a possibility for change.” n
Peinemann is a staff writer at the Los Angeles Business Journal.
